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    A Research On The Energy Challenge: Problems and Prospects & Role of Green Energy A Research On The Energy Challenge: Problems and Prospects & Role of Green Energy Document Transcript

    • The Energy Challenge:Problems and Prospects & Role of Green Energy A Research OnThe Energy Challenge: Problems and Prospects & Role of Green Energy ForThe 3rd Annual Rotary Club of Bombay & Mega Ace Consultancy Rolling Trophy Competition - 2010 From: Mumbai University, Matunga Central, Mumbai Compiled by 1) Dr.Vaidehi Aphale vaidehi.a1@gmail.com Mobile No: 9960026571 2) Dipti Raka diptiraka@gmail.com Mobile No: 9820559740 3) Bhavesh Kothari bhavesh.aryan@gmail.com Mobile No: 9820009060Welingkar Institute of Mgmt Page 1
    • The Energy Challenge:Problems and Prospects & Role of Green EnergyTable of ContentsIntroduction ............................................................................ 3India’s: Energy Challenge........................................................ 5Prospect: Green energy........................................................... 10Advantages and challenges..................................................... 11Proposed CDM Model ............................................................. 16References................................................................................ 23Welingkar Institute of Mgmt Page 2
    • The Energy Challenge:Problems and Prospects & Role of Green EnergyIntroductionThe objective of the research is to understand the challenges faced by growing economy,India and also explore the prospects of ―Green‖ sources available in India to meets its energydemand.The energy sector plays an important role of economic development in every country. India’sfuture too, lies in the availability of energy from sources that are economic, easily availableand environmentally acceptable.India ranks 6th in the world in total energy consumption but India’s energy consumption perhead is extremely low compared with those in developed countries and even with that inmany other emerging markets. Electricity consumption in India in 2009 was estimated at 531kWh per head, compared with 2,711 kWh per head in China, 1,987 kWh per head in Thailandand 784 kWh per head in Vietnam. Electricity consumption in 2009 in Pakistan wasestimated at 441 kWh per head.India will be one of the world’s fastest-growing consumers of energy in 2010-14, trailingonly China among the larger emerging-market economies. The growing competitiveness ofthe industrial sector will raise economic output and hence energy consumption, as will thesurge in car sales and rising penetration rates for computers, televisions and other electricaland electronic goods. India is already the third-largest consumer of electricity in Asia afterChina and Japan.The current generation mix in India is dominated by coal (78.5 GW), large hydropower (36.9GW) and gas (16.4 GW). Renewable sources rank fourth with an installed capacity of around13.2 GW. Total energy requirement in India comes from 60 % 40 % Commercial fuels Non Commercial fuelsWelingkar Institute of Mgmt Page 3
    • The Energy Challenge:Problems and Prospects & Role of Green EnergyThe pattern of Electricity Generation in India is:Coal 51%Hydro 25%Gas 11%Renewable Energy Sources 9%Nuclear 3%Diesel 1% Coal Hydro Gas Renewable Energy Sources Nuclear DieselThe energy mix of India comprises following: • Primary sources • Coal, crude oil, natural gas, fuel wood • Secondary sources • Coal gas, coke, petroleum products, charcoal, electricity (thermal, hydro, nuclear ) • Renewable sources • Mini-hydro, wind energy, solar energy, biogas • Non-renewable resources • Fossil fuels • Commercial resources • Coal, oil, petroleum products, natural gas and electricityWelingkar Institute of Mgmt Page 4
    • The Energy Challenge:Problems and Prospects & Role of Green Energy • Non-commercial sources • Fuel wood, dung cake, vegetable wasteIndia’s: Energy ChallengeWhat is India’s projected energy needs?BMI(Business Monitor International), is now forecasting Indian real GDP growth averaging8.02% per annum between 2010 and 2014, with the 2010 assumption being 7.80%. Thepopulation is expected to expand from 1.19bn to 1.30bn over the period, with GDP per capitaand electricity consumption per capita forecast to increase by 82% and 26% respectively.India ranks 6th in the world in total energy consumption though we have very lowconsumptions per head. India is rich in coal and has abundant renewable energy resources inform of solar, wind, hydro and bio-energy, but like other developing countries, it is a netimporter of energy, where in 1/4th energy needs are met through import of crude oil andnatural gas.The government is aggressively seeking new sources of energy to fuel a fast-growingeconomy, and is exploring opportunities in the Middle East, Russia, South-east Asia andWest Africa. Although much of India’s economic growth comes from services, the country’slarge industrial sector has contributed to a high level of oil intensity (defined as oilconsumption per US dollar of GDP).According to the Indian government, massive energy investment is required to achievetargeted economic expansion. To deliver sustained GDP growth of 8% until 2031-2032,primary energy supply needs to grow to up to four times current consumption, installedelectricity generating capacity needs to increase six or seven-fold, and the current coalrequirement needs to triple.Welingkar Institute of Mgmt Page 5
    • The Energy Challenge:Problems and Prospects & Role of Green EnergyFurthermore, India’s energy sector is plagued by sporadic nationalization efforts. During the1990s, India began liberalizing its economy, allowing for privatization of some sectorshistorically under state control. But, of India’s various industries, the energy sector remainsmost firmly in the hands of the stateDoes India have a coherent energy policy?Experts say lack of coordination among competing government ministries has slowed theeffort to institute effective energy policies. ―India has yet to develop a coherent policy,‖ saysindustry expert., who adds that the four main energy ministries act like ―different countries atwork.‖ India did have a central energy ministry until 1992, which was then broken down intothe ministries of Coal, Petroleum and Natural Gas, Nonconventional Energy Sources, and ofPower. Several other government agencies, including the Planning Commission andDepartment of Atomic Energy, play a role in energy policy. Hence there are common policygoals, but the lack of integration causes problems with implementation.What is the role of the state in India’s energy sector?India’s tradition of state-dominated, centralized planning slows progress in the energy sector.Privatization efforts have been ―entirely piecemeal‖ and ―investors are jittery,‖ Private firmsWelingkar Institute of Mgmt Page 6
    • The Energy Challenge:Problems and Prospects & Role of Green Energywaver over investments when they see preferential treatment for state-owned companies. Forexample, the production of coal, India’s most highly-consumed energy source, remainslargely in state control, with 90 percent of production accounted for by the mines of state-runCoal India.The national government also subsidizes energy prices, at times limiting profitability for bothprivate and state investors. Experts say the government would probably prefer to set energyprices at market rates, but doing so results in risking a vote loss in elections.What are challenges facing India’s energy sectors? Coal Depletion Limited Natural Gas Liberalisatio Demands n Rising Political Oil Imports Pressures Co2 Challenges Inefficient Electric Emissions Systems Continuously Energy Related Rising Water Shortages Demand Limited Nuclear Pollution EnergyWelingkar Institute of Mgmt Page 7
    • The Energy Challenge: Problems and Prospects & Role of Green Energy Coal depletion and pollution.- Coal accounts for more than half of the country’s energy consumption. The poor quality of Indian coal, coupled with a lack of infrastructure to clean it, poses a major environmental threat. Corruption and poor productivity dog the industry. Although it is the world’s third biggest coal producer after the United States and China, India’s coal reserves could run out in forty years, according to the Brookings report.Rising oil imports. Oil consumption, which accounts for roughly a third of India’s energy use,has increased six fold in the past twenty-five years. India now imports about 65 percent of itspetroleum. With energy demands rising, the figure could be as high as 90 percent by 2025,according to a report by the Center for Strategic and International Studies. The oil demand haspushed India to make deals with countries—such as Sudan, Syria, and Iran—that raise supplyconcerns.Natural gas demands. Natural gas consumption has risen faster than any other type of energysource, but India’s limited domestic gas reserves spell a need for foreign dependency in thissector as well. The government has slowly been switching from highly polluting coal-firedpower plants to plants using natural gas. Indias natural gas needs have resulted in negotiationswith nations of concern in terms of reliability, including Iran, Bangladesh, and Burma. Welingkar Institute of Mgmt Page 8
    • The Energy Challenge: Problems and Prospects & Role of Green EnergyInefficient electric systems. Although 80 percent of the country has access to electricity,unreliable power grids cause regular blackouts. Furthermore, inefficient electric systems resultin at least a 30 percent loss of power along the delivery chain (Forbes.com). State electricityboards run the infrastructure behind the country’s power distribution and own a large portionof electrical output. The boards are in poor financial shape, largely because they providepower at highly subsidized rates, particularly to farmers. So also there is high level of powertheft, and cross subsidies that hit large and medium-scale industry. Although the governmenthas loosened limitations on foreign investment in the power sector, the notion of working withthe financially beleaguered electricity boards has scared off private investment.Energy-related water shortages. Indian farmers have access to heavily subsidized power topump water for irrigation. The low costs lead them to wasteful water use, depleting the watertables. As water tables lower, larger pumps require more power to access deeper watersupplies.Limited nuclear energy. With fourteen nuclear power plants run by state-owned companies,nuclear energy accounts for just 3 percent of India’s energy consumption. New Delhi hopes toboost this sector through a deal allowing U.S. companies to sell equipment, nuclear fuel, andreactors to India. However, even with a U.S.-India agreement, large scale expansion of thenuclear energy sector will likely take decades because of slow implementation and therelatively higher expense when compared to other forms of energy.Co2 Emissions: CO2 emissions from energy are responsible for more than half of man-madeGHG emissions – are set to rise, even as concerns about climate change grow. Political Pressures: The energy sector is also held back by security concerns about (and political tensions with) Pakistan, which have impeded plans for regional gas and oil pipelines through Central Asia. In addition, Bangladesh, which has proven gas reserves of 5trn cu ft, according to the US Energy Information Administration (EIA), has been reluctant to approve gas exports to India, for domestic political reasons. Welingkar Institute of Mgmt Page 9
    • The Energy Challenge:Problems and Prospects & Role of Green EnergyProspect: Green energyThe deficit challenge in the existing sources and the requirement in near future has compelledthe Indian Government to keenly look into renewable energy resources to fuel our fastgrowing economy. The government’s goal is to get 25% energy from renewable resources by2030.This in itself is a challenge which has to be taken up by India, wherein countries likeChina, Japan and South Korea will be competing for our resources. The role of Green Energyin power generation thus has a major role.But what is all this "green" stuff? Green energy is energy that is produced in a manner thathas less of a negative impact to the environment than energy sources like fossil fuels, whichare often produced with harmful side effects. ―Greener” types of energy that often come tomind are solar, wind, geothermal and hydro energy. There are several more, evenincluding nuclear energy, that is sometimes considered a green energy source because of itslower waste output relative to energy sources such as coal or oil.Indias theoretical solar potential is said to be about 5,000TWh per year, or some 600GW ofpotential installed capacity. This far exceeds forecast demand, but solar generating costs arecurrently too high for rapid expansion. However, solar is likely to form a key part of longer-term energy policy. There is also wind power potential and some scope for biomass.Currently wind capacity in India is 10.5GW. It is presently one of the largest sources ofrenewable electricity in the country, accounting for 79% of installed capacity from renewablesources. Currently, India is ranked fourth in the world in terms of installed capacity,according to the Global Wind Energy Council, having 8% of the world total. However, thecountry has the potential for 45GW of installed capacity.Rajasthan, a state in North West India, may attract an investment of INR800mn (US$18.6mn)into its renewable energy sector, with 14 firms planning wind and biomass power generationprojects. It is expected that there would be five wind energy projects – with an electricitygeneration capacity of 1.6GW – and eight biomass schemes.Welingkar Institute of Mgmt Page 10
    • The Energy Challenge:Problems and Prospects & Role of Green EnergyRenewable Energy Development Potential in India. Advantages and ChallengesIndia with its diverse geographies and climatic conditions offers whole bunch ofopportunities for Green energy. The table below clearly gives us the vw.Source : International Trade AdministrationApart from the basic advantages of green energy like clean, abundance and renewable , thereare other imperatives for Green energy. They are:  Sustenance of energy demand can’t be achieved through fossil fuel  Limited reserves are fast depleting (v/s abundant supplies of sun shine, water and garbage)Welingkar Institute of Mgmt Page 11
    • The Energy Challenge:Problems and Prospects & Role of Green Energy  Global warming and Clean Development (CDM) drive forcing countries to reduce polluting industries  Carbon Credits encouraging companies to go in for captive renewable energy investmentsThe challenges facing green energy are:  Optimal pricing of power generated from the renewable energy sources  Quality and consistency issue of renewable power arising from the intermittent nature of electricity from wind and small hydropower,  The costs of technology development and production need to be reduced significantly from current levels  Availability of financing especially project finance for Renewable  Creditworthiness of counterparties has posed challenges  Slow pace of rural electrification and pace of reforms in the rural electricity sectorCan CDM show us the way to a Green India?The Clean Development Mechanism (CDM) –CER - Certified Emission Reduction:These emissions reduction are generated by projects registered with UNFCCC.VER - Voluntary Emission Reduction:The emission reductions which could not be a part of CDM project activities due to technicalor some other constraints.1 CER or 1 VER refers to reduction in 1 tonne of CO2, that would have been emitted innormal scenario i.e. baseline for the project activity.Welingkar Institute of Mgmt Page 12
    • The Energy Challenge:Problems and Prospects & Role of Green EnergyFactor affecting CERs- Nature of project (renewable, energy efficiency , others) Maturity of the credits Stage of the project International availability and demand of creditsDeveloped countries can implement CDM projects that reduce emissions or remove carbonfrom the atmosphere in other developing countries in lieu of CERs (Certified EmissionReductions). These CERs can be used to meet the emission targets.Renewable energy projects have the potential to create a substantial revenue stream throughClean Development Mechanism (CDM) credits issued under the Kyoto Protocol. India hasregistered roughly 35 percent of all global CDM projects, a market that is very likely to grow.If a post-2012 agreement on climate change can be reached, carbon credits will become aneven more financially rewarding venture.India qualifies to be a host country for the CDM projects and is considered as one of the mostpotential countries in the world for the same. This is due to its large power sector thatdepends on fossil fuels, and to the proactive policies of the Indian government towards CDM.The power sector alone is estimated to emit 433 million tonnes of CO2 per annum. The totalCO2 reduction potential through CDM projects in India is estimated to be around 300 milliontonnes. The largest potential is in the renewable energy sector with 90 million tonnes CO2equivalents. The total expected average annual CER’s from registered projects by India areabout 22 million having a 15% world share.India has 474 projects registered with the United Nations, second only to China’s 680.However, in terms of CERs, India’s share is just 11.63%, while China’s is 58.75%. TheNational CDM Authority (NCDMA) in India has accorded Host Country Approval to 1,455projects. These projects have seen an investment of more than $33.7 billion(Rs 1.6 lakhcrore). If all these projects get registered at the CDM executive board, it will earn developersover 600 million CERs by 2012.Welingkar Institute of Mgmt Page 13
    • The Energy Challenge:Problems and Prospects & Role of Green Energy  Current annual market - $ 24 million  Estimated annual market by 2012 - $ 6 billion (Rs. 28,000 crores)  Second largest claimant of carbon credits  Projects registered by 2009 – 474  Total issued CERs ≈ 34 million, 140 million in pipeline  Value > 2250 mn Euros (225mn CERs)  Entire claim currently from private sector  Potential buyers ( Target Customers) – Corporate from Annex I countries, European nations, Japan, Canada, New ZealandWhy Is India Lacking Behind China In CER Market?India has cornered nearly 43% of the carbon credits (CERS) issued so far by the CDMexecutive board, the highest international body under the Kyoto Protocol to register projectsand issue credits. In comparison, only 17% of the CERs has been issued to China. But theexpected average annual CERs from registered projects till 2012 has China (44%) far aheadof India (15%), although India, with 259 projects, leads China (101) in the number ofregistered projects.Reasons:1. Size of Industries:The Chinese projects are few but huge, whereas in India there are many and scattered projects2. Type of projects undertaken:Chinese have several projects in high CER-yielding HFC23 projects, whereas Indiancompanies have mainly concentrated on renewable energy (biomass, wind power, etc.) orwaste heat recovery projects that generate much less CERs.Welingkar Institute of Mgmt Page 14
    • The Energy Challenge:Problems and Prospects & Role of Green EnergyA Note On HFC-23-Certain chemical & refrigeration plants around the world emit just about the worstgreenhouse gas imaginable. The refrigerant HFC-23 is 11,700 times worse than carbondioxide. But a client can pay a chemical plant in India to stop emitting HFC-23. The plantputs the gas through an incinerator to avoid emitting it into the atmosphere. Incineration is acheap process, and for every ton a plant burns it earns 11,700 tons of carbon credits, whichwe sell to our client. Considering a rate of $25 per ton for carbon credits, incinerating a ton ofHFC-23 was worth close to $300,000, while incineration cost only about $5,000. This can bea huge business gain.Joint Implementation Projects between industrialized nations to earn emission offsets Emission reduction units (ERUs) created through joint implementation is treated in the same way as those from emissions traditionsWelingkar Institute of Mgmt Page 15
    • The Energy Challenge:Problems and Prospects & Role of Green EnergyA PROPOSED MODEL –The CDM projects can be effectively used by India produce green energy and act as ascalable business model too.Following is the pictorial diagram to show the working of the proposed model for acompany- DEVELOPED COUNTIRES MONEY SELL CARBON CREDITS OUR COMPANY SELL CARBON CREDITS ALTERNATE SOURCE OF ENERGY CO—PERATIVE ENERGY PRODUCERS, in villages of IndiaLet’s take a model company (Co. A) for explaining the model. The initial stage of thisbusiness model would be to set up co operative societies in villages all over India. Thesesocieties would be a cluster of social entrepreneurs who are ready to invest in the energybusiness. These cooperative societies will build up green power plants in their respectivevillages. The knowhow will be provided by Co. A. That is, co. A will provide windmills,solar panels, and help them setup biogas plants, etc. in their villages, at minimal costs. Theseplants will generate electricity, which the cooperative societies will use for self consumption,and will sell the excess electricity to the villagers. Thus, the villages can have 24 hourWelingkar Institute of Mgmt Page 16
    • The Energy Challenge:Problems and Prospects & Role of Green Energyelectricity, and it saves the government from investing huge amounts into power plants.Because these power plants are green, every unit of energy produced generates carbon credits(One million tonnes of carbon emission stopped generates one carbon credit). These carboncredits will be the property of Co. A, which will earn by selling these carbon credits to theinternational companies the international markets (especially Annex 1 countries). Also, someof the international companies which desperately need carbon credits can fund Co. A. This iscalled Joint Implementstion under the Kyoto protocol, and is described through a diagrambelow.Joint Implementation (JI)- Annex I Annex I Industrialized Industrialized Fund Country B Country A Technology Joint Reduction project Credit GHG ReductionWelingkar Institute of Mgmt Page 17
    • The Energy Challenge:Problems and Prospects & Role of Green EnergyEmissionTrading. Industrialized Industrialized Country A Country B Payment GHG Reduction; more than target amount CreditEach carbon credit sells for $ 15-19 in the international market. These carbon credits are alsotraded in various stock exchanges worldwide, including NASDAQ and Dow Jones (spotcontracts).The technical know and operational strategy would be provided by Co. A. As thesecooperatives will be setup across India, the windmills, solar panels, etc will be bought in bulkby the Co. A, which will give them cost benefits. Thus the project would relate to carbonsequestration, carbon reduction and alternate sources.It’s a win win model for cooperatives, Co. A, villages, as well as the government; as thecooperatives get to sell the electricityCustomersDeveloped and developing countries both are target markets.  Developed countries for carbon credits, Developing countries to generate alternate sources of energy like biofuel, wind and solar.  The carbon credits received in lieu of Green house reduction will be sold to Annex 1 countries. The annex 1 countries are developed countries wherein they require credits to be within the framework of laws. These countries GHG emissions are too much toWelingkar Institute of Mgmt Page 18
    • The Energy Challenge:Problems and Prospects & Role of Green Energy be levelled off by alternate energy resources. So they fund developing countries in lieu of credits.  Carbon credits create a market for reducing greenhouse emissions by giving a monetary value to the cost of polluting the air. Emissions become an internal cost of doing business and are visible on the balance sheet alongside raw materials and other liabilities or assets.Thus any country looking out for reducing carbon on their balance sheet will be ourcustomer. Organization Type Examples Governmental purchase Organization Japan Carbon Fund, UK DEFRA’s CCPO, Italy Spain, Netherlands, Canada, Austria, Portugal, Germany, France, Belgium, Sweden. Multinational Organizations World bank Brokers/Traders Ecosecurities, Natsource, CO2.com, Morgan & Stanley, Akzo Nobel, Barclays, HSBC, Pointcarbon, Robobank. End Users Kepco, Depco, Shell.Welingkar Institute of Mgmt Page 19
    • The Energy Challenge:Problems and Prospects & Role of Green EnergyPotential industries – Agriculture – Energy ( renewable & non-renewable sources) – Manufacturing – Fugitive emissions from fuels (solid, oil and gas) – Metal production – Mining and mineral production – Chemicals – Afforestation & reforestationRecent DevelopmentsAccording to the UN draft passed at the Copenhagen summit, Nations around the world mustreduce greenhouse-gas emissions at least 50 per cent by mid-century under a draft proposalbeing debated by 192 countries in Copenhagen.The plan says nations should collectively reduce the heat-trapping pollution that manyscientists say could lead to catastrophic climate change between 50 per cent and 95 per centfrom 1990 levels. The draft leaves long-term financing, or how much rich nations should paypoor ones to deal with global warming, to be dealt with later.Some other outcomes from Copenhagen Summit 2009:  During the Copenhagen Summit 2009, New Zealand got an overwhelming support to accept the proposal of reducing carbon emissions to an ambitious figure of 40% reduction.Welingkar Institute of Mgmt Page 20
    • The Energy Challenge:Problems and Prospects & Role of Green Energy  Even Australian Prime minister Kevin Rudd, has promised a 5 – 25 % of reductions in emissions. It instigated a lot of opposition leaders, but still fact remains that Australia needs to reduce its emissions. As of now, it has 3 ways to do it – 1. Geosequestration – But that needs a lot of Investment 2. Voluntary Carbon offsets given by Australian Government- But these are not Kyoto- compliant hence cannot be counted as carbon credits 3. Carbon Offsets by using CDM – Thus, Australia can be customer i.e. buyer of Carbon Credits.The Advantages of the Proposed Model:1. Benefits for India:• Gaining annual CER revenues for the country2. Locally achieving:• Reduction in poverty by creating jobs for urban poor.• Safe and better working conditions for the informal sector.• Better environmental quality(Less odour, leachate, and disease vectors)• Enhanced public awareness on Solid Waste Management and recycling.• Improvement in the quality of life of the city.Welingkar Institute of Mgmt Page 21
    • The Energy Challenge:Problems and Prospects & Role of Green Energy• Efficient resource utilization• Contribution to reduction of foreign expenditures (Macro-economic Indicators)• The increase in life of the dump sites.• Considerable amount of power to the city.• Reduction in cost on Solid Waste Management by municipalities.• Reduction of ground and surface water pollution and thus reducing health hazards.3. Globally achieving:• Foreign Direct Investment (FDI)• Reduction in emissions of GHG’s from dumping grounds which are responsible forGlobal Warming.• Project is complying with the Millennium Development Goals (MDG).Welingkar Institute of Mgmt Page 22
    • The Energy Challenge:Problems and Prospects & Role of Green EnergyReferences: 1. ―Carbon Trading- Some Insights and Perspectives‖ by Radha Purswani 2. ―The Political Economy of Carbon Trading‖ by Donald MacKenzie 3. E&Y and PWC reports. 4. www.cseindia.org 5. www.financial express 6. www.Bloomberg.com 7. www.Mckinsey.com 8. ―Imagining India- Nandan Nilekani‖ 9. ―The Blue Ocean Strategy‖ by W. Chan Kim & Renee Mauborgne 10. www.ibef.org 11. Various articles from The Times of India, Time, The Economist, The Asian ExpressWelingkar Institute of Mgmt Page 23