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


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  • 1. The Energy Challenge: Problems and Prospects & Role of Green Energy Welingkar Institute of Mgmt Page 1 A Research On The Energy Challenge: Problems and Prospects & Role of Green Energy For The 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 Mobile No: 9960026571 2) Dipti Raka Mobile No: 9820559740 3) Bhavesh Kothari Mobile No: 9820009060
  • 2. The Energy Challenge: Problems and Prospects & Role of Green Energy Welingkar Institute of Mgmt Page 2 Table of Contents Introduction ............................................................................ 3 India’s: Energy Challenge........................................................ 5 Prospect: Green energy........................................................... 10 Advantages and challenges..................................................... 11 Proposed CDM Model ............................................................. 16 References................................................................................ 23
  • 3. The Energy Challenge: Problems and Prospects & Role of Green Energy Welingkar Institute of Mgmt Page 3 Introduction The 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 energy demand. The energy sector plays an important role of economic development in every country. India’s future too, lies in the availability of energy from sources that are economic, easily available and environmentally acceptable. India ranks 6th in the world in total energy consumption but India’s energy consumption per head is extremely low compared with those in developed countries and even with that in many other emerging markets. Electricity consumption in India in 2009 was estimated at 531 kWh per head, compared with 2,711 kWh per head in China, 1,987 kWh per head in Thailand and 784 kWh per head in Vietnam. Electricity consumption in 2009 in Pakistan was estimated at 441 kWh per head. India will be one of the world’s fastest-growing consumers of energy in 2010-14, trailing only China among the larger emerging-market economies. The growing competitiveness of the industrial sector will raise economic output and hence energy consumption, as will the surge in car sales and rising penetration rates for computers, televisions and other electrical and electronic goods. India is already the third-largest consumer of electricity in Asia after China and Japan. The current generation mix in India is dominated by coal (78.5 GW), large hydropower (36.9 GW) and gas (16.4 GW). Renewable sources rank fourth with an installed capacity of around 13.2 GW. Total energy requirement in India comes from 60 % Commercial fuels 40 % Non Commercial fuels
  • 4. The Energy Challenge: Problems and Prospects & Role of Green Energy Welingkar Institute of Mgmt Page 4 The 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 Diesel The 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 electricity
  • 5. The Energy Challenge: Problems and Prospects & Role of Green Energy Welingkar Institute of Mgmt Page 5 • Non-commercial sources • Fuel wood, dung cake, vegetable waste India’s: Energy Challenge What is India’s projected energy needs? BMI(Business Monitor International), is now forecasting Indian real GDP growth averaging 8.02% per annum between 2010 and 2014, with the 2010 assumption being 7.80%. The population is expected to expand from 1.19bn to 1.30bn over the period, with GDP per capita and 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 low consumptions per head. India is rich in coal and has abundant renewable energy resources in form of solar, wind, hydro and bio-energy, but like other developing countries, it is a net importer of energy, where in 1/4th energy needs are met through import of crude oil and natural gas. The government is aggressively seeking new sources of energy to fuel a fast-growing economy, and is exploring opportunities in the Middle East, Russia, South-east Asia and West Africa. Although much of India’s economic growth comes from services, the country’s large industrial sector has contributed to a high level of oil intensity (defined as oil consumption per US dollar of GDP). According to the Indian government, massive energy investment is required to achieve targeted 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, installed electricity generating capacity needs to increase six or seven-fold, and the current coal requirement needs to triple.
  • 6. The Energy Challenge: Problems and Prospects & Role of Green Energy Welingkar Institute of Mgmt Page 6 Furthermore, India’s energy sector is plagued by sporadic nationalization efforts. During the 1990s, India began liberalizing its economy, allowing for privatization of some sectors historically under state control. But, of India’s various industries, the energy sector remains most firmly in the hands of the state Does India have a coherent energy policy? Experts say lack of coordination among competing government ministries has slowed the effort to institute effective energy policies. ―India has yet to develop a coherent policy,‖ says industry expert., who adds that the four main energy ministries act like ―different countries at work.‖ India did have a central energy ministry until 1992, which was then broken down into the ministries of Coal, Petroleum and Natural Gas, Nonconventional Energy Sources, and of Power. Several other government agencies, including the Planning Commission and Department of Atomic Energy, play a role in energy policy. Hence there are common policy goals, 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 firms
  • 7. The Energy Challenge: Problems and Prospects & Role of Green Energy Welingkar Institute of Mgmt Page 7 waver over investments when they see preferential treatment for state-owned companies. For example, the production of coal, India’s most highly-consumed energy source, remains largely in state control, with 90 percent of production accounted for by the mines of state-run Coal India. The national government also subsidizes energy prices, at times limiting profitability for both private and state investors. Experts say the government would probably prefer to set energy prices at market rates, but doing so results in risking a vote loss in elections. What are challenges facing India’s energy sectors? Limited Liberalisatio n Rising Oil Imports Co2 Emissions Continuously Rising Demand Limited Nuclear Energy Pollution Energy Related Water Shortages Inefficient Electric Systems Political Pressures Natural Gas Demands Coal Depletion Challenges
  • 8. The Energy Challenge: Problems and Prospects & Role of Green Energy Welingkar Institute of Mgmt Page 8 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 its petroleum. 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 has pushed India to make deals with countries—such as Sudan, Syria, and Iran—that raise supply concerns. Natural gas demands. Natural gas consumption has risen faster than any other type of energy source, but India’s limited domestic gas reserves spell a need for foreign dependency in this sector as well. The government has slowly been switching from highly polluting coal-fired power plants to plants using natural gas. India's natural gas needs have resulted in negotiations with nations of concern in terms of reliability, including Iran, Bangladesh, and Burma.
  • 9. The Energy Challenge: Problems and Prospects & Role of Green Energy Welingkar Institute of Mgmt Page 9 Inefficient electric systems. Although 80 percent of the country has access to electricity, unreliable power grids cause regular blackouts. Furthermore, inefficient electric systems result in at least a 30 percent loss of power along the delivery chain ( State electricity boards run the infrastructure behind the country’s power distribution and own a large portion of electrical output. The boards are in poor financial shape, largely because they provide power at highly subsidized rates, particularly to farmers. So also there is high level of power theft, and cross subsidies that hit large and medium-scale industry. Although the government has loosened limitations on foreign investment in the power sector, the notion of working with the financially beleaguered electricity boards has scared off private investment. Energy-related water shortages. Indian farmers have access to heavily subsidized power to pump water for irrigation. The low costs lead them to wasteful water use, depleting the water tables. As water tables lower, larger pumps require more power to access deeper water supplies. 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 to boost this sector through a deal allowing U.S. companies to sell equipment, nuclear fuel, and reactors to India. However, even with a U.S.-India agreement, large scale expansion of the nuclear energy sector will likely take decades because of slow implementation and the relatively higher expense when compared to other forms of energy. Co2 Emissions: CO2 emissions from energy are responsible for more than half of man-made GHG 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.
  • 10. The Energy Challenge: Problems and Prospects & Role of Green Energy Welingkar Institute of Mgmt Page 10 Prospect: Green energy The deficit challenge in the existing sources and the requirement in near future has compelled the Indian Government to keenly look into renewable energy resources to fuel our fast growing economy. The government’s goal is to get 25% energy from renewable resources by 2030.This in itself is a challenge which has to be taken up by India, wherein countries like China, Japan and South Korea will be competing for our resources. The role of Green Energy in power generation thus has a major role. But what is all this "green" stuff? Green energy is energy that is produced in a manner that has less of a negative impact to the environment than energy sources like fossil fuels, which are often produced with harmful side effects. ―Greener” types of energy that often come to mind are solar, wind, geothermal and hydro energy. There are several more, even including nuclear energy, that is sometimes considered a green energy source because of its lower waste output relative to energy sources such as coal or oil. India's theoretical solar potential is said to be about 5,000TWh per year, or some 600GW of potential installed capacity. This far exceeds forecast demand, but solar generating costs are currently 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 of renewable electricity in the country, accounting for 79% of installed capacity from renewable sources. 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, the country 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 generation projects. It is expected that there would be five wind energy projects – with an electricity generation capacity of 1.6GW – and eight biomass schemes.
  • 11. The Energy Challenge: Problems and Prospects & Role of Green Energy Welingkar Institute of Mgmt Page 11 Renewable Energy Development Potential in India. Advantages and Challenges India with its diverse geographies and climatic conditions offers whole bunch of opportunities for Green energy. The table below clearly gives us the vw. Source : International Trade Administration Apart from the basic advantages of green energy like clean, abundance and renewable , there are 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)
  • 12. The Energy Challenge: Problems and Prospects & Role of Green Energy Welingkar Institute of Mgmt Page 12  Global warming and Clean Development (CDM) drive forcing countries to reduce polluting industries  Carbon Credits encouraging companies to go in for captive renewable energy investments The 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 sector Can 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 technical or some other constraints. 1 CER or 1 VER refers to reduction in 1 tonne of CO2, that would have been emitted in normal scenario i.e. baseline for the project activity.
  • 13. The Energy Challenge: Problems and Prospects & Role of Green Energy Welingkar Institute of Mgmt Page 13 Factor affecting CERs-  Nature of project (renewable, energy efficiency , others)  Maturity of the credits  Stage of the project  International availability and demand of credits Developed countries can implement CDM projects that reduce emissions or remove carbon from the atmosphere in other developing countries in lieu of CERs (Certified Emission Reductions). These CERs can be used to meet the emission targets. Renewable energy projects have the potential to create a substantial revenue stream through Clean Development Mechanism (CDM) credits issued under the Kyoto Protocol. India has registered 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 an even more financially rewarding venture. India qualifies to be a host country for the CDM projects and is considered as one of the most potential countries in the world for the same. This is due to its large power sector that depends 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 total CO2 reduction potential through CDM projects in India is estimated to be around 300 million tonnes. The largest potential is in the renewable energy sector with 90 million tonnes CO2 equivalents. The total expected average annual CER’s from registered projects by India are about 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%. The National CDM Authority (NCDMA) in India has accorded Host Country Approval to 1,455 projects. These projects have seen an investment of more than $33.7 billion(Rs 1.6 lakh crore). If all these projects get registered at the CDM executive board, it will earn developers over 600 million CERs by 2012.
  • 14. The Energy Challenge: Problems and Prospects & Role of Green Energy Welingkar Institute of Mgmt Page 14  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 Zealand Why Is India Lacking Behind China In CER Market? India has cornered nearly 43% of the carbon credits (CERS) issued so far by the CDM executive board, the highest international body under the Kyoto Protocol to register projects and issue credits. In comparison, only 17% of the CERs has been issued to China. But the expected average annual CERs from registered projects till 2012 has China (44%) far ahead of India (15%), although India, with 259 projects, leads China (101) in the number of registered projects. Reasons: 1. Size of Industries: The Chinese projects are few but huge, whereas in India there are many and scattered projects 2. Type of projects undertaken: Chinese have several projects in high CER-yielding HFC23 projects, whereas Indian companies have mainly concentrated on renewable energy (biomass, wind power, etc.) or waste heat recovery projects that generate much less CERs.
  • 15. The Energy Challenge: Problems and Prospects & Role of Green Energy Welingkar Institute of Mgmt Page 15 A Note On HFC-23- Certain chemical & refrigeration plants around the world emit just about the worst greenhouse gas imaginable. The refrigerant HFC-23 is 11,700 times worse than carbon dioxide. But a client can pay a chemical plant in India to stop emitting HFC-23. The plant puts the gas through an incinerator to avoid emitting it into the atmosphere. Incineration is a cheap process, and for every ton a plant burns it earns 11,700 tons of carbon credits, which we sell to our client. Considering a rate of $25 per ton for carbon credits, incinerating a ton of HFC-23 was worth close to $300,000, while incineration cost only about $5,000. This can be a 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 traditions
  • 16. The Energy Challenge: Problems and Prospects & Role of Green Energy Welingkar Institute of Mgmt Page 16 A PROPOSED MODEL – The CDM projects can be effectively used by India produce green energy and act as a scalable business model too. Following is the pictorial diagram to show the working of the proposed model for a company- Let’s take a model company (Co. A) for explaining the model. The initial stage of this business model would be to set up co operative societies in villages all over India. These societies would be a cluster of social entrepreneurs who are ready to invest in the energy business. These cooperative societies will build up green power plants in their respective villages. 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. These plants 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 hour DEVELOPED COUNTIRES CO—PERATIVE ENERGY PRODUCERS, in villages of India OUR COMPANY MONEY SELL CARBON CREDITS ALTERNATE SOURCE OF ENERGY SELL CARBON CREDITS
  • 17. The Energy Challenge: Problems and Prospects & Role of Green Energy Welingkar Institute of Mgmt Page 17 electricity, 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 carbon credits will be the property of Co. A, which will earn by selling these carbon credits to the international companies the international markets (especially Annex 1 countries). Also, some of the international companies which desperately need carbon credits can fund Co. A. This is called Joint Implementstion under the Kyoto protocol, and is described through a diagram below. Joint Implementation (JI)- Annex I Industrialized Country B Annex I Industrialized Country A Fund Technology GHG Reduction Joint Reduction project Credit
  • 18. The Energy Challenge: Problems and Prospects & Role of Green Energy Welingkar Institute of Mgmt Page 18 EmissionTrading. Each carbon credit sells for $ 15-19 in the international market. These carbon credits are also traded in various stock exchanges worldwide, including NASDAQ and Dow Jones (spot contracts). The technical know and operational strategy would be provided by Co. A. As these cooperatives will be setup across India, the windmills, solar panels, etc will be bought in bulk by the Co. A, which will give them cost benefits. Thus the project would relate to carbon sequestration, carbon reduction and alternate sources. It’s a win win model for cooperatives, Co. A, villages, as well as the government; as the cooperatives get to sell the electricity Customers Developed 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 to Industrialized Country B Industrialized Country A Payment GHG Reduction; more than target amount Credit
  • 19. The Energy Challenge: Problems and Prospects & Role of Green Energy Welingkar Institute of Mgmt Page 19 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 our customer. 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,, Morgan & Stanley, Akzo Nobel, Barclays, HSBC, Pointcarbon, Robobank. End Users Kepco, Depco, Shell.
  • 20. The Energy Challenge: Problems and Prospects & Role of Green Energy Welingkar Institute of Mgmt Page 20 Potential industries – Agriculture – Energy ( renewable & non-renewable sources) – Manufacturing – Fugitive emissions from fuels (solid, oil and gas) – Metal production – Mining and mineral production – Chemicals – Afforestation & reforestation Recent Developments According to the UN draft passed at the Copenhagen summit, Nations around the world must reduce greenhouse-gas emissions at least 50 per cent by mid-century under a draft proposal being debated by 192 countries in Copenhagen. The plan says nations should collectively reduce the heat-trapping pollution that many scientists say could lead to catastrophic climate change between 50 per cent and 95 per cent from 1990 levels. The draft leaves long-term financing, or how much rich nations should pay poor 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.
  • 21. The Energy Challenge: Problems and Prospects & Role of Green Energy Welingkar Institute of Mgmt Page 21  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 country 2. 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.
  • 22. The Energy Challenge: Problems and Prospects & Role of Green Energy Welingkar Institute of Mgmt Page 22 • 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 for Global Warming. • Project is complying with the Millennium Development Goals (MDG).
  • 23. The Energy Challenge: Problems and Prospects & Role of Green Energy Welingkar Institute of Mgmt Page 23 References: 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. 5. express 6. 7. 8. ―Imagining India- Nandan Nilekani‖ 9. ―The Blue Ocean Strategy‖ by W. Chan Kim & Renee Mauborgne 10. 11. Various articles from The Times of India, Time, The Economist, The Asian Express