Implications of Climate Change Interventions on Power Sector Renewables in India

Debyani Ghosh       debyani_ghosh@harvard.edu

The ultimate objective of the United Nations Framework Convention on Climate Change (UNFCCC) is to achieve stabilization of greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system. Rising energy demand has led to rapidly rising trend of energy emissions from India, with high carbon intensity. Although the per capita carbon emissions for India are quite low at present—about 20 times lower than US per capita emissions—total annual emissions exceed 200 million tonnes of carbon. Opportunities for renewable energy technologies (RETs) under climate change regime arise as they meet two basic conditions to be eligible for assistance under UNFCCC mechanisms- they contribute to global sustainability through GHG mitigation; and, they conform to national priorities by leading to development of local capacities and infrastructure. This article discusses mitigation potential of renewable energy technologies in India’s power sector by using an integrated system of bottom-up energy models.

The assessment is constructed around three sub-scenarios with different levels of cumulative mitigation targets, set on reductions over cumulative emissions in the baseline (business-as-usual) scenario over 2005 to 2035. These targets aim at 5 percent (weak mitigation scenario), 15 percent (medium mitigation scenario) and 25 percent (strong mitigation scenario) reductions over cumulative baseline emissions.
 

RET trajectories under carbon mitigation

Baseline renewable capacity will grow over ten-fold between 2000 and 2035; their share in overall power generation capacity will grow from the present 3 percent to 6 percent in 2035. Global environmental interventions for carbon mitigation lead to significant alterations in renewable energy trajectories over baseline.  Even a weak mitigation scenario drives renewable capacity up by 5 percent over baseline as early as 2005. By 2015, capacity increase is more than 10 percent over baseline, and this progressively increases to almost one third in the long-term (2035). But, a medium mitigation scenario drives the capacity up by one third over baseline as early as 2005. In this, capacity increase is as high as 45 percent in 2015, 60 percent in 2025 and a doubling of renewable capacity over baseline in the long-term (2035). A strong mitigation scenario significantly alters the technology mix for electricity generation that increases renewable capacity by more than half in the next 5 years, doubles capacity by 2015 and leads to three times increase in capacity of renewables by 2035.

Among renewable technologies, cogeneration is an attractive mitigation option and offers large opportunities for potential exploitation through appropriate policies and implementation mechanisms in the short-term. Weak and medium mitigation scenarios result in 30 to 40 percent increase in capacity in short-term over baseline for this technology. Medium-term capacity increases about 1.5 times over baseline capacity under weak and medium mitigation scenarios and almost doubles under a strong control regime.

Biomass contribution to mitigation increases progressively over time, with a large potential being realized in later years that is initiated with the setting up of a biomass fuel supply market and advancements in biomass combustion and gasification technologies. By 2025, capacity increases by one and half to two-times over baseline under medium and strong mitigation scenarios respectively. A strong mitigation regime can initiate the early setting up of a commercial fuelwood market and enhance technological competitiveness. Biomass and cogeneration technologies have more than 60 percent share in the total mitigation by renewable energy technologies. They offer cheap mitigation opportunities and their potential is easiest to realise.

Wind share is restricted to 15 percent of the total by all renewable technologies. Most of the wind sites which have high potential are tapped in early years, and exploitation of more difficult sites in later periods results in low capacity utilisation and slowing down of mitigation opportunities. Though solar share increases in the long-term with stricter mitigation requirements, but its share in overall mitigation is limited to about 5 percent.
 

Contribution under Clean Development Mechanism (CDM)

Clean Development Mechanism (CDM) is the only participatory mechanism for developing country Parties in project activities, as specified in the Kyoto Protocol to the U.N. Framework Convention on Climate Change. The cumulative carbon mitigation potential during the period 2000-12 depends upon the long-term optimal emission trajectories, which are dependent on global carbon price expectations. Under a weak mitigation scenario, power sector renewables have the potential to mitigate close to 10 MT of carbon during 2000-12. This has a net earning potential of around $14 million with revenue inflow of close to $40 million. Carbon mitigation of around 50 MT between 2000 and 2012 by power sector renewables under a medium mitigation scenario results in more than $1 billion revenue flow. A strong mitigation scenario leads to 60 MT of carbon mitigation by power sector renewables between 2000 and 2012, with a doubling of revenue generation over the medium mitigation scenario.

The net CDM contribution from power sector renewables varies over a wide range from close to $15 million under low mitigation to more than $400 million under high mitigation scenario. Among renewable technologies, biomass and cogeneration have the highest share in CDM contribution (60 to 80 percent), while having only 30 to 40 percent share in the additional capacity build-up over baseline. In comparison, wind energy has a 40 percent share in the additional capacity build-up among renewables, has a less than 10 percent share in CDM contribution. While solar technologies have a 2 percent share in the additional capacity build-up, their share in CDM contribution is close to 1 percent. Small hydro technologies have higher availability than wind and solar technologies with contribution share ranging between 20 to 25 percent, while having a 20 to 30 percent share in additional capacity.

Therefore, in response to global environmental interventions and emerging possibilities of setting up of a global carbon market in which developing countries like India could participate, substantial investments in biomass and cogeneration technologies within the next decade would offer economic mitigation opportunities. This presumes that biomass is grown in a sustainable manner, which affirms its carbon neutrality. Some of the other related issues in this context are structuring of policy incentives for private participation and investments in cogeneration for which an attractive potential exists in many industries, advancements in biomass conversion technologies, setting up of biomass supply infrastructure and development of market mechanisms for trading, and adopting sustainable agricultural practices.

Depending upon the long-term mitigation trajectory, considered CDM investment potential for the period 2000-2012 ranges between $1 to $7 billion. Following the additionality criteria under the Kyoto Protocol, 6.5 MT of carbon mitigation over baseline emissions between 2000-2012, under a 5 percent cumulative mitigation scenario, entail a CDM investment potential of $1 billion. A mitigation of 60 MT of carbon over the next 12 years has an investment potential of $7 billion.  Biomass and cogeneration technologies have the highest share in CDM investment (30 to 40 percent share) under low to medium mitigation scenario (5 to 15 percent mitigation scenarios) as they offer a large and relatively cheap potential that can be easily exploited as compared to other RETs. The investment in these technologies can range between less than half a billion dollars to more than two billion dollars across mitigation scenarios. Stricter mitigation requirements—20 to 25 percent cumulative mitigation over baseline emissions—necessitate high investments in technologies such as wind and solar. Close to 50 MT of carbon mitigation by RETs over 2000-2012 has an investment potential of more than $1 billion for wind alone.

Around 60 MT of carbon mitigation target over the same period doubles the investment potential in wind to more than $2 billion. Investment potential in solar technologies under this scenario reach about $1 billion, which is 13 percent share in the total RET investment potential. Small hydro maintains close to a third share in investments across all mitigation scenarios.  
 

Conclusion

Despite the progress in renewable energy, a number of barriers restrict its development and penetration. Some of these are relatively higher investment requirements for RETs, intermittent electricity generation characteristics from renewable resources leading to their low reliability in power supply, need for effective back-up power supply options that increases costs, lack of full cost pricing in determining cost of competing energy supplies and non-internalisation of environmental externalities. Renewable energy development is impeded in electricity markets with high discount rates and competition on short-term electricity prices, because the regulatory framework disadvantages projects with high capital costs and low running costs, such as renewable electricity systems. In addition to cost-related barriers, non-cost barriers also inhibit the greater use of renewable energy. This is particularly the case with the imperfect flow of information and the lack of integrated planning procedures and guidelines.

Mechanisms such as CDM offer opportunities for faster deployment of renewables over baseline. Many renewables are in a classic “chicken and egg” situation—financiers and manufacturers are reluctant to invest the capital needed to reduce costs when demand is low and uncertain, but demand stays low because potential economies of scale cannot be realized at low levels of production. Faster diffusion of RETs would necessitate improved reliability of technologies and introduction of consumer-desired features, in terms of services and financial commitments, in the design and sales package. An average $25 per ton of carbon offers around 15 MT of cumulative carbon mitigation potential by 2015 from renewable energy in the power sector (medium mitigation scenario). Looking into past performance and likely future developments under baseline, it is unlikely that investments for setting up the Ministry of Non-conventional Energy Sources targets of 10 GW of renewable energy in the country by 2012 could be mobilized. However, the analysis presented in this article projects baseline capacity of 8,000 MW by 2015 and 15,000 MW by 2020. Results also indicate that the 10 GW of capacity target set by the government for renewable energy by 2012 match very closely with projections for medium mitigation scenario. This implies that an average price of $25/T of carbon offers opportunities for mitigating around 15 MT of carbon between 2005 and 2015 from renewable energy options in the power sector and lead to renewable capacity reaching close to 10 GW by 2012.  q
 

Acknowledgements

The author sincerely acknowledges the contribution of Dr. Amit Garg and Prof. P.R. Shukla towards writing this article.

The author is a research fellow with the Energy Technology Innovation Project at the Kennedy School of Government, Harvard University, US.

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