Remarks by George Deikun, USAID/India Mission Director at ASSOCHAM – Ministry of New and Renewable Energy 2nd South Asia Renewable Energy Conference 2007

April 25, 2007

Dr. Robert K. Dixon, Mr. S.P. Gon Choudhury, Mr. Matthew S. Mendis, Dr. Volker Thomsen, Mr. Rakesh Bakshi, friends and colleagues; good morning.

Energy is the key to the development and security of any modern economy. In South Asia the urgent need to increase per capita electricity consumption, environmental problems due to power generation from conventional energy sources and fuel shortages combined with price increases are pressures facing countries in the region. The potential for further expansion of renewable energy in South Asia is significant because of these and other pressures.

I will refer to some of the important sources of renewable energy in South Asia, review some of the programs and partnerships that the U.S. Agency for International Development (USAID) has fostered to advance renewable energy development and will share some ideas on what can be done to expand the capacity of renewable energy.

For a tropical country like India, and most of South Asia, solar energy is available in abundance for most of the year. India has also created a strong research base with indigenous production capabilities for the development of silicon material, solar cells, and solar photo voltaic (PV) modules, etc. However, a major constraint for the spread of solar PV technology in India is the high initial cost. If larger scale production can help bring these costs down to less than U.S. $1.00 per watt, solar PV could become more attractive.

India now has the fourth largest installed wind power capacity in the world (after Germany, United States, and Denmark). Out of the total installed capacity of approximately 8,000 MW of grid interactive renewable power in India, wind power accounts for a major share – 6,280 MW. However, there is more that remains to be tapped. Estimates put India’s wind power potential at 45,000 MW.

Ethanol is gaining acceptance in India. Small hydro power can serve remote areas. Power from biomass also has significant potential. Estimates for biomass potential alone are close to 19,500 MW.

Let me turn briefly to the power situation in India.

It is well known that India’s power sector is characterized by inadequate and inefficient supply. While installed power capacity has increased from a meager 1,362 MW to over 130,000 MW since independence, consumers still face frequent power cuts and fluctuating voltages and frequencies. Much of the population remains unconnected to the public power system. System losses are high throughout India’s transmission and distribution networks and financial losses are more than U.S. $6.5 billion per year.

Operating performance is well below commercial standards. Tariffs are distorted with a high degree of cross subsidy; and, on average, do not come close to covering the costs of service. Low tariffs, however, do not often benefit the poor who largely lack access, especially in rural areas. For example, while over 80 percent of villages are electrified, it is estimated that only about 55 percent of households have access to electricity.

In such an environment there is an emerging focus on stand-alone, off-grid or micro-grid options that rely on one or more sources of renewable energy. USAID has and continues to work with public and private partners to demonstrate the potential of such models.

In 1994, working closely with the Ministry of New and Renewable Energy, USAID supported its program to develop co-generation projects in sugar mills. This program led to the installation of over 200 MW of co-generation capacity in nine sugar mills across the country. Since these early efforts, the pace of sugar cogeneration projects has accelerated and the 5,000 MW potential, though some distance away, is within reach.

More recently we have had the opportunity to work closely with the West Bengal Renewable Energy Development Agency (WBREDA) – an organization that Mr. Gon Choudhury ably leads – in the commissioning of the first two 30 kW micro-turbines in India at a dairy plant at Purulia, West Bengal operating on biogas.

With the Non-Conventional Energy Development Agency (NEDA) in Uttar Pradesh, we have forged a public-private partnership to help develop green power in the state. Working with developers and investors, NEDA is now planning to institute a “green cess” to support the financing of eligible projects.

For the last 5 years USAID has also supported the Confederation of Indian Industry-Green Business Center’s efforts to disseminate information on renewable energy, commercialize green power, attract investments and develop financial models through the Green Power Business Development Council.

More recently, with the Rural Electrification Corporation and a several state distribution companies we are supporting an active on-going partnership with the U.S. Rural Utility Services to develop electricity cooperatives in India. These cooperatives would be responsible for the distribution of electricity and the establishment of distributed generation systems using local and renewable energy resources.

What can be done in India and South Asia to policies and institutional capacity to further promote renewable energy? Let me take the case of India.

Business as usual is no longer an option. To meet the total estimated potential of 122,000 MW of grid-interactive renewable power (excluding solar) requires an investment of approximately Rs. 610,000 crores (US $135 billion). Program planning and investment would need to begin immediately to reach these levels in 25 years.

National, regional and state plans must go far beyond pilot projects. The scale-up of public-private efforts must be encouraged. Broad based public private efforts can draw in multiple stakeholders and deploy more technologies rather than simply demonstrate unit capacity and performance. Large scale deployment of renewable energy devices would create a downward pressure on capital costs. The promise of large-scale procurement would offer an incentive for developers and investors to establish manufacturing and service capacities to serve a growing market.

The market should be the final arbitrator of the choice of technology - solar, wind, biomass or any other. Attempts to force-fit a technology choice through top-down programs should be avoided and the practice of providing subsidies should cease. If subsidies are politically unavoidable, then efforts must be made to ensure that they are carefully targeted. Low interest loans are a preferred route, especially when involving manufacturers. Loans must be repaid and are offered after due diligence and a credit check. Subsidies tend to be counterproductive do not offer risk protection.

Tax credits - production and investment tax credits, property tax reductions and accelerated depreciation - are also time-tested tools to promote the use of renewable energy technologies.

Opting for renewable energy can be driven by a variety of economic, social and environmental reasons. A homeowner decides to install solar hot water heaters on a roof top. A farmer decides to grow bio-fuel crops. Personal income tax relief to individuals would help to widen the base of renewable energy users by rewarding life-style choices such as these. Moreover, such incentives are less likely to be misused than are subsidies on capital investments.

Moving beyond tax incentives and availability of low cost capital, there are critical regulatory and policy provisions that could advance renewable energy use in India.

Regulators in several Indian states have issued orders that specify renewable energy procurement ranging from 0.5 percent to 10 percent. This is encouraging, but such provisions must be supported by instruments such as standard contracts, net metering and line extension policies. Customer choice options such as green power pricing and marketing, aggregated consumer purchasing, and certification are also needed. There is also a wealth of experience in the US in the implementation of renewable portfolio standards in several states that may also be very relevant.

Finally, there is a need to accelerate renewable energy technology development by creating incentives that reduce the risks of moving technologies from the stage of basic and applied research in laboratories to the market place. There is space here for grant funding and venture capital to support market driven innovations implemented through institutional alliances between national and private labs, equity financiers, vendors and end-users.

In conclusion, the task of expanding renewable energy is quite unprecedented in India and other countries in the region. It requires a reexamination on how best the nation can formulate policy and drive its implementation, introduce salient amendments in corporate and individual income tax rules, move from a subsidy regime to loans with incentives and create the necessary environment for financing that will quicken the pace of commercialization.

For results to emerge in the next 5 years and build-up thereafter, there is a call for India to devise and fan these winds of change, today.

Thank you.