carbon finance potential of renewable energy technologies in india
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Carbon finance potential of renewable energy technologies in India
Pallav Purohit
International Institute for Applied Systems Analysis (IIASA), Austria
Short-term course on “Economics and Financing of Renewable Energy Technologies”
Centre for Energy Studies, IIT Delhi
25th July 2013
Contents
What is Carbon finance?
Overview of Indian power sector
Status and potential of renewable energy in India
Clean Development Mechanism (CDM)
Carbon finance potential of RET’s under CDM
Diffusion of RET’s and associated carbon finance potential
The way forward
What is carbon finance?
• Carbon finance– explores the financial implications of living in a carbon-
constrained world – a world in which emissions of carbon dioxide and other greenhouse gases carry a price.
» Labatt & White (2007)
– is the term applied to the resources provided to a project to purchase greenhouse gas emissions reductions.
» World Bank (2006)
– financial flows associated with society’s response to climate change – in particular, the flows mediated by market mechanisms.
What needs to be financed?
• Mitigation– Low-carbon power
generation
– Energy efficiency
– Low-carbon transport
– Elimination of fugitive and waste emissions
– Phase-out of F-gas emissions
– Forest protection
– Nitrate- and methane efficient agriculture
– Sequestration
• Adaptation– Infrastructure climate
proofing
– Flood defences
– Enhanced insurance
– Efficient water usage
– Desalination and resilient water supplies
– Durable food supplies
– Drought and heat resistant crops
– Population relocation
Source: Ascui (2011)
How much?
• Additional $16 trillion investment is required as compared to the new policy scenario in total to 2035.
Without change of the government policies and measures that had been enacted by mid-2012.
Takes into account broad policy commitments and plans that have already been implemented.
Policies are put in place to allow the market to realise the potential of all known energy efficiency measures which are economically viable.
Sets out an energy pathway that is consistent with a 50% chance of meeting the goal of limiting the increase in average global temperature to 2°C compared with pre-industrial levels.
Source: IEA/WEO (2012)
Why renewable energy?
• Energy security– Limited amount of fossil-fuel resources (India imports more than
70% of its crude oil requirements
• Ever increasing demand for energy– Supply regularly being over stripped by demand
• Climate change– To reduce the emission intensity of its GDP by 20-25% by 2020
through domestic mitigation actions
• Increased financing options – Govt. incentives/legislations (financial/fiscal incentives, GBI, RPO,
etc.), carbon finance (CDM, GEF, MDI’s, etc.)
Macro-economic development and energy use in India
0
10
20
30
40
50
60
70
80
1990 1995 2000 2005 2010 2015 2020 2025 2030
Ex
ajo
ule
s/y
ea
r
Coal Oil Gas Renewables
Hydro Nuclear Biomass
0%
100%
200%
300%
400%
500%
600%
700%
800%
1990 2000 2010 2020 2030
Re
lati
ve
to
20
05
GDP Total energy consumption
GDP/capita Population
Source: GAINS/IIASA
Overview of Indian power sector
Source: (MoP, 2013)
Thermal Hydro Renewable Nuclear Total 153,188 MW 39,623 MW 27,542 MW 4,780 MW 225,133 MW
As on 31st May 2013
Installed capacity of renewables in India- until 30th June 2013
Off-grid/distributed renewable power
(including Captive/CHP plants)
(895 MW)
Grid-interactive renewable power
(28709 MW)
Source: MNRE (2013)
Status of renewables in India- until 30th June 2013
Annual global (total + diffuse) radiation varies from 1600 to 2200 kWh/m2. The equivalent energy potential is about 6,000 million GWh of energy per year.
Source: (MNRE, 2013; CEA, 2013)
Clean Development Mechanism
CDM: a development tool or a market mechanism?
CDM Project Cycle
Key CDM terms - I
• Baseline– Emissions level that
would have existed in the business-as-usual (BAU) situation (in the absence of the CDM project)
• Additionality– A CDM project should be
motivated by the revenue coming from the CER sales. If it is already an attractive business without the CER benefit, it is not additional
Year
CO
2 em
issi
ons
Project implemented
Reduced emissions when credited: CERs
Business as usual: baseline
Environmental additionality real emissions reduction
Financial additionality ensure that ODA (Official Development
Assistance) is not reclassified as CDM funding Technological additionality
ensures appropriate transfer of technology Investment additionality
baseline FDI is not categorized as CDM funds
Key CDM terms - II
• Crediting period– Duration for which a CDM project can generate CERs. Either
10 years or three times 7 years
• Small-scale projects– Projects of less than
• 15 MW for renewable energy• 60 GWh annual savings for energy efficiency• 60,000 t annual CO2 reductions for other types
• SSC projects benefit from – simplified rules, especially pre-defined baseline methodologies– lower fees
CDM projects by expected CER volume June 2013
• More than 12000 projects were submitted until June 2013 of which 6989 projects were registered and 170 projects were requesting registration.
• 19% registered projects (with 93 million annual average CERS) are located in India (2nd after China).
• More than 70% RE based CDM projects contribute to 34% and 48% of CER supply by 2012 and 2020 respectively.
• The carbon market is forecasted to touch 12 billion CER’s by 2020 and 20 billion CER’s by 2030. Source: Fenhann (2013)
Investment in registered CDM projects
• The estimated investment in registered CDM projects is more than 387 billion until June 2013.
• China accounts for more than 61% ($237 billion) of the total investment and India accounts for 13% ($52 billion) in CDM projects.
Source: Fenhann (2013)
Programme of activities (PoA)/CDM programme activity (CPA)
• A programme of activities (PoA) is– a voluntary coordinated action;– by a private or public entity which coordinates and implements any
policy/measure or stated goal (i.e. incentive schemes and voluntary programmes);
– which leads to GHG emission reductions or net removals by sinks that are additional to any that would occur in the absence of the PoA;
– via an unlimited number of CDM programme activities (CPAs) .
• A CDM programme activity (CPA) is :– a project activity under a programme of activities (PoA),– a single, or a set of interrelated measure(s), to reduce GHG
emissions or result in net removals by sinks, applied within a designated area defined in the baseline methodology.
Regional distribution of pCDM and CDM
44% PoA’s (175 out of 397) are based in India out of which 119 PoA’s are registered and 4 PoA’s requesting registration from CDM EB until June 2013
Source: Fenhann (2013)
POA distribution by type
Source: Fenhann (2013)
Solar energy in India – Resource availability
Source: MNRE
• Natural availability– Many parts of India have 300~330 sunny
days in a year
• Current potential– Daily solar radiation 4 - 7 kWh per sq. m.
which translates into a potential for 600 GW
• Potential to meet future demand– 5000 trillion kWh solar radiation incident in
a year which is a thousand times greater than the likely demand in electricity in the year 2015
• Jawaharlal Nehru National Solar Mission
– Increasing solar capacity to 20GW by 2020, 100GW by 2030 and 200GW by 2050
– Solar power cost reduction to reach grid parity by 2020
– Solar power cost reduction to reach parity with coal based thermal generation by 2030
No. 1 along with US in terms of solar energy yield as per survey conducted by McKinsey & Co. (1700 to 1900 kWh/kWp/yr.)
Among the top 5 in terms of overall country attractiveness for RE as per E&Y’s report (Ranking based on regulatory environment, fiscal support, unexploited resources, suitability to technologies etc.)
Box-type solar cooker
0.6 million box type solar cookers installed until March 2006
Potential assessment of box-type solar cooker
• Number of box type solar cookers
– Where
• Nhh,i = number of households in the ith state
• ξ1 = fraction of households living in the geographical areas with adequate solar radiation availability
• ξ2ri = fraction of total households living in the rural areas of ith state
• ξ3ri = fraction of households above the poverty line in rural area in the ith state.
N n
1i3ri2riihh,1
scN
Other factors? (e.g. Urban areas - accessibility to solar radiation, etc.)
Solar lanterns and solar home systems
Solar home systems
Solar lanterns
Solar lanterns and solar home systems (Contd.)
• Number of solar lanterns and/or solar home systems
– Where
• Nhh,i = number of households in the ith state
• ξ1 = fraction of households living in the geographical areas with adequate solar radiation availability
• ξ2ri = fraction of total households living in the rural areas of ith state
• ξ3ri = fraction of households above the poverty line in rural area in the ith state.
N n
1i3ri2riihh,1//
scshsslN
Other factors???
Domestic solar water heating system
7.07 million m2 installed until June 2013
Potential of domestic solar water heating system
• Number of domestic solar water heating systems
– Where
• Nhh,i = number of households in the ith state
• ξ1 = fraction of households living in the geographical areas with adequate solar radiation availability
• ξ2ui = fraction of total households living in the urban areas of ith state
• ξ3u = fraction of households in the urban areas having a piped water supply in the household premises.
uswN 3
n
1i2uiihh,1 N
Other factors???
SPV water pumping systems
SPV pumps
• Number of SPV pumps
– Where
• NSAs = net sown area in the state,
• ξs = areas in the state with surface water availability (as a fraction of the net sown area in the state),
• ξg-10 = area with ground water table up to 10m (as a fraction of the total area requiring ground water in the state),
• ξlh,j = net sown area operated by jth category of farmers
• ζj = average size of land holding of jth category of farmers
5
1
, 10 1
j j
jlhgssspv
NSAN
Estimated potential of solar energy technologies
End use Technology Theoretical Potential
Factors taken into account
Lighting SPV lanterns 97 million
Total number of households in rural areas, availability and accessibility of solar radiation, and households above the poverty line in rural area. Solar home lighting
systems 97 million
Cooking Box type solar cookers
97 million Total number of households in rural areas, availability and accessibility of solar radiation, and households above the poverty line in rural area.
Water heating Domestic solar water heaters
45 million Total number of households in urban areas, availability and accessibility of solar radiation, and households in the urban areas having a piped water supply in the household premises.
Water pumping
SPV pumps
0.6 million Solar radiation intensity, extent of surface water irrigation, ground water table, affordability and propensity of farmers to invest in SPV water pumps.
Financial attractiveness of solar energy technologies?
Source: Purohit and Michaelowa (2006)
Break-even price of CER <5 Euro???
Baseline methodology used to estimate the carbon finance potential of SETs in India
Carbon finance potential of SET’s
State Theoretical mitigation potential (million CERs)SPV lanterns SHL systems SPV pumps SWH systems solar cookers
Andhra Pradesh 1.3 2.6 17.5 2.0 5.2Assam 0.3 0.6 6.1 0.1 1.2Bihar 0.8 1.6 41.3a 1.0 3.2Chhattisgarh 0.2 0.5 --- 0.4 1.0Delhi 0.1 0.1 --- 1.2 0.1Goa 0.1 0.1 0.2 0.1 0.1Gujarat 0.6 1.3 5.2 2.0 2.5Haryana 0.3 0.6 1.9 0.5 1.1Jharkhand 0.2 0.5 --- 0.7 1.0Karnataka 0.7 1.4 9.7 1.5 2.7Kerala 0.5 1.1 11.6 0.8 2.1Madhya Pradesh 0.6 1.2 14.3b 1.6 2.4Maharashtra 1.0 2.1 18.7 4.5 4.1Orissa 0.4 0.8 10.6 0.8 1.6Punjab 0.3 0.6 1.6 0.7 1.3Rajasthan 0.7 1.5 5.2 1.0 2.9Tamil Nadu 0.8 1.6 15.0 2.8 3.1Uttar Pradesh 1.7 3.4 39.2 2.5 6.6West Bengal 0.9 1.9 15.6 3.1 3.7Total 11.6 23.3 213.7 27.4 45.9
a: including Jharkhand; b: including Chattisgarh
Wind energy in India - Potential
Source: C-WET
Sea coast + Desert Areas (Av. PLF of 18-20%)
Forest & Mountainous region (Av. PLF of 18-30%)
Mountainous, Sea coast areas (Av. PLF of 25-30%)
• Current Scenario– 5th largest producer of wind energy in
the world with a capacity of >19 GW– Tamil Nadu, Gujarat, Maharashtra
and Karnataka are the leaders in wind capacity.
• Key Issues– Short construction period and low
O&M cost make it an attractive proposition
– Some regulatory /institutional hurdles exist for wheeling
• Future Potential– >20% CAGR over the last 10 years– 5000 MW annual market by 2015
(WISE)– Reassessment of true wind potential
of India. (C-WET: 49 GW/103 GW, IWTMA: 65-70 GW, WISE: 100 GW, GWEC:250 GW).
Wind energy in Indian states - potential and installed capacity
*Estimation is based on meso scale modelling (Indian Wind Atlas).Source: C-WET
Carbon finance potential through wind power projects in India
Windmill pumps
• The annual useful energy AUE (in MJ) delivered by a windmill can be estimated as
• where – hp : efficiency of pump used with the wind rotor,
– g : windmill pump mechanical availability factor accounting for downtime during
maintenance,– P(v) : power produced by the windmill at wind speed v – F(v) : Weibull probability distribution function– vci : cut-in wind speed
– vco : cut-out wind speed of the windmill.
Windmill pumps
• Number of windmill pumps
• whereNSAsi,k : The net sown area in the ith district of kth state ξwi,k : the areas with annual monthly mean wind speeds greater than 10 km/h
(as a fraction of the net sown area), ξsi,k : the areas in the ith district of kth state with surface water availability (as a
fraction of the net sown area) ξg-20i,k : the fraction of total area requiring ground water with ground water table
up to 20m in the ith district of kth state ξlhj,k : the net sown area operated by jth category of farmers (on the basis of
land holding size) as a fraction of net sown area in the kth state z j,k average size of land holding of jth category of farmers in the kth state
ξaj,k : the correction factor for the affordability of the jth category of farmers in the kth state
ξpj,k : the propensity of farmers to invest in windmill pumps.
Source: Purohit and Purohit (2007)
Carbon finance potential of windmill pumps
Biomass gasifier-based power generation system
Agricultural residue availability and its alternative uses
Source: Purohit et al. (2006)
Biomass gasifier-based power generation system:Potential assessment
• Market potential of biomass gasification projects
• where
– CUFbg = capacity utilization factor of the biomass gasifier based power project
– sbc = specific biomass consumption in biomass gasification route
– Ai, j = area of ith crop in the jth state
– Yi, j = yield of ith crop in the jth state
– RCi = residue to crop ratio for ith crop
– αi = fraction of crop-residue lost in collection, transportation, storage etc.
– βi = fraction of remaining crop residues used in other applications
nm
jiiiijiji
bcbgbg RCYA
sCUFP
,
1,, 1 1
8760
1
Effective crop residue availability for ith crop per unit crop produced
Effective gross annual crop residues availability, for energy applications
Annual potential availability of agricultural residues for energy applications in different states of India
Carbon finance potential of biomass gasification projects
Sugar map of India
Intensity and spatial distribution of sugarcane production in (tonne/km2)
Area, production, and yield of sugarcane in India
Source: MOA (2012)
Bagasse cogeneration technology
An extraction-cum-back-pressure turbine (EPBT) route An extraction and condensing turbine (ECT) route.
The condensing route based on the dual fuel system
Bagasse cogeneration
Net availability of bagasse for the cogeneration
– As,i = area under sugarcane production in ith state– Ys,i = yield of sugarcane in ith state – RCs = residue to crop ratio for sugarcane– 1 = fraction of sugarcane production being used for several other
competitive applications (such as molasses, alcohol, etc.). – 2 = fraction of bagasse being used for other applications (pulp and paper
industry, particle board, etc.)
Annual electricity generation potential through bagasse cogeneration
– SFCb = specific bagasse consumption – = fraction of the AEPbc for the own consumption in the
cogeneration system.
n
isisis RCYABP
1,,21c 1 1
b
n
1isi,si,s21
bc SFC
RCYA-1 1 1 AEP
Total bagasse availability
Electricity generation through bagasse in India
aThe net electricity consumption takes into account the electricity used for the own consumption in the cogeneration plant.
Carbon finance potential of bagasse cogeneration
• Net annual CO2 emissions mitigation potential by the use of bagasse cogeneration (NCEbc) can be estimated as
– Where• FFz = quantity of fossil fuel type z combusted in the
biomass power plant • CEFz = CO2 emissions factor of the fossil fuel type ‘‘z’’
• k = number of bagasse-based project activities co- firing fossil fuels (such as coal) during off-season to a limited extent.
Annual electricity generation through bagasse
Co-firing fossil fuels during off-season to a limited extent
Carbon finance potential of bagasse cogeneration (Contd…)
Sensitivity analysis
Small hydro power
Carbon finance potential of small hydro projects in India
Diffusion of RET’s
• As per the logistic model, the cumulative number, N(t), of the renewable energy systems disseminated up to a particular period (tth year) can be expressed as
where the regression coefficients a and b are estimated by a linear regression of the log-log form of the above equation, i.e.
bta
bta
e
eMtN
1
t ba
M
tN1
M
tN
ln
Time variation of cumulative number of SET’s
0
3
6
9
12
15
18
21
24
27
1990 2000 2010 2020 2030 2040 2050 2060 2070
Year
Cum
ulat
ive
num
ber o
f dom
estic
sol
ar w
ater
hea
ting
syst
ems (
mill
ion)
SSOS
0
10
20
30
40
50
60
70
1990 2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100 2110 2120
Year
Cum
ulat
ive
num
ber o
f SPV
pum
ps (m
illio
n)
SSpump
OSpump
0
5
10
15
20
25
30
35
40
1990 1995 2000 2005 2010 2015 2020 2025 2030 2035
Year
Cum
ula
tive
num
ber
of
sola
r hom
e lighting s
yst
ems
(million)
SSshs
OSshs
0
5
10
15
20
25
30
35
40
1990 1995 2000 2005 2010 2015 2020 2025 2030 2035
Year
Cum
ula
tive
num
ber
of
SP
V lan
tern
s (m
illion)
SSspvl
OSspvl
SPV lanterns Solar home lighting systems
SPV pumps Solar water heating systems
Projected values of the cumulative number of SET’s and associated CER generation
Year Cumulative number of SETs (million)
Annual CER generation (million)
SS OS SS OS1. SPV Lanterns
2008 1.0 2.8 0.1 0.32012 2.7 7.9 0.3 1.02016 7.7 20.7 0.9 2.52020 15.8 38.0 1.9 4.6
2. Solar home lighting systems2008 0.6 1.8 0.1 0.42012 2.0 5.9 0.5 1.42016 6.7 18.3 1.6 4.42020 15.6 37.4 3.7 9.0
3. SPV Pumps2008 0.01 0.01 0.03 0.042012 0.02 0.04 0.06 0.112016 0.04 0.10 0.12 0.272020 0.09 0.26 0.25 0.72
4. Solar water heating systems2008 0.7 2.1 0.8 2.32012 1.7 4.8 1.8 5.02016 3.8 9.4 4.0 9.82020 7.8 15.4 8.2 16.1
5. Box type solar cookers2008 0.9 2.8 0.4 1.32012 1.5 4.4 0.7 2.12016 2.3 6.8 1.1 3.22020 3.6 10.3 1.7 4.9
Projected values of the cumulative capacity of grid connected RETs and associated CER generation
Key barriers to the deployment of RE projects under carbon finance
Source: Río (2005)
Technology adoption and diffusion (characteristics of the
technologies, adopters etc.)High up-front (capital) cost, high
transaction cost, risk for investors, financing, etc.
High transaction cost, risk for
investors (plitical, market, etc.), low
CER price etc.
CER price, renewable energy potential, high
risk, etc.
The way forward
• Driving new and additional investment of US$15-20 trillion over the next 20 years will not be easy.
• Carbon finance can provide substantial value for RE businesses and support the development of new and renewable energy technologies.
• Carbon abatement potential of RET’s in India is estimated over 400 million tonnes annually.
• Carbon finance could help to achieve the maximum utilization potential of RET’s more rapidly as compared to the current diffusion trend of RET’s in India if supportive policies are introduced.
• In case of SET’s and windmill pumps, to close the gap between the mitigation cost and the CER price subsidies are required.
