oint 51383 April 2000 India Renewable Resources Development Project This article briefly presents the high­ lights of the World Bank and Global Environment Facility­ assisted Renewable Resources Develop­ ment (RRD) project, implemented by the Indian Renewable Energy Development Agency (IREDA) during 1993-1999. A team of consultants The RRD project, the first of its kind for the MW ofwind farms, 100 MW ofsmall hydro and from Winrock World Bank in supporting renewable energy 2.5 MWp equivalent of PV systems. International India has commercial market development, became conducted an impact assessment of the operational in 1993, following the The RRD project had a total budget of $195 project through a recommendation of an Energy Sector million including a technical assistance series of case studies on three renewable Management Assistance (ESMAP) review. TilI component from the Global Environment energy technologies, then, the renewable energy program was run by Facility (GEF) and bilaterals such as the Swiss which is the basis for governmental agencies using government Development Corporation (SOC) and the this documentation. procurements and subsidies to support local Danish International Development Agency industry. The private sector's role was limited to (DANIDA).l The project was implemented supplying equipment, and design and installation through IREDA, an autonomous financial services. The RRD project's basic objective was institution under the aegis of the Ministry of to help the renewable energy industry make a Non-conventional Energy Sources (MNES), transition from a supply-driven approach to a Government of India. In 1992, MNES put in 'The budget was later market-based, demand-driven one in which the place a consolidated strategy of fiscal incentives revised to $ 160 million following a reduction in consumer would have a choice of product and and policies to encourage private sector DANIDA's contribution. effective after-sales service. The project goal was partici pation, as part of the macro economIC However, DANIDA continued to support the to support private sector implementation of 85 reform process. wind program directly by facilitating equipment supply from Danish Fiscal and Policy Incentives by M NES manufacturers. 21REDA offers loans at 12­ • Low-interest loans with soft repayment terms from IREDN 14 % interest for wind and • Five-year tax holiday for independent power producers small hydro power projects with a repayment • Accelerated depreciation in the first year period of 10 years. The • Reduction of customs duties on renewable energy equipment interest rate for solar PV is 2.5%. • Sales tax exemptions (in select states) • Assured power purchase rates by state utilities • Facilities for banking, wheeling and third-party sale of power The World Bank Group Sou t h As ia Energy Se ctor U nit (SASEG) and As ia Alternative E nergy Pr ogram (ASTAE ) lndia Renewable Resources Development Project Wind Power Program Emerging Wind • ­ Commercialization has largely been achieved Wind Power - Yaarly Progra.. Superpower - 1200 in the wind energy sector. When RRD began, (Cumulativa, - - India has the capacity _ RRD 1000 and technological India had 40 MW of installed capacity, set up IREDA _ MNES know-how to exploit with international and MNES grant assistance. 800 wind resources in a big way . A detailed By March 2000, installed capacity touched 1,100 1600 resource mapping and Mw, making India the fifth largest wind power 400 assessment exercise generating nation. Significantly, over 95% of supported by MNES, 200 estimated the overall this capacity was installed by the private sector potential at 45,000 with 85% for captive use. 14 projects with a MW, more than total capacity of 49.9 MW were financed under double the earlier estimate of 20,000 RRD, while the total wind power portfolio of MW. IREDA is close to 300 MW 80% indigenization. Several of them benefited from joint ventures with leading manufacturers in Europe and the US, which resulted in significant technology transfer. • Large turbines of up to 750 kW can be made in India, which has helped in better efficiency in harnessing wind. • India now exports blades and soon can export turbines. • Initially; several companies went in for wind farm development to avail of tax and depreciation benefits. With corporate tax rates reduced and minimum alternative tax imposed, the number ofsuch companies has gone down over time. The emphasis is now on quality Program Highlights energy generation for captive use by energy­ intensive industries .. • The wind farms set up under RRD during 1993­ • To encourage energy production, IREDA offers 95 helped reduce the perceived risks for an interest rebate of 0.5% for capacity factor investors, and resulted in improved practices in (CF) exceeding 18% and 1% for 29%. Till 1997­ turnkey installation, O&M arrangements, 98, the average CF was 13%, which has Attracting Entrepreneurs modular, computerized operation, etc. improved in the last two years. For instance, TN Wheeling, banking and • The number of manufacturers has gone up Paper & Newsprint Ltd.'s wind farm is expected t hird-party sale from 3 (at the beginning ofRRD) to 15, with to attain a CF of about 25% in 1999~0. facilities provided by state utilities, are critical for attracting Small Hydro Program private sector partici­ pation . Many first­ generation entrepre­ India has a potential of over 10,000 MW in the Small Hydro - Yearly ~ogr••• neurs with high 300 small hydropower (SHP) sector of which only (Cumulative, technical qualifications RRD entered the small about 210 MW has been exploited so far by 250 _ MNES hydro sector due to installing 267 projects. Of this, 43.55 MW was 200 these incent ives. installed in 19 projects under RRD. Currently, 57 J ,- 2 150 Andhra Pradesh and Karnataka states, projects totaling 164 MW have been sanctioned 100 where utilities have by IREDA This exceeds the original RRD target actively implemented the policies, lead in commercial small of 100 MW Another 12 projects with 22.15 MW capacity are in the pipeline awaiting clearance from 50 0 I a; N 'I' ~ " '" ., .... . ., 'I' CD '" 'I' ~ " '" ~ 'en 6 J, 'I' a; S; 00 g: hydro development. the World Bank on a second line ofcredit. Thus, '" en '" en en this ranged from 40 to 65 months, while at Increased Income. present this is 15 to 30 months. SK] Power Improved Lifestyle Prior to installing a PV Ltd., a first-generation entrepreneur in pump, Damodar Gour, Andhra Pradesh commissioned its 1.5 MW a farmer in Chenna­ pravopally village of project in a record time of 15 months. Andhra Pradesh was • A wide range of entrepreneurs, including growing one rain-fed . energy service companies and small industries subsistence crop (paddy/maize) a year with captive requirements, has entered the on 6 acres of land, sector. Some developers, such as Bhoruka and earned $660. Power, set up multiple projects following the With a PV pump, he now grows two crops success of their first project. on 14 acres and earns RRD has played a major role in accelerating • Average capital cost for setting up small hydro up to $2,625, more commercialization in this sector. projects has come down to $800,000 to 1 than four times in three years. million per MW for capacities above 1 Mw, Program Highlights and $1.2 million for capacities under 1 MW • So far IREDA/MNES have been handling • India has an established manufacturing base projects of only up to 3 MW Now projects in small hydro with nine active players holding of up to 25 MW capacity have been brought 65% market share. under their purview, which is likely to give a . Sanctioning-to-commissioning time for major boost to the sector. projects has come down significantly. Initially, Solar Photovoltaic (PV) Program India's PV program is among the largest in the world with over 675,000 systems (50 MW ) installed, with domestic lighting and wat:r pumping being prominent. India has a strong manufacturing base with a production capacity of 6.5 MW for cells (9 companies) and 9.5 MW for modules (22 companies). There are 45 companies that manufacture balance-of­ systems. India now exports PV modules to countries in Asia and Europe. RRD began with a target of 2.5 MW and a budget of$42 million. Progress in the beginning was slow, with few projects in the first two years, been installed through some 40,000 systems on account of difficulties in reaching the (home lights and lanterns account for 24% of dispersed rural customers; high initial costs; a capacity; pumping 6%; street lights 7%; poor marketing infrastructure; and the absence powerpacks 49%; stand-alone power plants 5%; of entrepreneurs. IREDA conducted several grid power 3%; others 6%). In order to entrepreneur training programs, PV design, accelerate disbursals and financial closures, installation and maintenance training courses, IREDA is reviewing its procurement procedures and business meets for PV companies and and building internal management capacity. financial intermediaries. Consequently, the pace picked up significantly in the last two years and RRD led to the development of innovative IREDA has sanctioned projects with a combined institutional models to promote PV in rural capacity of 4.2 MWp. Of this, nearly 1 MWp has areas. India Renewable Resources Development Project Power of the Sun Sectoral Penetration of PV $yeteme CMW) cooperative society with representation from More than half the Total 50 MW (675.000 systems) local organizations and consumers was set up villagers in Mrityun­ joynagar on Sagar to manage and maintain the plants, including Island (105 house­ collecting monthly charges. Apart from holds) switched over from diesel to a solar households, beneficiaries include grocery shops, power plant set up tailoring shops, dispensaries, drug stores, etc. -.. Power plants under RRD. From 2 .2 Earlier people used to pay about $2 every paying $2 every month for a one light month for a single light connection from a connection from the diesel plant, while the PV plant offers 3 light diesel plant, they now 2.7 points and 2 power points (for TV, radio, etc.) pay just $2 .5 for three lights and two power for just $2.5. Households, which were earlier points. Women are using kerosene for lighting, save about $1.25. happy with reliable Examples of these models include: lighting available, their children spend more Financial Intermediaries: Nagarjuna time studying, and the Micro-credit Institutions: Wahandharak Finance Limited (NFL) has tied up with Polyene men folk tend to stay Nagari Sahakari Patsanstha Maryadit Film Industries (PFI), a PV system integrator at home to watch TV. Doctors can treat their (WNSPM), a rural cooperative bank in based in Hyderabad, Andhra Pradesh, to patients better and the Kolhapur, Maharashtra, offers solar lanterns as promote PV water pumping systems. NFL drug storekeeper need not grope in semi­ an incentive to people for opening recurring secured loans from IREDA while PFI takes care darkness for medi­ deposits with them. The system cost (without of installation, management and maintenance. cines. interest) is recovered from the recurring fees A farmer can acquire a 860 W pump on a 10­ over a period of 10 years, at Rs 30 per month. year lease with a one-time payment of $1,400. Over 2,000 lanterns have been sold so far. With .PV pumps, farmers irrigate more land and WNSPM has developed a strong workforce to switched from subsistence crops to cash crops take care of maintenance. for improved incomes. PFI has installed 86 pumps so far, and has plans to install 600 pumps Village Cooperatives: In Sagar Island of in total with IREDA assistance. the Sunderbans in West Bengal, 5 PV power plants of 25 kW each (3 under RRD) are Tangible economic, social and environmental supplying electricity to about 500 families. A benefits have been perceived by users. IREDA - A Unique Institutional Model Starting with a $4 m Overall Impact of the RRD Project base in 1987, IREDA, has, so far, sanctioned • The RRD project provided the base for IREDA to establish itself as a model institution over 150 projects worth $1 .125 billion, in the developing world with a successful track record. and approved loans • RRD has catalyzed market development by reducing perceived business risks, and worth of $609 million in the renewable helped demonstrate the marketability and competitiveness of renewable energy energy sector. IREDA technologies by addressing various barriers in commercialization. earned a profit of $ 7 • Technical assistance activities under RRD have created considerable awareness and million in 1998-99. Further, it has capacity among nearly 4,000 professionals in the country. attracted financial • The international competitive bidding process followed for large projects has made assistance from several Indian manufacturers competitive and quality- and cost-conscious. donors, including KfW of Germany ($120 m) • The project sanction procedures under RRD have led to internal capacity building in and Asian Develop­ IREDA. Also, the BDA scheme developed a number of experienced consultants who ment Bank ($100 in) . offer a range of services, apart from generating business for IREDA. $135 m from World Bank, and $85 m • Intense efforts by IREDA and MNES have encouraged several states to declare policies from OECF, Japan is that promote commercial projects. in the pipeline. For more information, please see: IREDA - http://solstice.crest.org/renewables/ireda/ ASTAE - http://www.worldbank.org/astae/