Green power

Green power

While the country’s lawmakers, their allies and the Opposition are at war about the political costs of furthering the cause of nuclear energy, the public debate on renewable, or green, power continues to be sidelined. By sheer coincidence, the 123 Agreement was first signed in 2005, the same year from when a draft renewable energy policy has been languishing, with little news on its progress. And, when last week, the minister of new and renewable energy spoke about a preferential tariff scheme for private renewable power producers, there was barely any follow-up public debate.

The case for renewable energy in India is strengthened by its promise of powering remote areas and the scope for localized job creation initiatives. But for broad-basing of outcomes, sound policy interventions are a must.

The proposal in question refers to preferential tariffs for grid-connected renewable power—in other words, power utilities would have to buy electricity from such installations at a higher tariff rate guaranteed for a set period, usually 20 years. For this, he needs to find consensus among all states.

At present, there is limited preferential policy support; some states have agreed to an assured quota of power purchase from renewable sources. But the tariff-linked incentive has proven to be more effective than such quotas in other countries. Of course, the tariffs would need careful structuring, since very high rates can overheat the market and very low ones can mean poor response.

This approach is being increasingly adopted the world over—and Germany provides the classic success case, having become the world leader in renewable energy. The tariff is scientifically set for various technologies and aims at both attracting private producers and at driving innovation that lowers the costs of production over time. It is structured to be higher in the initial years of the project.

The rationale for a premium tariff lies in the fact that these technologies are still evolving towards sustainability and are more expensive than conventional energy. Also, as the environmental costs are not easy to take into account in the latter, that is, the fossil-fuel burning technologies, comparison in cost terms tends to get skewed. The idea, therefore, to encourage investors by assuring their returns on investment in renewable energy makes sense.

Who bears the costs? Globally, not just feed-in tariffs, but various other green power schemes are also based, in principle, on some customer segments setting a premium on renewable energy. The costs decline over time, provided the incentives have been rightly structured. Germany has seen the costs—admittedly high initially—come down since 1999 when feed-in tariffs were introduced. The idea is to provide support till these technologies are mature enough to become cost competitive. This was seen in Germany’s on-shore wind power.

In India, an argument can be made about the implicit subsidization of coal-based power, with the continuing distortions in this market on account of political compulsions. On the other hand, the case for the government bearing the initial burden for encouraging green power is rational rather than political. Finally, states with little resource scope for renewables, can buy “green credits" from those with access to green power for their utilities.

The energy market, either at the producer end or the consumer, can’t suitably incentivize renewables on its own. In the absence of a penalty for pollution from fossil fuels, the state can, at least, reward green power.

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