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Impact of Global Slowdown on Green Energy, Shri R V Shahi, Former Secretary, Ministry of Power

Last two years saw highest pitch of activities to appropriately mitigate the implications and ramifications of climate change consequences. The Fourth Report of the Inter-Governmental Panel on Climate Change (IPCC), which came out in August 2007, was the climax, inasmuchas it highlighted, in detail, the nature of disasters the world is faced with in view of ever increasing green house gas emissions. The issue got into so much of a sharp focus, at the top most levels of the Governments all over the world, that various Governments started working out details of their own strategies with particular emphasis on energy development and energy conservation programmes. The Government of India set up a high level Expert Group to study and recommend an Action Plan on the subject. In essence this issue started receiving the attention it deserves.

Global Slowdown has, however, started impacting the whole approach. International interactions among the top level political administrators have been focussing in the recent months now, more on issues like economic slowdown, its impact on people, food security and above all terrorism. Accordingly, the issues concerning global warming and climate change are slowly getting relegated to lower priorities. Only recently, in the global conference, which ended on December, 13 at Poznan in Polland, the importance being attached to this subject seemed to have diminished. The latest issue of The Economist has brought out a piece titled "Fiddling with words as the world melts - Global consensus on cooling the planet looks maddeningly elusive" and says :

"Atleast in theory, most of the world's Governments now accept that climate change, if left unchecked, could become the equivalent of a deadly asteroid. But to judge by the latest, tortuous moves in climate change diplomacy - at a two week gathering in western Polland, which ended on December, 13 - there is little sign of any mind concentrating effect."

And

"At this space, it seems hard to believe that a global deal on emission targets (reconciling new emitters with older ones) can be reached next December at a meeting in Copen hagon, seen as a make - or - break time for U.N. efforts to cool the world."

While this is not a very healthy development, and it appears to be a pity that the momentum, which was created in last two years which led to mobilisation of views and thoughts towards a more sustainable approach to development, towards energy strategy which are more balanced, towards development of clean coal technologies, towards harnessing solar energy, towards more efficient consumption pattern and habits, may get into a lower gear. However, we also need to recognise that in a situation of recession, in fact in many countries in a situation of depression, it is but natural that the economy adopts short term measures to correct the situation and to mitigate the hardships which may not be always in consonance with long term objective. Sustainable development strategy is a long term approach, which alone, no doubt, can be a suitable answer to energy security. However, short term actions, somewhat in deviations from the long term strategy, in situations in which the global economies find themselves, are understandable.

Except China and India, among large countries, most other countries have either negative growth prospects or very marginal growth rate in the range of 2 to 3%, in coming couple of years. Even in India and China, the projections for growth rates are atleast 2 to 3% points down as compared to what were expected earlier. Manufacturing is likely to be affected most. Almost similar would be the situation for services sector. In view of these, demands for energy would obviously be significantly less. Countries where parts of the demands for electricity were to be met through electricity from non conventional renewable sources these would be the generation which might be dispatched the least. Regulatory approaches to give preference in the merit order dispatch, in the wake of many other cheaper sources of electricity generation, might be under question. In a situation of shortages, particularly in countries like India, even higher cost power was demanded and, therefore, generated and dispatched. These equations will undergo change. This would also mean that, in the short term, capacity additions through such sources might be revisited. A downward trend on such reappraisals appears inevitable.

In the beginning of 2008, the price behaviour for crude, which saw price rising from $ 60 a barrel to $140 a barrel within a period of seven to eight months, also had a significant influence on policy makers in respect of the strategy that needs to be evolve and followed on management of energy. No one believed such rapid increases. Similarly, no one believed that the crude prices will come down in a period of couple of months from $ 140 a barrel to less than $ 40 a barrel. There are many who believe that crude price may further go down to about $ 25 a barrel. In the early months of 2008, it was believed that the crude price may touch $ 200 a barrel. Several leading energy experts and energy and economic journals predicted that the crude prices would go beyond $ 150 and upto $ 200 a barrel. We must recognise that in several top level meetings including G-8 Summits, when the findings of the Fourth Report of IPCC were influencing their thoughts, no less was the incluence of ever increasing, in fact sharply increasing, crude prices. Their commitments to alternate energy sources was, therefore, configured in the background of not only the IPCC Report but also in view of the impact that the crude was creating on economies of all the countries. The situation has changed now. Though desirably it should not shift their focus from alternate energy strategy, yet, the fact of the matter would be that it might shift. Thrust for green energy may remain but intensity of priority may get somewhat diluted. However unfortunate it may be for a long term sustainable energy development process, perhaps the reality would be that atleast in next two to three years the global approach on this subject will not be of the same seriousness as it came out to be during 2007 and 2008.

As we know, the technologies which lead to mitigation of climate change concerns are comparatively costlier. In the financial crisis that has affected adversely major banks in U.S.A. and other countries, and which has also affected the liquidity position in Indian financial sector, high cost technologies obviously could not expect to get a very favourable dispensation at least in the near term. In India, it has already been decided that for the coal plants Super Critical Technology will be used in large power stations, but it is quite likely that a number of power plants on Sub Critical Technology will also be developed. Systems such as IGCC, Coal Bed Methane etc. may also get slowed down. This has been a general experience that whenever resources are limited, high cost new technologies get lower priority.

Though the Government of India has announced a Scheme to incentivise wind energy, and the Scheme is linked to amount of electricity generated through wind turbines, a large number of companies are still resorting to getting benefits of accelerated depreciation while setting up these plants. In the wake of lower economic growth, resulting in stresses on profitability, even this approach may get dampened in view of lesser needs to manage tax on profits through such accelerated depreciation. An analysis of the order book positions of the wind turbine manufacturers clearly indicate that the slowdown is showing up. As compared to the situation in 2007, when many of these manufacturers were not able to cope with the orders, this year they definitely need more customers and orders.

In 2008, the Government of India announced a subsidy Scheme on Solar Power. It was the general expectation that the capping on the total capacity that has been provided in the Scheme, will be increased, and larger number of units and larger aggregate capacity will be allowed to be developed through such incentivised Scheme. In the wake of the financial problems, whether the Government will be able to support the Scheme in a much bigger way to encourage large capacities to be developed beyond what has already been announced could be doubtful. It is natural that when the economy is faced with liquidity crunch, priorities have definitely to be rearranged. In such situations shorter term gains and crisis management tend to predominate over any other priorities which yield results on a longer term time frame.

Green energy requires patience and passion - a missionary zeal and approach to continue to struggle until the goal is reached. None of these technologies, for that matter none of the innovations in any other field, has evolved as a quick fix. All of them entail long hauls. Research and development, with huge investments on a sustainable basis, are essential to develop new technologies in all areas of renewables - solar, geothermal, tidal, bio-mass for each of them to be come cost effective and viable. We have a long way to go. Each of them will require substantial budgetary support both by way of capital investments as also by way of incentive or revenue subsidy during the transition periods in which they mature to become commercially viable and be competitive in the market. Just a year back, India, as also most other countries committed to devote considerable energy and resources for these research and development projects. Now in the changed situation of financial difficulties all over the world this is bound to suffer. When other urgent needs have to be met obviously research and development projects normally tend to get postponed.

Equipment manufacturing sector, dealing with renewable energy technologies, had, in last two years, developed long term and medium term ambitious plans. In their strategy, to meet the local needs for setting up energy generation plants, and also to meet the requirement in the export market, they had started expansions of manufacturing capacities and, in some cases, creating new facilities for manufacturing of wind turbines, solar systems etc. It is feared that all of them may revise their schedules because the support that they expected from the market for getting orders and accordingly the support they expected from financial sector may change. Both these may be on a substantially lower side now.

The most adverse effect on the green energy programmes that could be expected would be from the banking and financial sector. The same sector which assessed green energy - whether generators or manufacturers - highly positively and their assessment of the risk perception was of a highly encouraging nature, have started looking at these groups in a totally different manner now. Financing these projects, therefore, might prove to be much tougher now than expected earlier. The financial sector obviously will look at such projects which are likely to yield better benefits in shorter time frame more positively than encouraging new technologies where, in their perception, the gains are to be expected in longer time frame, and risks associated are higher.

Thus, one of the casualties of the global slowdown is likely to be the green energy programmes all over the world including in India. However, we don't need to be highly frustrated and pessimistic about it. In about a year or two when the effect of slowdown diminishes the priority will get reset. During this period, we need to strive hard to communicate and convey the problems of the climate change so that even though there is temporary upset in the strategy it gets appropriately refocused once the present problem is over. We need to recognise that finally energy future lies in formulating long term sustainable strategy and, more importantly, in implementing such programmes.