March 10, 2017
Chandra Raman, Chief Executive Officer of renewable energy developer, ARMAEC, talks through Indian government policies that are spurring growth in the renewable energy sector and what this means for investors:
Two of the measures introduced by the government to spur the growth of Indian renewable energy production are the feed-in tariff (FIT) and the renewable portfolio obligation (RPO).
Under FIT, a fixed tariff is guaranteed to the power producer for a certain number of years. For him or her, this is desirable as it ensures assured income that eliminates market risk. Furthermore, through this initiative power producers are able to raise finance easily as a guaranteed income makes their business far more attractive to investors.
Under the RPO, an electricity distribution company (DISCOM) is required to purchase a certain percentage of its total distributed electricity from renewable sources thereby stimulating the market. This is similar to China’s model of penalising coal-based electricity producers unless they have an economically viable long-term renewable energy policy or give robust monetary incentives for the generation of renewable energy.
By making the purchase of renewable energy compulsory the Indian Government ensures that renewables enter the market, price-in and become competitive. This stimulates the growth of renewables throughout the energy market in India and ensures they are distributed at a competitive prices to consumers.
These are two examples of policy instruments that are creating an effective renewable energy market for all participants. Establishing these policies is essential for India as they will enable the Government to meet the energy demands of a growing nation. For investors, these policies remove supply-chain bottle necks, stimulate buying and selling, as well as remove systematic risk.
As India continues to develop it’s renewable energy industry, investors are increasingly beginning to get excited about the sector. Oil marketing companies Indian Oil Corp. Ltd, Bharat Petroleum Corp. Ltd and the Hindustan Petroleum Corp. Ltd are looking at expanding their renewable energy plans; state-run mining major Coal India has announced that they will develop solar power plants of 600 MW capacity in four states; and renewable energy investment from Japan, the US and China is at an all-time high.
The record-setting increase in investments is proof that renewable energy is becoming ever more central to low-carbon lifestyles of environmentally conscious people. It is valuable in societies where reliable energy can offer improvements in quality of life, economic development and environmental sustainability and the continued and increased renewable energy investment is not only good for the people and planet, but is a key element in achieving international targets on climate change and sustainable development.
Countries such as India have realised the potential of renewable energy to rapidly power their economy especially in the backdrop of a sluggish global economy. To find our more about Red Ribbon’s project ARMAEC that develops wind farms to supply renewable energy, visit the ARMAEC website, here.