Creating Clean Energy for India

ADB is helping Tata Power become a major player in the increasingly important sector of clean, renewable energy.

Khandke, India—With their 73-meter "stalks" and 26-meter "petals," the wind turbines look from afar like giant plants sprouting atop a mountain plain in a Khandke, a village in a remote corner of India's Maharashtra State. From this isolated location, these steel towers with rotary blades and turbine engines help meet a statewide need. They feed over 100 gigawatt hour of electricity—enough to power several thousand households—into the state grid.

Amid Energy Shortages, A Windfall

Like most rural areas in energy-starved India, villages here commonly experience power outages of up to 12 hours a day. Without electricity, residents are virtually cut off from the outside world.

Tata Power, part of the diversified Tata conglomerate, is one of the major power producers trying to reduce electricity shortages in a land where demand for power outstrips supply by about 20% during peak hours.

With encouragement from the state government and assistance from ADB's Private Sector Operations Department, Tata Power recently raised its stake in the wind sector and has become a major player. The company aims to raise its wind-power capacity substantially by 2017. This is part of Tata Power's strategy to considerably lift its overall power capacity. It is already active in thermal power and hydropower.

Wind is a renewable and clean energy resource that is becoming increasingly important as countries strive to lower carbon emissions to mitigate climate change and meet Kyoto Protocol commitments.

Encouraging Business

Wind technology is still relatively costly and remains of doubtful attraction to some commercial enterprises. India is encouraging business to develop abundant renewable energy sources—solar, biomass, hydro, and wind—as part of its goal to provide "power for all by 2012."

The state government has adopted a stick-and-carrot approach. It required power distributors to procure at least 6% of their input from renewable energy sources by 2010. Failing to do so attracts a stiff penalty. The generators, however, are paid well for wind-provided electricity.

In support of this clean energy program, ADB provided a 13-year loan of 3.52 billion rupees (Rs) ($79 million as of April 2010), or 70% of the project cost, to help Tata Power set up wind farms at three locations: Khandke in Ahmednagar district, Bramanvel in Dhulia district and Sadawaghapur in Satara district.

"We provide long-term, fixed interest rate financing that is not easily available in India," says Takeo Koike, ADB's team leader for the project. "Tata Power wanted to fix all the financing costs for the long run to avoid any risk of higher interest rates while the tariff would not reflect any change of financing costs over time. This choice has been proven right, given the global market fluctuations of 2008 and 2009."

Through its Carbon Market Initiative—a financing scheme that supports the development of clean energy, energy efficiency, and greenhouse gas abatement—ADB is helping the Khandke project qualify as a Clean Development Mechanism (CDM) project under the Kyoto Protocol of the United Nations Framework Convention on Climate Change (UNFCCC).

To strengthen the project's financial viability, ADB is also prepared to provide upfront financing by purchasing up to 50% of Tata Power's anticipated certified emission reductions, says Nishant Bhardwaj, an ADB CDM consultant. Once registered with the CDM executive board of UNFCCC, Tata Power expects certified emission reduction payments to form a significant proportion of revenue, in addition to the Rs3.50 ($0.08) per kilowatt-hour that it currently earns in sales to Maharashtra's electricity body.

Protecting Consumers

The global economic downturn has impacted India's economy, but less so its power sector. Although demand for power has fallen, insufficient supply remains India biggest power problem. Oversupply of electricity is the least of India's concerns.

Tata Power expects to benefit both from the lessons learned from advances in wind technology and the lower production costs.

For example, the company is implementing wind projects through German-owned wind turbine manufacturer Enercon India. It is considering replacing geared turbines with gearless engines, which lose less energy and produce better yields, says a Tata Power business development officer. In the future Tata may also use taller concrete towers.

According to Tata Power, Khandke produces 70% of its annual generation during the 5-month rainy season, from May to September.

To be sure, life for India's large rural population would improve with greater access to electricity. Many rural people are so used to being without power for long periods that they cannot imagine life with more electricity.

Laxman Gaikwad, who is from the village of Aurangabad, says nights without power can be warm when the temperature goes above 40°C, but he is uncomplaining. "We are used to this, and we adjust our lives around the power that we get," he says.