As India confront the challenges of climate change head on, it poses a vibrant reminder for other world communities to light up a torch towards a sustainable energy future. The discussion no more focuses on the top or the bottom of the pyramid anymore. We are talking about the corners and edges in the erratic structure called India.
This wave is also making companies to start thinking more local, given the fact that there will be demand for products like Tata Ace and Eveready LED lanterns as India matures as a market. By 2020, private sector in India will embrace these opportunities and design sophisticated and optimized products and solutions to capture this latent market. The production mantra in India by 2020 would henceforth be simple – “Think local & Think Green” Renewable Energy in India With both domestic Indian and international concerns increasing over sustainable development i. e. alance between energy security and climate change, the clean energy technology sector is growing at a rapid pace. If commitments to overcome the financial, technical and policy barriers are made by the key stakeholders, India can become a potential world leader in the development and deployment of RE technologies and play a significant role in combating global climate change. Growth of Indian Economy The Indian economy has been experiencing a sustained boom. With an 8-9% growth in GDP, the Reserve Bank of India is projecting a 9. 2% growth in the economy in fiscal year 2007.
Because of the links between living standards, reliable electricity supply and GDP growth and, India, like many of the nations with emerging economies, is making access to reliable electricity supply a fundamental priority of central government policy. Recently energy demand has exceeded production done in India, and our country has become a major buyer of energy. India with 0. 8 per cent of the world’s known oil and natural gas resources and 17 per cent of the world population is going to face serious energy challenges in the coming decades.
With India’s history of technological innovation, massive domestic market, and bright entrepreneurial culture, the country is admirably positioned to capitalize on the new dynamic RE market. RE technologies represent a blossoming sub-sector of the global clean technology market; however, these technologies are undergoing fast growth and have potential for significant socioeconomic, financial and environmental benefits. In India, rapidly increasing significant deal flow and attractive market opportunities have fuelled investment interest, and accelerated market penetration of renewables; the growth in wind power being a good example.
Furthermore, the growth in deployment of renewable resources is likely to continue strongly and have a key part to play in meeting government policy targets and development goals, and could become the cornerstone of a significant new industry based on clean energy. Think Local, Think Green 1 Drivers for growth in Renewable Energy in India The following drivers show that the growth of the RE market in India is likely to be significant and the market fundamentals for investors could be long and enduring. Access to Energy
The Government of India’s commitment to provide electricity to predominantly rural India will drive the growth of off-grid RE technologies. By early 2007, 44% of Indian households still lacked access to electricity and less than 30% of rural Indian households had access to housing water, primarily due to lack of energy for motive power. There is a current electricity energy shortage of 8% and a peak demand shortage of 11. 6%, with increases in energy requirements projected at 6% per annum and electricity consumption at 7. 6% per year and peak demand projected to increase by 77% by 2012.
To meet this demand, power generation capacity would need to increase by 2. 5x current levels. Energy Security The central government has undertaken a strategy to diversify its energy mix to address energy security and RE is assuming an increasingly significant role. India imports approximately 75. 5% of its oil, and the International Energy Agency, forecasts that India’s dependence on oil imports will grow to 91. 6% by the year 2020. Despite doubling its generation capacity over the past decade, India is incapable to meet current energy demands. India was the 3rd largest importer of ethanol and the 5th largest consumer of energy in 2004.
India presently imports around 2. 5 million tons of coal annually and is expected to increase coal imports to 7 million tons annually over the next few years. Environmental Degradation In addition to the environmental impacts associated with resource extraction, the emissions of traditional fuel production have contributed to the global issue of climate change. India, like other developing countries, is facing challenges with limited arable land, severe air pollution and water quality issues. These kinds of environmental issues lend additional motivation for cleaner sources of energy production.
Resource availability India averages 300 clear and sunny days per year, has an installed wind energy production of over 7,000 MW, 3. 8 million biogas plants, and 15,000MW small hydroelectric energy capacity. India is the 4th largest producer of wind power and ranks in the top 5 countries with maximum RE power capacity. Think Local, Think Green 2 Human capital India has the human resources to draw on to enable the growth of a new industry based on RE technologies. For example India has a substantial amount of engineering students with around 465,000 graduating in the year 2004-05.
The Sustainable Development imperative Affordable energy has been connected to indicators of human development, and access to energy and electricity can increase access to education, reduce indoor air pollution, provide energy for medical equipment and storage, provide water and sewer services, create jobs, stimulate micro-enterprise, reduce poverty and increase life expectancy. Growth of the Carbon market India, as a non-annexure I country under the Kyoto Protocol, is eligible for carbon credit through the Clean Development Mechanism (CDM).
India is presently the world leader in development of CDM projects with a large potential for renewable energy generation from hydro, wind and agriculture wastes. Market Opportunities India ranked 3rd in the Ernst & Young Country Attractive Indices at the end of the third quarter in 2006, which ranks countries based on RE markets, infrastructures and their technologies and 4th in the E&Y Renewables Infrastructure Index. The International Energy Agency (IEA) predicts $16 trillion of investment inflows in the energy sector until 2030, $8. 1 trillion of which is predicted to flow to developing economies to meet energy needs.
Though there are some mature RE technologies, such as wind, India remains in a position to undertake technology collaborations, import mature RE technologies and processes to fill technology gaps, and scale up current production through both domestic and international investment. India Renewal Energy Policy and Regulatory Environment The policy and regulatory environment is a critical factor to stimulate the acceleration of the RE industry in India. RE policy and the corresponding regulatory environment provide a framework for the pricing signals and projected viability and sustainability of projects and technologies.
A critical component to private sector participation is a stable long-term clear and consistent policy and regulatory environment. Without this environment most global private sector companies and financiers will not accept the addition of political risk their investment. Government policies can set incentives to catalyze greater interest in the RE industry leading to increased research, development, investment in, and deployment of technologies. Think Local, Think Green 3 There is currently no central RE policy in India, though a draft model law has been proposed.
Currently, there are both central and state policies with some application to RE development in India. They include the following: • Electricity Act of 2003 which includes Renewable Portfolio Standards (RPS) targets and preferential tariffs for RE are to be set by appropriate commissions. • National Electricity Policy which promotes private participation in RE, reductions in capital cost of RE through competition and benefits of cogeneration. • Tax Act that allows for accelerated depreciation from 80100%, a ten-year tax holiday for infrastructure projects, and income tax exemptions for infrastructure related projects. 11th 5-year plan (2007-2012) has programme such as the Remote Village Renewable Energy Programme, the Village Energy Security Programme, the Remote Village Solar Lighting Programme and Grid-connected Village Renewable Energy Programmes for Solar thermal and Biogas There are mandates for states to set RPS targets, and as of July 2007, 13 of India’s 28 states have published RPS standards ranging from 0. 5%-10%. States have also specified purchase tariffs for procurement of power from different renewable energy based projects.
However as the resources, generation, and costs vary from state to state, the purchase tariffs estimated by different state regulatory commissions also vary from state to state. Appendix E in this report lists some of the RE tariffs by state. RE policies can be divided into (a. ) Feed-in laws and pricing systems and, (b. ) Quota systems Pricing systems tend to be more effective than quota systems for catalyzing growth of the RE industry. There are other incentives available at the central level, including indirect tax benefits through excise duty exemptions and customs duty reductions.
At the state level, some capital subsidies are available as well as tax exemptions, infrastructure support, and low interest loans. At both the Indian central government and state levels the policy environment is likely to continue changing, creating a more favorable environment for RE investing. Think Local, Think Green 4 Survey Results The findings presented here are a summary of results from a survey and consultations with many RE professionals and offer a contemporary snapshot of appropriate near term actions that could be implemented to accelerate the uptake of RE in India.
The following barriers have been found from the survey and consultations: 1. There is a need for clear consistent long-term government RE policies to guarantee investment certainty and RE project viability. 95% Agree 2. Subsidies for conventional fuel sources (such as coal) cause price distortions and disadvantages for RE technologies. 85% Agree 3. The legal/regulatory environment is weak or unclear creating uncertainty for RE investors and developers. 69 % Agree 4. RE technology-specific barriers (i. e. frequent supply, low conversion efficiencies and storage trouble) affect the economic feasibility of RE projects. 4% Agree 5. There is a lack of early stage debt and equity financing for innovative RE companies seeking to commercialize their technology. 73% Agree 6. Small and medium RE project developers find it difficult to obtain capital from financial institutions at affordable rates. 62% Agree 7. A lack of financiers experienced in dealing with the risk profile of RE projects affects the successful financing of new projects. 73% Agree 8. There is a lack of RE industry information (such as successful case studies and investment grade data) available to investors, financiers, developers and policy makers.
Think Local, Think Green 5 73% Agree 9. There is a general lack of awareness and skills to develop RE technologies and projects amongst financiers, policy makers developers, investors, and consumers. 68% Agree 10. There is a general lack of understanding of Indian business culture and how to build partnerships and trust. 70% Agree The main findings when searching for solutions to overcome the barriers are: 1. Develop a best practice renewable energy policy guideline that includes a document of successful case studies for APP partner countries. 80% Agree . Develop more innovative financial products and financing mechanisms (i. e. low interest loans for start-up companies, RE project risk insurance, small-scale RE projects, RE project bonds, RE mezzanine financing etc. ) 90% Agree 3. Establish an early stage RE fund to fill the funding gap between innovation and commercialization. 88% Agree 4. Undertake increased RE resource assessments and technology mapping of RE deployment in in countries where partnership exists to identify the loopholes and segments to transfer the technology. 71% Agree 5.
Develop tailored capacity building programs for project financiers, policy makers, developers, capitalists/investors, technicians and policy makers. 83% Agree 6. Run RE investor workshops/meetings to connect RE investors and project developers/entrepreneurs. 85% Agree 7. Establish a RE incubator program and more international R&D collaborative models to fast track commercialization of RE technologies. Think Local, Think Green 6 82% Agree 8. Undertake targeted RE business missions between APP partner nations. 66% Agree 9. Standardize protocols and procedures in India for RE measurement, monitoring, verification and technical certification. 1% Agree 10. Develop a best practice guide and template for project developers/sponsors applying for formal financing. 71% Agree How to Adjust with the Changing Micro-environment The Industrial Revolution is widely recognized as one of the most important events in economic history. Yet by many measures, the significance of that transformation pales in comparison with the defining megatrend of our age: the advent of a new consuming class in emerging countries long relegated to the periphery of the global economy. As with Olympics, there’s no single path to victory.
In emerging markets, companies, like athletes, must learn to make trade-offs, taking into account their own capabilities and those of competitors. They must choose where it makes sense to differentiate themselves through world-class performance and where it is wiser to run with— or, ideally, a little ahead of—the pack. Both the rewards for success and the costs of failure will be large. The crucial capabilities For developed-market companies, winning consumers in these new high-growth markets requires a radical change in mind-set, capabilities, and allocation of resources.
The value consciousness of emerging-market consumers, the diversity of their preferences, and their sheer numbers mean companies must rethink every aspect of operations, including product portfolios, research and development, marketing, supply chain management, and talent development. They must learn to place big bets on new markets and technologies, invest with speed and at scale, and manage risk and cultural diversity at a whole new level. Changes of such magnitude must be implemented in a thoughtful, systematic way.
With the help of colleagues who, in aggregate, have spent centuries applying their diverse expertise to the challenges of emerging-market competition, we’ve distilled a set of ten capabilities global corporations need in emerging markets. Just as winning a decathlon requires an athlete to master ten events, we believe winning in emerging markets requires companies to master these ten capabilities. Think Local, Think Green 7 Surgically target urban growth clusters The scale of the modern exodus from farms to cities has no precedent.
In emerging-market economies today, the population of cities grows world’s most ethnically and culturally diverse. It is the case with India, here cluster-based strategies are far more effective than attempts to achieve blanket coverage of an entire country or region or to chase growth in scattered individual cities. The results of switching to a cluster focus can be dramatic: in India, one leading consumer goods company recently cut costs in half by concentrating on eight large urban clusters rather than attempting to plot strategy for 200 different cities.
Anticipate moments of explosive growth In emerging markets, timing matters as much as geography in choosing where to compete. Demand for a particular product or category of products typically follows an S-curve rather than a straight line: there is a “warm-up zone” as growth gathers steam and consumer incomes begin to rise, a “hot zone” where consumers have enough money to buy a product, and a “chill out zone” in which demand eases.
Predicting when and where consumers will move into the hot zone also requires a granular understanding of technological, demographic, cultural, geographic, and regulatory trends, as well as a thorough knowledge of local distribution networks. Devise segmentation strategies for local relevance Identifying high-growth hot spots and anticipating when consumers there will be ready to buy isn’t enough. Companies also must determine how to refine their product or service offerings so that they will appeal to (or even shape) local tastes, be affordable, and give the company an opportunity to achieve reasonable scale in a timely way.
Leading companies also look for opportunities to scale ideas across emerging markets. Unilever, for example, has begun marketing its Pureit water filter, first launched in India in 2005, to consumers in Asia, Eastern Europe, and South Africa. Innovate to deliver value across the price spectrum Emerging markets offer Greenfield opportunities to design and build products and services with innovative twists on best-in-class equivalents in established markets. South Korea’s LG Electronics, for instance, struggled in India until the 1990s.
Today, LG markets many other original products in India, including appliances with programming menus in local languages, refrigerators with brighter colors and smaller freezers, large washing machines for India’s big families, and microwaves with one-touch “Indian menu” functions. LG’s product innovation center in Bangalore is its largest outside South Korea, and the company is India’s market leader in air conditioners, refrigerators, TVs, and washing machines.
Tanishq, part of the Tata Group, has built a fastgrowing jewelry business with heavily localized design and payment options that cater to the needs of different Indian communities and regions. Whether a company sells basic products or services to challenge low-cost local players or seeks to entice consumers to adopt new products and services comparable to global offerings, competing effectively often requires innovating and localizing, while redesigning product lines, service operations, and supply chains. Build brands that resonate and inspire trust
The intensity of emerging consumers’ focus on the initial consideration set favors brands with high visibility and an aura of trust. Companies can build visibility with a cluster-by-cluster strategy that achieves top-of-mind recognition in a handful of selected cities before moving to the next batch. Locally focused campaigns have the Think Local, Think Green 8 added advantage of accelerating network effects and making it easier for firms to generate positive word of mouth—a critical prerequisite for emerging market success. Lock in the support of key stakeholders
No matter where successful businesses operate, they need the support of key stakeholders in government, civil society, and the local media (increasingly shaped by online commentators). Managing these relationships effectively can have a huge impact on a company’s market access, ability to engage in merger or acquisition activity, and broader reputation. Is your emerging-market strategy local enough? For sure, the top cities are important: by 2030, Mumbai’s economy, for example, is expected to be larger than Malaysia’s is today.
Even so, Mumbai would in that year represent only 5 percent of India’s economy and the country’s 14 largest cities, 24 percent. The appropriate strategic approach will depend on the characteristics of a national market (including its stage of urbanization), as well as a company’s size, position, and aspirations in it. In India, where widespread urbanization is still gaining steam, we briefly look at similar ways of gaining substantial market coverage in a cost-effective way.
Often, the challenges of accessing consumption growth cost effectively are even greater in India because India is less urbanized and at an earlier stage of its economic development. Companies would need to reach up to 3,500 towns and 334,000 villages, for example, to pursue opportunities in the 10 (of 28) Indian states that by 2030 will account for 73 percent of the country’s GDP and 62 percent of the urban population. To allocate financial and human resources smartly and make things more manageable, companies need to walk away from averages and adopt more granular approaches.
Some companies will be well served by focusing on 12 clusters around India’s 14 largest cities. A hub-and-spoke approach in India should provide good opportunities to optimize supply chains, as well as sales and marketing networks. An established technology player formerly operated in 120 cities all over India, for example. Recently, it shifted to focusing on eight clusters with a total of 67 cities, which still gave it access to 70 percent of its potential market.
One benefit: customer service costs fell from a rapidly growing 9 to 10 percent of sales to a more acceptable 5 percent. Alternatively, a company might improve the economics of its Indian business by focusing on a handful of states, an approach recently adopted by a retailer that had previously been pursuing a national footprint. Another company, this one in the consumer goods sector, recently decided to pursue opportunities in eight cities where consumers earn over $2,500 a year—more than twice the average for India— and the retail infrastructure suits its products nicely.
Without this more granular analysis, the multinational would have stayed on the sidelines in the mistaken belief that Indian consumers weren’t ready for its products. It would therefore have missed the opportunity to challenge a competitor rapidly gaining the lead in those markets. Think Local, Think Green 9 The Tata Power Way “I am truly excited and honored to join a team that pioneered the solar industry in India and remains at its vanguard even after 20 dynamic years. With its deep roots and passion for solar, I am confident that we will make Tata Power Solar the leading solar company in the world”, said Mr.
Ajay Goel CEO, Tata Power Solar. Tata Power Solar, as one of the biggest solar energy companies in India, it offers: A wide range of innovative solar systems and solutions for rural and commercial markets, supported by a network of 150 dealers and service centers n? The expertise and capabilities to provide complete EPC solutions for large grid-connected solar power plants. n? A sophisticated 84MW solar cell manufacturing facility and 125MW module manufacturing facility n? A competent green workforce of over 600 employees, with deep expertise in solar
At the core of Tata Power Solar is the passion to harness solar energy to bring electricity to the masses. It has electrified over 500 rural villages in India and installed over 100 solar power plants in tough terrains of Ladakh. In addition, the Company develops unique power solutions for large industrial clients such as railways, defense and telecom. Mr. Anil Sardana, Managing Director, Tata Power, pointed out that, “In line with Tata Power’s commitment to clean, green energy, we are happy to integrate Tata Power Solar as a sunrise business into our operations.
Tata Power Solar embodies our focus and passion for sustainability and care for the environment and moves us closer to our commitment to sustainability and lighting up lives”. Conclusion The rise of the emerging world’s new consumer class is the greatest competition of our age for businesses. Business leaders and their boards need to ask themselves whether they are making the changes required to win or risk being overtaken by competitors with bolder ambitions. Creating a powerful emerging-market strategy has moved to the top of the growth agendas of many multinational companies, and for good reason. Emerging markets will