1. The World Bank Group Ashish Khanna India Energy Team Leader South Asia Sustainable Development

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3. RE installed capacity has grown at an annual rate of 31 percent, rising from about 2.5GW in 2003 to about 15GW in 2010 Additions to renewable energy capacity, 1993/94–2009/10 3

4. Small Hydro is cheapest, followed by biomass, wind, and solar Biomass AP & MP SHP All States Wind TN & Karnataka Wind AP Wind Gujarat & MP Wind Kerala & Maharashtra Biomass Various states* Wind Rajasthan & West Bengal & Haryana Biomass Coal Avoided Cost 3.08 Rs / Kwh With Global Environmental Premium 4.96 Rs / Kwh With Local Environmental Premium 3.74 Rs / Kwh Economic competitiveness of wind, biomass, and small hydropower 4

5. Rapidly reducing cost differential RE has become much cheaper than diesel, where cost of electricity from diesel genset has increased from 8 cents/ kwh to 30 cents / kwh Even the most expensive RE technology - solar is now cheaper than diesel generators (allowing for benefits of any time availability of diesel gensets) However, Diesel generator capacity (~ 19 GW, as on 2009) is more than installed RE capacity (Currently, ~ 15 GW) 5

6. India has success stories in each RE Sector that other states can learn from State wise % RE Potential developed* Figures in ( ) are generation cost in Rs / kwh > 10%Andhra Pradesh (3.16) Karnataka (2.10)Tamil Nadu (2.44) Maharashtra (2.8) > 50% 5-10% Karnataka (3.06) Tamil Nadu (2.96) Orissa Maharashtra (2.10) Andhra Pradesh (1.74) Tamil Nadu Gujarat (2.7) Karnataka (2.5) Rajasthan (2.8) 10- 50% < 5% Uttar Pradesh Punjab Maharashtra Rajasthan (3.16) Madhya Pradesh Gujarat (3.10) Haryana Himachal Pradesh (1.65) NE states (2.02) Uttarakhand (1.70) Uttar Pradesh Jammu & Kashmir Andhra Pradesh (2.7) Madhya Pradesh (2.98) Orissa Kerala < 10% BiomassHydroWind * Only states with more than 500 MW of potential in the specific RE sector is shown 6

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8. Initial Phase of Feed in Tariffs States like Gujarat went in for Feed in Tariff based projects, with levelized tariff of $0.27 per kilowatt-hour for PV and $0.21 per kilowatt-hour for CSP over 25 years Meanwhile as part of domestic policy on National Action Plan for Climate Change, central government launched National Solar Mission Target of 1 GW solar (500 MW each for PV and CSP) – low capacity in 200 GW system, so solar is primarily industrial policy initiative and not energy security Central regulator offered feed in tariff of $0.36 per kwH for utility scale PV and $0.31 per kwH for CSP 8

9. Institutional Model to make solar attractive For reducing 4 times difference in tariff of solar with conventional sources, a 1:1 blending of conventional and solar power done Outsourcing of bidding and power purchase contracting to third party credible government agency with improved institutional capability (NVVN) Bids received for 1,815 MW against target of 150 MW for PV, and for 3,311 MW against target of 500 MW for CSP 9

10. Reverse Auction route Belief in cost reduction as more important policy objective than creation of industry capacity; and Ability of vibrant private sector of India to reduce cost - led to policy of Reverse Auction Non serious bidders dis-incentivized through higher proportional bank security for lower bids Price discovered through Reverse Auction for PV between 21.9 cents to 25.5 cents per unit and 21.2 cents to 24.7 cents for CSP (upto 32% discount to FiT). Further bids in late 2011 for PV at 15 cents. While RoE on investments expected to be low, business models based on encashing early entry strategy through capital markets/ private equity route 10

11. Continuation of FiT at state level with Reverse Auction at Central level 11

12. Further twist – Move to RPOs and RECs With no more availability of cheaper conventional power to blend, Regulators asked to define state specific and RE source specific Renewable Purchase Obligations (RPOs) Over and under achievement traded through RECs (White Certificates) Challenge of subjectivity as over performing states are penalized (high marginal cost of RPOs) potential gaming by states on low RPOs and high RECs Inter linkages with Energy Saving Certificates 12

13. Some Early Lessons 13 Capital Markets, VC, PE industry can crowd in RE inv, under suitable policy Private sector led models more amenable to reverse auctions and sourcing innovative finance Public Policy required for Innovation Innovative technologies on CSP (Concentrated Tower, Linear Fresnel, Hybrid, etc) being left by private sector in favor of conventional trough technology Competition early on reduces systemic inefficiency Advantage of auctions in separating “Men from Boys” early on, unlike FiTs where competitiveness discovered only with international competition Technology specific regulation Mature technologies like PV assist price discovery through reverse auctions Long term certainty and transparency Long term price and volume certainty to private sector essential for cost reduction – combining reverse auctions with RPOs create undue complexity

14. 14 For details, please contact akhanna2@worldbank.org