Notes on Strategy

The Emerging Role of a Governmental Agency in Promoting Renewable Energy: Lessons for ANERT, Kerala

There will be a greater demand for and willingness to use alternative sources of power in Kerala in the future. How should ANERT transition to meet these?

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The Emerging Role of a Governmental Agency in Promoting Renewable Energy: Lessons for ANERT, Kerala

By: V Santhakumar

 
1. Introduction

The use of non-conventional sources of energy, such as solar power, has undergone notable changes during the last three decades. Technological innovations have consistently reduced the cost of energy production through these. There is also a growing awareness of the social need to increase the use of these sources due to environmental concerns, such as climate change. Hence, governments all over the world are pro-actively promoting alternative sources of energy.

The Government of Kerala established the Agency for Non-conventional Energy and Rural Technology (ANERT) in 1986 to popularizing alternative and environment-friendly sources of energy and technologies. The organization has facilitated the installation of small-scale solar devices and the training for and propagation of smokeless chulahs and biogas systems. It also helps the Government of Kerala in making and enforcing policies in the area of non-conventional sources of energy. The details of the different activities of ANERT are available on its website.

Having completed 30 years, the organization is currently planning a restructuring taking into consideration the needs of the next two decades in this domain. Requested by the organization, here are my views on the possible future of ANERT and the challenges that it may face. During this organizational transition, these may need to be considered.

2. The Situation when ANERT was formed

The status of non-conventional energy in developing societies such as Kerala in the mid-eighties (when ANERT was formed) necessitated certain steps as priorities for this organization. First, the non-conventional sources of energy were not very popular, and hence there was a need to demonstrate their benefits to people. Such a demonstration required model installations and also the provision of a financial subsidy to encourage people to install and use these devices. A financial subsidy was also important since the (per-unit) cost of the alternative sources of energy was higher than that of the conventional ones. At that time, the effort was mainly to popularize small-scale installations in houses and offices. Secondly, that was also the time when many households were burning biomass as fuel in their kitchens. Since the traditional chulhas had poor efficacy and released smoke (causing respiratory problems for the women cooking on these), popularizing the use of smokeless chulhas was also very important. Given this situation, the formation of ANERT was socially beneficial and it could serve the social purpose well. However, there has been a remarkable change in the conditions since and these are discussed in the following section.

3. The Current situation

First, the number of households that continue to use biomass has declined within the state. More homes than before use LPG and this trend will further increase due to the policies of the Government of India and also because of the income growth of households. Hence, one of the main activities of ANERT – that is the popularization of smokeless chulhas – may lose relevance in the coming years.

The need for the demonstration of alternative sources of energy has also come down. Debates on the environmental impacts of non-renewable energy sources and awareness through formal and non-formal instruction have made a significant portion of the population aware of the importance of the alternative sources of energy. This is especially so for a state like Kerala where not only is the average level of general education higher but also where most people are influenced by debates on environmental protection.

As mentioned earlier, the cost of alternative sources of energy, in general, has dropped. This has been due to the decline in the price of photovoltaic cells, globally and the mass production of the devices. The lowering of the cost of production would make non-conventional sources of energy nearly at par with conventional sources. Moreover, the focus on the use of non-conventional sources due to environmental concerns (and the associated financing mechanisms, such as the Clean Development Mechanism) and the availability of finance, have also enhanced the viability of non-fossil fuels, such as solar power. Hence, the requirement for a financial subsidy for the adoption of non-conventional energy sources has also declined (though not completely).

Another important development in terms of technological change is the scale in the production of alternative sources of energy, such as solar power. Since the per-unit cost of energy is lower in large scale projects, it reduces the financial viability of decentralized and small-scale installations. A related development that has important implications is the evolution of energy trading across national grids (international grids in case of geographically neighbouring countries) is that though there can be the production of electricity in different states or regions within a country, the energy consumption in each state/region need not be completely dependent on its own production. A state/region may buy electricity depending on the demand and price at a given point of time from the national grid, and similarly, the electricity generated in a region can be used to fulfil the local demand or sold at a price to the national grid. There could be a state which may find it profitable to sell the energy it produces at times, and buy it at other times. Hence, one can see the emergence of large-scale solar and wind power installations in different parts of India and these may sell power at competitive prices to different electricity units, including those in Kerala.

In the past, there have not been many private firms which could provide the services related to the installation and maintenance of devices to tap alternative sources of power, this situation too has changed. There are private firms and consultants providing services in this area and these may be a competition for ANERT if the latter is also involved in the provision of the same service. Currently, ANERT is involved in the installation of solar devices in government organizations. This may be due to a favourable treatment on the part of the government, or due to the fact that ANERT can be hired for this purpose without going through the hassles of a competitive bidding process.

4. Changes in the production of alternative energy: Implications for Kerala

There would be a greater demand for and willingness to use alternative sources of power in Kerala in the future. The relatively higher per-capita incomes (and the consumption expenditures boosted through remittances from migrant workers from the state) and also the higher level of environmental awareness may enhance the readiness of Keralites to use renewable sources of power (in addition to hydroelectric energy which occupies a significant share of the energy consumption within the state). However, this need not translate into a higher level of production of electricity from non-conventional sources within Kerala. The state may have certain disadvantages in this regard.

For this, we need to consider the different components of the cost of production. Since the technology and equipment/devices for solar or wind power are created at the international and national levels, one cannot expect much variation in the cost among different Indian states. Regarding labour, there is a need for both skilled and unskilled labour. Skilled labour is mobile within the country, which may also make the cost differences in it probably negligible between Indian states. However, the wage rate of unskilled labour continues to be higher in Kerala despite the migration of unskilled workers from other states. There are certain social and political conditions that keep the wage rates of unskilled labour higher in Kerala, which is also socially desirable. (There can be certain economic reasons too since the unskilled labour working in Kerala is mostly for non-tradable activities, such as construction). However, since the requirement for unskilled labour in alternative energy projects is not too high, it need not be a major determinant of the cost difference between different Indian states.

However, the need for land may change the cost drastically for both wind and solar power. Large scale projects (which reduce the per-unit cost) may necessitate large stretches of relatively flat land. It is not only that such land would be considerably costlier in any part of Kerala1 compared to many other states but also that such land may not be adequately available within the state. Though the land-price is generally higher in the cities in all states, the price of land is higher even in the rural areas of Kerala. Even if the state government plans to acquire land for this purpose, the required compensation would match the higher land price and the process of land acquisition would also encounter many hurdles within the state. There are areas like the deserts or other arid regions in parts of India which are not useful for agriculture and may have geographical advantages for the production of solar and/wind power. These places may have the twin advantages of reduced cost and the availability of higher (solar or wind) power. For all these reasons, one should not be surprised if large-scale solar or wind projects come up in other parts of India which can supply electricity at rates much cheaper than that within Kerala. Then, electricity consumption within Kerala may become more dependent on the national production (electricity available in the national grid).

5. The Challenges that ANERT may encounter

Though it currently carries out almost all the operations that it has carried out from its beginning, their relevance and the possible challenges in this regard need to be assessed for the emerging scenario.

One important challenge that ANERT may face is that the consumption of non-conventional energy in Kerala may become less dependent on the sources of energy within the state. Even if the Kerala government insists on its electricity board buying/using a specific portion of electricity from renewable resources, which is the case currently, the board need not buy it from within Kerala, since it may be available cheaply outside the state. If the government insists that it should be bought from Kerala, it may increase the cost of electricity for it and consequently for its consumers, the people of Kerala. Moreover, there is no environmental justification for any government to insist that there should be an increased level of use of renewable energy from within its own territory. What is important for reducing the environmental impact is to increase the consumption of alternative energy, not its production from any territory. Hence, one should not be surprised if there is only a subdued growth of the production of energy from alternative sources in Kerala, even if there is an increase in its consumption within the state. This may create challenges for ANERT if it continues to focus on the production of alternative energy.

The second challenge could be that the reduction in the cost of production (in the national grid) and of the provision of a subsidy may attract a number of private service providers. If ANERT continues to be a service provider, it may have to compete with the others. If ANERT continues to receive favourable treatment from government organizations, there can be concerns about the lack of a level playing field for the competitors. If ANERT combines different roles – that of an advisor to the government on renewable energy issues; that of a regulator of quality standards; or of a service provider for installations carried out by the government and others – there can be a conflict of interests. This may give rise to a social demand for transparency as part of the growing social concern about the issues of governance.

Most of the professionals who are employed by ANERT have developed expertise in its conventional activities, such as the demonstration of alternative energy models, the distribution of subsidy, installation of decentralized energy-generation systems, and so on. However, some of this expertise may not remain relevant in the coming years. There may be competing expertise available in the private sector for these activities. How does ANERT encourage its professionals to acquire expertise and competencies which are relevant in the future, may become an important concern.

6. The Options before ANERT

Given these challenges, ANERT may consider the following options before it as an autonomous organization owned and controlled by the state government.

Option 1: As an organization, its ultimate objective can be to promote consumption of renewable energy in Kerala. This may require facilitating the production of renewable energy within the state when and where it is economically advantageous. However, this may be its secondary objective because to achieve this it may require strategies that go beyond production. The current policy of the state government that necessitate the purchase/distribution of a specific percentage of renewable energy by the electricity board would require the purchase of such energy from sources not only within Kerala but also outside the state, based on cost considerations. Even though such clauses for mandatory purchase/use exist, these may not be followed in the absence of a technology-informed and concerned regulatory agency. In such a scenario, ANERT may have to take on such a regulatory role. Hence, it may become more of a policy, planning and regulatory agency to enhance the consumption of renewable energy within the state. It can also frame and enforce standards on installations made for generating/supplying non-conventional energy within the state.

However, if ANERT opts for this, it may require changes in the vision and capabilities of the organization. The planning and the facilitation of the use of renewable energy may require skills beyond those in engineering and administration. This may also necessitate legislative changes by which the government of Kerala endows certain regulatory powers to ANERT.

Option 2: In any scenario, a certain level of decentralized production of non-renewable energy would be feasible and necessary within Kerala. This can be for the production of electricity where is no opportunity cost of space (like the roofs of the buildings which cannot be used for other purposes). It can also be for the production of heat energy (for heating water). The generation of biogas may serve as a mechanism for the safe and decentralized disposal of biodegradable waste. Hence, there may be a need for the provision of different kinds of services for all types of customers for this decentralized production of non-conventional energy. ANERT can be a service provider for these.

However, as noted earlier, there would be an increase in the number of private service providers, and ANERT will have to compete with them. It can then become like a public sector organization providing a private service (like Air India), and its sustainability may be affected if it cannot achieve efficiency and customer-service orientation like that of a private company. It may be noted that there is no natural monopoly in this service provision justifying the presence of a large public sector organization as in the case of electricity supply. Also, there may be a demand for a level playing field by the private producers if ANERT receives favourable treatment from the governmental agencies.

There can be a number of issues if ANERT combines option 1 and 2 – domestic production and provision of service may work against a proper policy/regulatory role. It is ideal to unbundle these two roles. Also, there could be a social demand for such unbundling.

Option 3: The other option for ANERT is to be a research and development organization involved in the development of appropriate technologies for the generation and use of non-conventional energy in Kerala. There may not be a need for carrying out basic research or for the development of generic technologies (since international organizations are already more advanced in this regard), but there may be a need for adaptive research to make these technologies suitable for Kerala considering its socioeconomic and geographic/climatic conditions.

This may require the enhancement of technological and research capability of the professionals employed by ANERT. Though funding from government sources is necessary for this, there will also be a need for project-based funding from non-governmental or private sources based on ANERT’s research outputs.

7. Epilogue

We have discussed the possibilities of restructuring ANERT considering the future scenario with regard to the consumption and production of non-conventional energy. However, we may note that it is not easy (in fact, it can be very difficult) to change the main thrust of an organization given the institutional structure within which it is created and also the kind of people it has recruited over time. For the employees to acquire new capacities or to accept people with different capacities can be a big challenge. It is also difficult to change the incentive structure of organizations which determines the kind of activities that are desired or promoted. One reason for organizations to change albeit slowly and gradually is the pressure from outside, and I don’t see a strong pressure of that kind on ANERT. Yet another pressure could be the budgetary compulsions of the state government but that may not be a matter of concern here given the small size of ANERT and the relatively less burden it imposes on the finances of the state.

In such a context, there should be strong intrinsic interest on the part of the leadership and senior professionals of this organization to keep the organization relevant, viable and vibrant so as to meet the needs of the times to come.

AUTHOR

V Santhakumar, Professor, Azim Premji University

 

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1 comment on “The Emerging Role of a Governmental Agency in Promoting Renewable Energy: Lessons for ANERT, Kerala

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