In the rut of low carbon practices, various governments are devising and executing a number of strategies. India’s challenge of shifting to a low carbon future is accentuated by the rapid economic development. In such a circumstance, the introduction of the revenue neutral carbon tax on coal is looked upon as a much needed measure to optimize the usage of fossil fuel in the country and with the tax revenue generated, promote sustainable growth in other areas with special emphasis on promoting renewable energy to make it the axial element of economic growth.

While presenting the 2010-11 budget, the Finance Minister in the Union Budget speech acknowledged that the ‘polluter pays’ principle shall continue to be the basic guiding criteria for pollution management. In order to fund research and innovative projects in clean energy technologies with the idea to promote clean and renewable energy, the National Clean Energy Fund (NCEF) was proposed. To build the corpus of the proposed fund, a tax on coal produced in India as well as those imported from abroad was announced at a nominal rate of Rs. 50 per tonne (Finance Budget 2010-11). The bottom-line strategy that has been recognized in order to minimize carbon intensity in the economy is to reduce dependence on fossil fuels and promote renewable energy. It is envisioned that the NCEF would play an instrumental role in crafting the renewable energy future of India, aiding the dream of the sustaining 8-10% of economic growth while paying due heed to environmental sustainability.

The government has launched an ambitious ten-year Green India mission with the purpose of protection and regeneration of forests wherein Rs 200crores from the National Clean Energy Fund has been allocated. Another Rs. 200 crore from the fund has been allocated for launching environmental remediation programmes to address increasing environmental pollution. In spite of these allocations, a set of well thought options is yet to be devised. There are many other areas, especially in the energy sector that await significant investments.

Ministry of Finance took the decision of introducing the carbon tax after realizing that various sectors and segments of the economy are in dire need of investment to ensure environmental sustainability and making sure that environmental enhancement is in tandem with economic growth, not at its cost. Let us now have a look at some of the pressing needs of the Indian economy that have been in a dire need of financial assistance.

According to a MoEF report, the energy sector alone contributed to more than 50% of GHG emission in India by the year 2007. Besides, primary energy consumption in India is projected to increase by over 1.5 times by 2030, from 20.3 Quadrillion Btu in 2007 to 34.1 Quadrillion Btu in 2030, thereby growing at an average of 2.6% per year. This is reflective of the fact that there is rapid growth taking place in the economy which is generating immense energy demands. Against such a backdrop, the substitution of fossil fuels as primary sources of energy becomes a critical policy measure. As we near the 8-10% growth rate, we need to scale up the energy sector, both in quality and quantity terms. This poses a challenge to address the twin objectives of sustaining its economic growth while simultaneously maintaining a low carbon emission environment. The only way to do so is to promote production and use of renewable sources of energy such as hydro, wind, solar, biomass etc.

India consumed 439 kg of oil equivalent (kgoe) per person of primary energy in 2003 compared to 1090 in China, 7835 in the U.S. and the world average of 1688. Given such a scenario, it seems that the energy sector needs a lot of investments to stimulate and facilitate innovations and achieve greater production in the renewable in energy sector. However, tredging the Clean Energy growth path is made challenging as this sector faces certain barriers. The most notable ones are the economic barrier, technical barrier, and institutional barrier. High initial investments and long gestation period of returns contribute to the economic barriers which makes the investors and private players loath in entering the sector. Technical barriers mainly include the risk and uncertainties regarding the performance of a particular technology, lack of standards, codes or certifications, system constraints, etc. Lack of formal institutions to promote renewable energy and clean technologies pose as a critical barrier to growth. The ESCO mode of finance, carbon backed finance, easy loans and revolving funds of MFIs are some the institutional framework. However, these institutions too face several constraints to realize the potential benefits.

In order that we combat the aforementioned challenges and overcome the barriers, it is imperative that investment in the renewable/clean energy is scaled up to impart resilience to various aspects of the growth of the sector. One of the ways to address this problem is to focus on fostering significant new flows of clean energy investment from the private sector. The public sector funds committed to date, and likely to materialize in future, are at least an order of magnitude too sparse. At the domestic level, addressing policy and regulatory obstacles to clean energy investment may be one of the most important ways that governments, Multilateral Development Bank (MDBs) and donors can observe their various technology transfer obligations.  Given the huge corpus, the National Clean Energy fund has the potential to address these challenges. It can be well diversified and allocated to ensure the clean energy and technology domain gets stimulated.

Having understood the needs that prompted the creation of the National Clean Energy Fund, complete fund allocation is yet to take place and a detailed plan is yet to be charted. Here’s an attempt to identify specific areas where funds can be directed from NCEF.

Rural Energy Needs

Nearly 70% of India’s population lives in villages and agricultural is the main support for their livelihood. It is, therefore, ironical that India’s rural population shares a much larger burden of poverty as well as energy poverty. Energy Poverty is a term for a lack of access to electricity, heat, or other forms of Power. For realization of India’s ambitious dream, ensuring inclusive growth would be essential. Alleviation of rural energy poverty in India has to be an important component of such inclusive growth agenda. Eradicating energy poverty requires that adequate infrastructure is put in place so that power can reach the corners of the country. Moreover, this power must be clean enough to be environmentally acceptable, affordable by the people and also feasible to implement. Most of these criteria are satisfied by Renewable Energy. Also, renewable energy can be implemented in a distributed format which makes it more suitable for providing power to areas with difficult geographical accessibility.

Following are two critical energy demands in the context of rural areas. Learning about the dire energy needs of the rural India, one can get an idea as to how critical it is to deploy clean and renewable energy technologies via some economically feasible and sustainable projects. This further adds to the vitality of the NCEF, and projects it as a potential source of fund to bring a rural electrification revolution in India.

  1.  Rural electrification: In the last six decades, in spite of installed electricity capacity in India having increased substantially demand has outstripped supply because of economic growth, urbanization and growing population leading to substantial energy and peak shortages which have consistently remained above 10 % level. In addition, electricity spread is an equally serious issue as more than 40% of the population has little or no commercial energy access for their living and livelihoods. Consequently, they have to depend on kerosene and for meeting their lighting and motive power needs.
  2. Domestic cooking: Rural households rely on biomass (wood, charcoal, animal dung, crop wastes) and coal-burning for household energy needs, particularly cooking. Use of these fuels indoors leads to levels of indoor air pollution many times higher than international ambient air quality standards allow for, exposing poor women and children on a daily basis to a major public health hazard. This exposure increases the risk of important diseases including pneumonia, chronic respiratory disease and lung cancer (coal only), and is estimated to account for a substantial proportion of the global burden of disease in developing countries like India. The burden of disease can be quantified in terms of 11 million DALYs (Disability Adjusted Life Years) lost and 360 000 deaths (Desai et al 2004). Emissions from solid fuels (firewood, coal, cow‐dung cake, crop residues etc) used in the rural areas have been recognized as major environmental and health hazards in India and many other less developed countries. Majority of rural households’ burn solid fuels (like wood, coal, cow‐dung etc) using inefficient earthen or metal stoves, or use open pits in poorly ventilated kitchens, resulting in very high concentrations of indoor air pollutants. Family size biogas plants and improved cook-stoves, both at the level of individual households or the community are the options available. About 4.27 million family size biogas plants are currently installed in India, although the estimated potential is around 12 million. Off grid renewable energy has great potential to mitigate the health hazards owing to the usage of conventional fuels.

National Mission on Strategic  Knowledge for Climate Change (NMSKCC)

The National Mission on Strategic Knowledge for Climate Change (NMSKCC) is one of the eight missions laid down by the National Action Plan on Climate Change (NAPCC). Some of the expected key deliverables of the mission are: A data collection and sharing system, 10 thematic knowledge networks, Regional climate models, Public -Private Partnerships, Technology Watch Groups, S&T collaborations with other countries, Outreach and Public Awareness Programs (Department of Science & Technology, GOI). This mission promises to generate abundant knowledge pertaining to climate change and environmental sustainability and ensure its percolation to the grass-root levels through the medium of awareness programs and knowledge centers. It is a mammoth mission that requires huge quantum of funds. It is proposed that NCEF is pitched to ensure the success of this mission.


The number of road vehicles have increased by nearly 92.6% from 1980-81 to 2003-04. These vehicles primarily consume non renewable fossil fuels, and are a major contributor of green house gases, particularly CO2 emission. The total CO2 emission for Indian transport was 258.10 Tg in 2003-04. Among all type of transport, road and aviation were first and second major contributor of air pollution. The road transport sector has contributed 94.5% and 53.3% of total transport emission of CO2 and CO.  Thus, emphasis should be laid on investing in clean transport technologies.

One of the popular technology already in the market are electricity run vehicles, which are 3 to 4 times more energy efficient as traditional gasoline and diesel vehicles and offer an opportunity to reduce the energy consumption for land transport. Given the needs of the transportation sector, making it environmentally sustainable would surely require huge investments. The NCEF can be used to scale up investments in this sector, focusing investments on technologies with following attributes (NORDIC Council Report 2010)

  • Energy-efficient transport technologies
  • Realistic and demonstrated technologies
  • Long-term flexibility in terms of RE sources for transport

Phase II of National Solar Mission

Phase 2 of the National Solar Mission targets to cover 15 million sq m of solar collectors, procure 1000 MW of off-grid solar application and 4000-10,000 MW of utility grid power, including roof top. In Phase 2, after taking into account the experience of  the  initial  years,  capacity  will  be  aggressively  ramped up to create conditions for upscaled and competitive solar energy penetration in the country. The proposed road map for attainment entails large scale deployment of grid connected as well as distributed solar generated power, and also decentralized of grid provision for commercial energy services. To ensure that the momentum of phase 1 of the Solar Mission is not lost and the implementation of the ambition plan does not get slackened, availability of funds is very crucial. There has to be sufficient investment capital available to fund innovative projects to accomplish the pursuits of solar mission.

Demonstration Projects for new technologies

The corpus of National Clean Energy Fund is a specialized fund that must be put to use in unique and innovative technologies and not run-of-the-mill ones. A new technology when conceived has to be put to practice in demonstration projects. Upon the success of demonstration projects, the technology can be brought down on ground at a larger scale and with a greater confidence. It is therefore very important that the demonstration projects do not experience a funding crunch. Normally, in order to develop a technology and into practice, the process goes through the stages of research and development, early stage, technology development, commercial scale, project development. Every stage requires specific kind of funds. After the technology is ready to be deployed in a project, the project too undergoes the pilot stage, deployment stage and commercialization stage. Even the project stages require customized funding to support venture. The NCEF has the potential to play an instrumental role to play in supporting the development of technologies and projects. This paper shall discuss in detail all the possible financial instruments like direct grants, soft loans, venture capital, private equity that can be used.

Reduce Diesel Consumption in Telecom Towers

India has around 3.1 lakhs towers, of which 70 percent are located in rural areas where grid connected electricity is not available. As a result, 60 percent of the towers are powered by diesel generators which produce a total of 5.3 million litres of carbon dioxide every year. The total carbon emission is estimated to be around 5 million tonnes due to diesel consumption and 8 million tonnes due to power grid connected towers. Besides telecom companies spend about Rs 300 crore every month on diesel. The move from diesel to solar and other alternate sources of energy will result in a reduction of 5 million tonnes of carbon emission as well as a savings of $1.4 billion (Rs 6,350 crore) in operating expenses for telecom tower companies. Thus, greening the telecom sector is extremely important. In telecom networks greening would refer to minimizing consumption of energy through use of energy efficient technology, using renewable energy sources and eco-friendly consumables.

Identifying the areas of fund allocation is equivalent to climbing only the first step. Efficient utilization of funds by means of investing it in the right projects and in the right form are other two vital aspects to be considered. Identifying right projects will have to take into account the expected benefits and associated risks involved. Putting the fund to use in the right form primarily refers to the interest rate that the fund will earn and at what stage of a given project will the amount be spent. In other words, determining whether the money spent will be a grant, equity or debt funding. Both these aspects will be discussed in subsequent posts.