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ENERGY & RESOURCES

Home ENERGY & RESOURCES Page 3

by EOS Intelligence EOS Intelligence No Comments

Small Hydropower: Sub-Saharan Africa’s Answer to Energy Crisis?

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The Sub-Saharan Africa (SSA) region is believed to have bountiful energy resources, sufficient to meet the region’s energy requirements, however most of these resources are largely underdeveloped due to limited infrastructural and financial means. This has led to majority of the countries in the region to have restricted access to electricity, despite the presence of huge waterways, which could boost the hydropower sector’s growth, particularly the small hydropower (SHP) projects – plants with generation capacity between 1 and 20 MW. In recent years, SSA region’s focus has slowly shifted to SHP projects instead of depending on large-scale hydro plants, which are relatively expensive to construct and require longer time to build. However, question remains whether SHP has enough potential to improve electricity supply and reduce power outages across the SSA region.

African continent has approximately 12% of the global hydropower potential, most of which is centered in the Sub-Saharan region due to the presence of vast water bodies. Despite the underlying potential, the region faces massive electricity shortage partially due to under exploitation of hydropower.

Over the years, the SSA region has focused on the development of large-scale hydropower projects to increase its electricity generation capacity. However, recently, the emphasis has shifted to SHP because they are economically viable with almost negligible environmental effect and a short gestation period. Additionally, several small African economies utilize less than 500 MW of electricity annually, which negates the requirement to build a large dam, making SHP a viable option. Further, with comparatively lower overheads and maintenance costs, SHP could play a vital role in solving electrification problem in rural areas.

By 2024, the African SHP capacity is likely to reach 49,706.1 MW, growing at a CAGR of 19.2% since 2016, driven by the tremendous growth opportunities that the region offers. SHP projects are likely to proliferate in the region, owing to low capital investment requirement for installation, which makes SHP a more viable and affordable option than large-scale projects. SHP market still remains quite unexplored due to limited technological and infrastructural capabilities, and lack of sufficient promotion of SHP in national planning schemes.

Nevertheless, in the last couple of years, investments in the region’s SHP sector have increased, with various internationally-funded projects likely to commence installations. Geographically, countries such as Zambia, Uganda, and DRC (Democratic Republic of the Congo) are most suitable for SHP generation, due to the abundant presence of river basins and water resources. These countries depend predominately on hydropower for their energy requirements.

Hydropower is the primary source of power supply in Zambia, with a 99.7% dependency on hydropower to meet electricity needs. However, the country faces massive power outages due to fluctuating water levels, owing to persistent issue of scanty rainfall or droughts in the country, causing turbines to stop functioning to generate electricity. In 2015, the country witnessed a massive drought, which led to a huge decline in electricity generation. Nonetheless, since then, the country’s water level has improved, due to better rainfall pattern, resulting in higher level of power generation (as compared with 2015) through hydropower. The government has been making efforts to develop SHP stations to improve electricity supply – some of the SHP stations in the country include Lunzua, Mulungushi, Chishimba, and Shiwangandu hydropower stations.

Uganda’s power requirement is quite high due to extensive use of electricity in the industrial sector. The supply is always lower than the demand and the country faces frequent load shedding issue. Hydropower, accounting for 80% share in electricity generation, is the main source of power production in Uganda with a number of SHP plants in operation. Uganda’s government supports the hydropower market and has been making consistent efforts to promote SHP projects. For instance, in order to attract investors, the government provides incentives such as VAT exemption on hydropower projects.

DRC has the highest hydroelectricity potential in SSA due to the presence of particularly abundant water resources. Hydropower accounts for a share of 99% in DRC’s power generation. As of 2014, DRC’s total installed electricity generation capacity stood at 2,500 MW against its potential of 100,000 MW. In long term, DRC aims to become a key hydropower exporter in the region.

The SHP market across Zambia, DRC, and Uganda is still developing, with several potential SHP sites that could be harnessed to improve electricity supply. Each country faces its individual set of challenges in terms of SHP development, however, the hindrances seem trivial against the mammoth benefits that the countries could reap through SHP development.

Hydropower in Sub-saharan Africa

EOS Perspective

Hydropower holds a key position in SSA’s energy generation mix and SHP projects have particularly witnessed steady growth in the recent years. However, whether SHP has the potential to alleviate the power crisis in SSA is still debatable.

Is high reliance on hydropower a reasonable approach to overcome energy crisis?

While hydropower plays a dominant role in energizing the SSA region, continued energy crisis across various countries reflects the dangers of over-dependence on one form of energy for power generation. The chronic power shortages, load shedding, and low levels of electricity penetration are a clear indication that the SSA countries are unable to keep pace with electricity demands by heavily relying on a single power source.

Pinning hopes solely on hydropower to alleviate the energy crisis has spelled catastrophe for certain key industries, heavily reliant on electricity for functioning, that are suffering due to the electricity shortage. For instance, in 2014, DRC’s mining sector was adversely hit by the electricity supply shortage and development of new mines had to be frozen. The limited electricity supply situation has not yet improved, as DRC announced plans (in 2017) to import electricity from South Africa to support the struggling mining sector.

A solution to the electricity crisis could be to avoid heavily investing in one source for energy generation as well as to focus on tackling the fundamental vulnerabilities of power sector. In the long term, addressing the energy crisis would demand better management of water resources, continuously growing capacity of existing power plants along with a well-planned diversification of energy generation.

Is SHP a holistic solution to SSA’s energy crisis?

While focusing only on hydropower as a solution to the entire energy crisis situation across SSA countries might not be the best approach, developing SHP for rural electrification could be ideal to eradicate energy poverty across rural communities. SHP alone cannot consistently satisfy the energy demands of SSA countries such as Zambia, Uganda or DRC, but it can surely become the best possible solution to electrify rural areas, as people residing in these communities typically live closer to a river than to a grid.

Rural communities are characterized by much lower electricity access rates as compared with urban areas because people residing in villages typically cannot afford grid connections and in most cases the electricity supply through national grid does not reach the remote areas. SHP could play a major role in off-grid electricity supply that can be used for domestic application in rural households.

Besides the requirement to develop SHP particularly for rural communities, it is also essential for various SSA countries to adopt a cost-reflective tariff, which would ease pressure on public finances and attract more private investments.

Further, focusing only on increasing electricity supply is not a comprehensive solution to the crisis, as certain SSA countries such as Uganda suffer due to high tariff rates, which also need to be monitored. Uganda has one of the world’s highest electricity tariff rates and consumption is partially affected by it due to low affordability. The high commercial and industrial tariffs adversely impact some major industries such as agro processing (agriculture is a core sector of Uganda’s economy). A lower tariff rate could help to boost production across industrial sectors (including agriculture) and improve affordability among households.

Nonetheless, development of SHP projects would certainly help to move closer to eradicating the energy crisis in SSA region but only to a certain extent. It is imperative to take other measures as well to completely tackle the issues of supply shortage and load shedding. Development of SHP projects across the SSA region is challenging, however, navigating through these obstacles would be well worth the efforts, particularly in countries such as Zambia, DRC, and Uganda, where SHP could play a major role in rural electrification.

by EOS Intelligence EOS Intelligence No Comments

Nanotechnology – Changing the Face of Agriculture

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Nanotechnology, using particles of dimension between 1 and 100 nanometers, has been around for quite a while. It has been successfully implemented across various verticals including medicine, information technology, energy, consumer goods, among others. Over the past decade, there has been an increased interest in applications of nanotechnology for improving plant protection and enhancing crops’ nutritive value. Agrochemical companies are continuously exploring possibilities offered by nanotechnology in the field of agriculture. Though considered to be a revolutionary technology, research will continue to evaluate potential benefits of this ‘technology in progress’.

The growth of the overall nanotechnology market is certain in the future – it was already projected to be over US$ 3 trillion in 2015. Although the understanding of the critical role nanotechnology plays in modern agriculture is increasing, the development of these products for agricultural purposes has received relatively little attention. Developing nanocapsules for delivering pesticides, fertilizers, and other chemicals to agricultural fields in a more efficient manner should allow to reduce the application of plant protection products, minimize nutrient loss, and increase crop yields. Agrochemical companies are conducting rigorous R&D to develop nano-based chemicals and have been successful in developing a varied range of products. For instance, Syngenta, a Swiss agribusiness company, developed a nano-encapsulated broad spectrum synthetic insecticide named Karate Zeon, containing lambda-cyhalothrin that is released on contact with leaves, for the control of insect pests in a range of crops. The product is currently available for use in multiple countries including USA, Germany, Brazil, France, India, Mexico, Indonesia, UK, Canada, and Italy. Another agrochemical company, US-based Nano Green Sciences, developed an organic nanoparticle-based plant tonic Nano Green that enhances the nutrient uptake of the plant thus improving plant growth. The company planned to apply for approval of the product’s use as a pesticide in various countries back in 2008, but the status of this application is currently unclear.

Though several nanoparticle products are available in the market, they do not classify as ‘nano’ mainly due to lack of standardized definition of the product. Defining a nanomaterial as ranging between 1 and 100 nanometers does not necessarily apply to all. While, surely, these nanochemicals are smaller structures that differ from conventional chemicals (pesticides and fertilizers) in terms of biological and chemical configuration, they also vary in size, nature, and terms of use. Due to this unclarity, the currently available agrochemicals have not been officially labeled as nanoparticle-containing products. Many agrochemical companies have filed patent applications for their existing nanochemicals, but these applications’ statuses are still mostly unclear.

EOS Perspective

Research is conducted to understand the applicability of nanotechnology in agriculture. Solutions are being devised to improve crop quality by optimizing nutrient management, reduce the amount of chemical sprayed by smart delivery of active ingredients, and to minimize nutritional loss of the soil. Research institutes and agro companies are still exploring the potential that nanotechnology can offer in the agricultural field. Advanced products such as plant protectors, soil enhancers, and products that increase the nutrients absorption capacity of plants are being developed. For instance, Rice Research and Development Institute of Sri Lanka, in 2016, tested a range of nanoparticles referred to as Urea-hydroxyapatite nanohybrid, carrying urea to increase the crop yield of rice. The test results showed 10% increase in crop yield and reduced the consumption of fertilizer by 50%.

Despite potential benefits that nanotechnology can offer, these products are available in the market only on a small scale mainly due to the high costs involved in their development. The agricultural nanotechnology also does not promise sufficient ROI. Opportunities to test and understand the long term benefits of these nano products on crops in live environment are limited. Ensuring a good availability of dedicated agricultural farms solely for the purpose of R&D to study their behavior seems nearly impossible and producing these nano products involves high cost of development which indicates slow turnaround in terms of profits. Agrochemical companies, apart from developing technologically advanced products, are also aiming to cut the development costs. For instance, in 2005 NaturalNano, a US-based company, started developing clay nanotubes called halloysite as potential low cost alternative nanocapsules used as a carrier of pesticides. More technological initiatives similar to this are required to make nanotechnology in agriculture a success.

Thanks to the ambiguity of which available products can be considered under the ‘nano’ category and the uncertainty about the products profitability, the use of nanochemicals on a large scale seems limited in current times. It seems that in the near future agriculturists are likely to continue using the conventional means to treat crops in order to keep insects and pests at bay. There is no doubt that nanotechnology has huge potential to impact the agricultural sector in a positive way and may emerge as a winner in distant future, however, to be used at a commercial scale, continuous research to evaluate the technology’s potential future is crucial.

by EOS Intelligence EOS Intelligence No Comments

China’s Water Crises Set to Boost Private Investment

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The past two decades of a rapid industrialization in China have heavily impacted the country’s water supply and quality, resulting in almost two thirds of groundwater and close to one third of main rivers being classified as not suitable for direct human contact. The country is in a water crisis and wastewater treatment continues to be a key concern. The government is making efforts to strengthen the wastewater treatment industry, leading to an increase in investment and the number of joint ventures in the development of wastewater treatment plants.

The country’s 13th Five Year Plan provides ample opportunities for the private sector and foreign companies to bring in advanced technologies to support the country’s environmental targets, as under the Plan, the government plans to increase investment in wastewater treatment plants by 35% between 2016 and 2020. These plans have made China a great prospect for foreign investors, who can leverage on their experience and high-end technology to enter the local market, now receiving great governmental support, as wastewater treatment has become an integral part of the country’s environmental goals, following decades of neglect and a slow pace of pollutants reduction.

Opportunities appear vast, especially that many needed technologies are not available from local providers. For instance, ultrapure water treatment in pharmaceutical and microelectronics industries require advanced technical know-how which domestic companies are currently unable to offer. This provides opportunities for international players who can provide the necessary technology for the requirement of high quality water in semiconductor and pharmaceutical industries, both of which are witnessing a double-digit growth in China. Other needed but locally unavailable technologies include zero liquid discharge (ZLD) solutions that are compulsory in the coal-to-chemical wastewater treatment plants. Further, advanced wastewater treatment applications such as nanofiltration, reverse osmosis, and membrane bioreactor systems, which allow users to treat wastewater to a high standard, are required to comply with the new Chinese wastewater discharge standards. Such high-end applications can be offered by foreign companies who can thus gain a major foothold in the market.

What has greatly contributed to making the industry increasingly lucrative for suppliers of wastewater treatment technologies and equipment, are the legislative changes aimed at dealing with environmental issues. With a desperate need to improve environmental protection, the government introduced numerous policies regarding wastewater discharge and emission standards. Prior to the introduction of the new policies in 2015, state-owned enterprises were able to disregard the existing regulations, typically without any legal consequences. However, the new water pollution action plan has led to an increase in water and wastewater tariffs and higher wastewater discharge standards. The government has also tightened the facility inspections to ensure that the rules are being followed, and non-compliance to these regulations could now lead to a shutdown of the facility.

These stricter regulations offer significant opportunity for international players who can offer sound technologies which domestic companies are not capable of providing. For instance, less than a half of the 3,300 industrial parks in China have installed a centralized treatment plant. As per the new regulation, all industrial parks are required to install such plants by the end of 2017. The administration departments of these parks are now looking for appropriate solutions providers to meet this requirement. Fine chemical and petrochemical industrial parks, in particular, provide the greatest opportunities for foreign players as their wastewater treatment needs require high-end technology that is not available in the country.


EOS Perspective

China’s problem of efficiently managing its water resources has provided a boost to the country’s wastewater industry. The government’s willingness to support environmental protection even at the cost of industrial profits has made the country one of the largest markets for wastewater treatment in the world. With the use of various wastewater technologies, the country continues to grow its sewage processing capacity (around 3,717 wastewater treatment plants as of 2014, including Shanghai’s Bailonggang plant, world’s second largest wastewater treatment plant with capacity of 528 million gallons per day as of 2013). Ecologically progressive 13th Five Year Plan and the Water Pollution Prevention and Control Action Plan (also called Water Ten Plan) could lead to a flourishing wastewater treatment market with significant growth potential of annual investment of over US$ 6 billion.

Increase in investment and change in regulatory requirements have created ample opportunities for international players, primarily in terms of the much needed technical know-how and experience that domestic players are incapable of offering. International players such as Aquatech and Oasys Water have already leveraged on this and started gaining traction in the market. The entrance of international players could lead to increased competition in the market. Even though domestic players, supported by the state, will continue to have a strong foothold in the market, the rising demand for technical expertise is likely to make foreign players grab market share in the near future.

These prospects for international players are likely to be materialized as the Chinese government has introduced effective enforcement mechanisms to ensure that new regulations are being followed by wastewater treatment plants. It is promising that there are reported cases of heavy fines being levied on these plants. For instance, Hebei province in China spent around US$ 153,000 for the installation of automatic inspection systems at 210 wastewater treatment plants. Further, six wastewater treatment plants in the province were fined a total of US$ 3.3 million in 2015 for discharging excessive pollutants, post the introduction of the new regulations. If the government continues with its efforts for stricter enforcement, polluting plants will be forced to implement the required technologies, a step that will be welcomed by international wastewater treatment solution providers capable of offering such technologies.

by EOS Intelligence EOS Intelligence No Comments

Bayer-Monsanto Deal to Genetically Modify the Agriculture Industry

pot with coins saving concept

After its abandoned attempt to acquire Syngenta in October 2015, Monsanto stated it would continue its search for best acquisition targets within the agriculture industry claiming that “consolidation is inevitable”. The statement turned out to be prophetic. The agriculture industry has seen a signification M&A activity throughout 2016 – first with ChemChina acquiring Syngenta in a US$43 billion deal, followed by a planned merger of Dow and DuPont (probably two of the largest agrochemical companies), and now with Bayer announcing a US$66 billion deal to acquire Monsanto – putting further pressure on the already competitive and consolidated industry.

Every deal can bring positives and negatives, depending on from whose point of view the deal is looked at. While some may see positives in the Bayer-Monsanto deal, indicating it as the logical step of vertically integrating in the agriculture supply and value chain, others see it as a risk, and a desperate move by Bayer to remain competitive in a consolidating industry, especially when Monsanto has a not-so-good reputation among consumers.

Investors’ point-of-view

The joint portfolio of Bayer and Monsanto will surely allow the combined entity to move to the forefront and become a leader in seeds and pesticides market (holding more than a quarter share in the segment post the acquisition), which will allow the company to dictate terms in the market – definitely a positive from the investors’ point of view. Further, a cash-only deal, financed by the company’s cash reserves and new debt, display Bayer’s optimistic expectations about the company position in the near future, acting as a sweetener for the investors.

The combined Bayer-Monsanto entity is also expected to achieve improved operational efficiencies. Bayer claims the merger will result in annual synergies of US$1.5 billion after three years, bringing in operational costs reduction. Consolidation of R&D expenditure is also likely to result in further cost savings.

However, there are some critical voices as well. Historically, Monsanto has had a bad reputation for its aggressive policies, and was rated the third most hated company in the USA in 2015. Acquiring such a company could backfire on Bayer. Moreover, certain investors feel that pursuing the cash only deal may put pressure on Bayer’s core pharmaceutical business.

Market’s point-of-view

If the Bayer-Monsanto deal, as well as the Dow-DuPont merger, get the regulatory approvals, they will effectively end up consolidating more than 75% of the agricultural supplies market in the hands of four companies (Bayer-Monsanto, Dow-DuPont, ChemChina-Syngenta, and BASF). This presumably is likely to leave smaller companies at a very disadvantageous position, fighting for their survival.

A number of regulatory authorities (30 in case of Bayer-Monsanto deal) will engage in a long drawn process (lasting the entirety of 2017) to ensure the market remains competitive, and that must be enough for smaller companies and consumers to cling onto.

Consumer point-of-view

Experts feel the Bayer-Monsanto merger might lead to poorer choice and lower number of product options for consumers to choose from. This may lead to a rise in prices of agricultural supplies, which is not likely to go down well with the consumers, as the agricultural commodity prices and incomes have dropped to their lowest levels in the past couple of years. Any increase in raw material prices is likely to leave consumers scraping for margins.

EOS Perspective

Which of these positive and negative outcomes actually materialize will likely depend on how the industry behaves in the next year and a half, as Bayer and Monsanto wait to get the required regulatory approvals. If the deal gets a green light, the nature of competition in the agricultural supplies industry is undoubtedly destined to be ‘genetically modified’.

by EOS Intelligence EOS Intelligence No Comments

Investors Wary of Intense Bidding War in Indian Solar Sector

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India is seen as an upcoming solar energy investment hotspot after its announcement of an ambitious target to install 100 GW of solar power capacity by 2022, which we wrote about in our article “Solarizing India – Fad or Future?” in July 2015. However, in view of record low tariffs following the competitive bidding, investors have begun to raise concerns over the viability of such solar projects and doubt to earn desired returns on their investment.

 

Bidding War in Indian Solar Sector - EOS Intelligence

Bidding War in Indian Solar Sector - EOS Intelligence

Bidding War in Indian Solar Sector - EOS Intelligence

EOS Perspective

Indian government has been strongly in favor of competitive bidding or reverse auctions in order to bring down the cost of solar power. Though the solar power costs have significantly declined, aggressive bidding wars have resulted in irrational competition and unsustainable business models. Amidst concerns over viability of solar projects with such low tariffs, investors have become extremely cautious and suspect solar might be a risky investment. Developers may soon find themselves in financial constraints if the investors’ confidence continues to wane.

In such a scenario, Indian government should review the reverse bidding process of solar projects to balance the bid tariffs with viability. Another alternative is to device low cost financing avenues for solar projects. For instance, the government is planning to raise US$600 million for renewable energy projects by issuing tax-free bonds. This fund will be made available for development of renewable energy projects (including solar projects) at an interest rate of 10.5%, which is lower than the rates offered by the domestic banks. Solar projects are highly capital intensive and the government will need to be at the forefront in raising adequate funds to achieve its ambitious solar target in time.

by EOS Intelligence EOS Intelligence No Comments

Solar Rises in the East

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The international solar arena which was once dominated by the developed countries in the West is now flaring in the emerging markets of Asia. We are looking at a holistic view of solar PV market across selected Asian countries – the finale of our series focusing on solar photovoltaic market landscape across selected Asian countries.

Our previous articles of the series took a detailed look into current scenario and future prospects of solar PV market in China (China’s Solar Power Boom), India (Solarizing India – Fad or Future?), Thailand (Utility-scale Projects to Boost Thai Solar Market), as well as Malaysia (Uncertainty Looms over Future of Solar PV Market in Malaysia).

 

Solar Rises in the East - Markets Overview - EOS IntelligenceSolar Rises in the East - Markets Are Moving Towards Solar Power - EOS IntelligenceSolar Rises in the East - Growth Drivers - EOS IntelligenceSolar Rises in the East - Growth Challenges (1) - EOS IntelligenceSolar Rises in the East - Growth Challenges (2) - EOS IntelligenceSolar Rises in the East - Opportunities - EOS IntelligenceSolar Rises in the East - Our Perspective - EOS Intelligence

by EOS Intelligence EOS Intelligence No Comments

Botswana Diamonds – A Mixed Blessing?

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While Botswana has been an important player in the global precious stones industry for years, it has once again received global attention in November 2015, when the second-largest diamond ever unearthed was found in Botswana’s Karowe mine. Diamonds-derived revenues have been the key pillar to the country’s development over years, on the back of Botswana’s considerable deposits and well-performing global precious stones market. However, the outlook for Botswana might not be so bright anymore, as industry experts expect the global diamond production to decline after 2025 when majority of the mines are likely to be exhausted. Botswana, still one of the largest producers and exporters of diamonds, is already facing challenges in this industry. Being a diamond-dependent economy, will Botswana be able to maintain a sustained growth in the future as its shining precious gems industry weakens?


Diamond-fueled economic growth

Botswana, a small African country with a population of around two million people, has witnessed huge success since its independence in 1966. From being one of the poorest countries in the continent, Botswana has grown to be now considered one of the fastest developing countries in the world (with average annual GDP growth rate of 4.45% from 1995 until 2015). The success of the nation is largely attributed to the diamond deposits and the associated extraction industry. The discovery of the gems in 1967 led the way to the country becoming the poster child of the continent’s success. As of 2015, the diamond industry contributed 80% to the country’s export revenues and 30% to public revenues. In 2013, it accounted for around 25% of the country’s GDP. The success of the industry paved the way for the development of several roads, schools, and clinics in the country. Gaborone, the capital of Botswana, has transformed from a village to a city of malls and office buildings, all largely thanks to the diamond industry. Further, the sector has created job opportunities in the country and greatly contributed to raising standard of living of the country’s citizens.

“For our people, every diamond purchase represents food on the table, better living conditions, better healthcare, potable and safe drinking water, more roads to connect our remote communities, and much.” – Festus Mogae, Botswana’s President, 2006

As of 2014, Botswana was the largest producer of diamonds in terms of value and the second largest, after Russia, in terms of volume. The country’s production increased from 17.73 million carats in 2009 to 24.67 million carats in 2014. This represented a hike of almost 40% in the span of only five years.

Diamond mining operations in Botswana are controlled by Debswana Diamond Company, a joint venture between De Beers, world’s leading diamond company engaged in exploration, mining, and marketing of rough diamonds, and the Botswana government.

In the past years, the government has undertaken various initiatives to make the country a global diamond hub. In 2013, Dee Beers and the Botswana government formed the Diamond Trading Company Botswana (DTCB) to encourage the practice of sorting and marketing rough diamonds in the country itself, rather than sending them to De Beer’s Diamond Company based in London. This move facilitated job creation and upliftment of the local businesses in Botswana. Further, a state-owned company called Okavango Diamond Company was set up in order to sell 15% of the diamond production of Debswana independent of De Beers.

Blog Article- Botswana Diamond- A Mixed Blessing

Grim future for Botswana

Despite being amongst the leaders in the global diamond industry, a grim future lies ahead for Botswana, driven by a range of reasons.

  • A weakened global demand: The global jewellery industry has been observing a sluggish demand, which has led to the global prices of diamonds witnessing a 12% decline from 2010 until 2015. To compensate for the stagnant sales, Botswana had been relying on opulent Chinese and Indian customers. However, the strengthening of the dollar and the decreasing price attractiveness of Chinese exports have weakened the Chinese economy. This was followed by a 2% devaluation of the Chinese currency, Yuan, which in turn has adversely affected the spending and demand for Botswana diamond by Chinese consumers.

  • Difficulty in diamond extraction: Botswana mines have reached a plateau as most of the diamond volume has already been extracted from the surface. Deeper extraction has now become a costly and time-consuming affair, showing an early sign that diamonds are likely to gradually become inaccessible in the country.

  • Competition from India: It is becoming increasingly difficult for Botswana to compete with a low-cost country such as India where majority of diamond cutting takes place. Although the wages in both countries are almost the same, India has levelled up its game by increasing its productivity by two to three times higher than that of Botswana’s. The cutting and polishing costs in 2013 ranged between US$ 60 and US$ 120 per carat in Botswana, whereas, in India it was between US$ 10 and US$ 50 per carat.

The above challenges have had an adverse impact on the country’s economy, particularly the employment sector. Teemane Manufacturing Company, a 20 year old diamond cutting and polishing firm in Botswana, shut down in January, 2015, leaving around 350 workers jobless. In the same period, MotiGanz and Leo Schachter, diamond cutting companies, also released almost 150 employees, and Debswana shut down two of its mines. These companies are offering retrenchment packages to their employees and ending their contracts with third parties which is likely to be affecting over 10 thousand jobs in the country. Shutting down of companies has also led to a decline in the various CSR programmes. The villages near the mines will no longer benefit from initiatives such as electrification of schools and development of roads.

The weakening demand also meant that early this year, De Beers failed to dispose off 30% of its diamonds stock. The company had to reduce its 2015 production target from 23 million carats to 20 million carats. And the impact of the sluggish demand goes beyond the industry as well. In the first half of 2015, the country witnessed a year-on-year decline of 16.8% in the export of rough diamonds. Further, since the production of diamonds is a critical element in Botswana’s GDP composition, a fall in the diamond output has reduced the country’s GDP growth forecast for 2015 from 4.9% to a mere 2.6%. Botswana’s government has decided to use its foreign reserves amounting to around US$ 8.3 billion to fuel growth in the country.

EOS Perspective

The Botswana economy has relied heavily on its diamond industry for survival for a long time. Since the revenues from diamonds are now becoming uncertain, the country is in a dilemma of how to keep its economy moving. Encouraging economic diversification could be one of the ways to help the country reduce its dependency on diamonds. Apart from diamonds, Botswana also produces other minerals such as coal, copper, iron ore, and nickel. The country should focus on developing a suitable industrial policy to promote the production and export of these minerals. However, whatever the alternative growth-fuelling path is chosen by Botswana, the country has a long way to go in order to shift away from over-dependence on diamonds, its largest structural weakness, to make its economy sparkle even when diamonds run out.

by EOS Intelligence EOS Intelligence No Comments

Solarizing India – Fad or Future?

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The new Indian government, elected in 2014, has created a wave of enthusiasm in Indian solar sector with its announcement of an ambitious target to install 100 GW of solar power capacity by 2022. But considering that India had an installed solar PV capacity of only 3.74 GW as of March 2015, achieving this target seems to be a herculean task.

This article is part of a series focusing on solar PV market across selected Asian countries: China, India, Thailand, and Malaysia.
The series closing article Solar Rises in the East examines challenges and opportunities in all four markets, with additional look into Indonesia and
The Philippines.

Market overview

India’s still modest solar PV capacity indicates how ambitious the 2022 target is. The country expanded its cumulative solar PV installed capacity from a mere 35.15 MW in March 2011 to 3.74 GW in March 2015. According to Indian government calculations, the country would need to invest US$110 billion between 2015 and 2022 to achieve the target of 100 GW solar power capacity. While obtaining such funding seems like a challenging task, it seems India has it all sorted out. At RE-Invest 2015 (a renewable energy global investment promotion conference held in New Delhi in February 2015), Piyush Goyal, minister of state for coal, power, and renewable energy, managed to get commitments worth US$200 billion from Indian companies as well as foreign investors. Furthermore, government managed to get commitment to build 166 GW solar installations from several solar developers.

Government is in talks with leading multilateral funding and lending agencies, such as the Asian Development Bank, World Bank, Germany-based KfW, Japan International Cooperation Agency, and Japan Bank for International Cooperation, to raise US$3 billion for solar power projects. In 2014, India received a funding of US$1 billion from US Exim Bank for solar power projects in the country. Announcement of 100 GW solar target has also caught attention of several private equity firms such as Goldman Sachs, Morgan Stanley, IFC, and Standard Chartered. All of these efforts to secure funding for solar projects allow to hope that the 100 GW target by 2022 is achievable.

As India is blessed with virtually limitless solar energy, such inflow of NREL - Indialarge-scale investment can aid rapid development of solar market in the country. With more than 300 days of sunshine, India ranks among the highest irradiation-receiving countries in the world. Most parts of the country receives solar irradiation between 4-7 kWh/m2 per day (as seen in India Solar Resource Map, sourced from National Renewable Energy Laboratory).

A report, released in November 2014, by Indian Ministry of New and Renewable Energy estimated the country’s solar power potential at about 750 GW indicating that India has the prospects to become one of the largest solar power markets in the world. As per the report’s estimates, regions of Rajasthan (142 GW) and Jammu & Kashmir (111 GW) have the highest solar power potential in the country. More than 60 GW of solar power potential is estimated for Madhya Pradesh and Maharashtra, which are among the largest of the Indian states with large wasteland resources.

Key growth drivers

Rising Energy Gap

India is experiencing unprecedented energy demand from its increasing population (1.27 billion as of 2014) and rapidly developing economy (India’s economic growth rate for fiscal year 2014-15 is estimated at 7.4%). The country consumed 869,000 GW of electricity in 2012, representing 130% increase as compared to electricity consumption in 2000.

India remains a power-deficit country, with 25% of its population not having access to electricity, according to Census 2011. The country suffers from severe shortages of electricity, particularly during peak hours of demand. Moreover, significant dependence on oil imports to meet energy needs poses threat to country’s energy mix. Considering country’s tremendous solar potential, solar power generation can potentially fill in the mounting energy gap of the power-hungry nation.

 

Declining cost of solar power generation

Solar power is becoming increasingly affordable, with cost of solar equipment declining significantly over the last few years as a result of rising competition and technology advancements and innovation.

 

We are already close to grid parity as the cost of modules has come down and the generation cost of thermal and gas plants has gone up due to increase in fuel cost.
– Rajya Wardhan Ghei, CEO, Hindustan Cleanenergy, 2014

In case of utility-scale solar PV projects, solar power generation costs in India have come down from about INR 18 (US$0.28) per kilowatt-hour (kWh) in 2010-2011 to INR 5.25 (US$0.08) in 2014, which is comparable to cost of electricity generation by power plants using imported coal (coal accounted for 59% of total installed electricity capacity in India in 2014, and about 23% of the demand for thermal coal, which is used primarily in power generation, was met by imports in 2014). Institute of Energy Economics and Financial Analysis concluded in 2014 that newly built imported coal-fired power plant would require power purchase agreement of INR 5.4-5.7/kWh (US$0.85-0.9/kWh).

Solar is going to become one of the lowest-cost forms of generating electricity, even cheaper than fossil fuel.
– Pashupathy Gopalan, Head of Indian operations and President-Asia Pacific, SunEdison, 2014

An A.T.Kearney publication in 2013 suggested that solar power would achieve grid parity (grid parity occurs when an alternative energy source can generate power at a cost lower than or equal to the price of purchasing power from the electricity grid) with conventional power between 2016 and 2018. Similarly, in 2014, Bridge to India, a solar consultancy firm, suggested that the grid parity would be achieved by 2018.

In case of roof-top solar PV projects, experts believe that grid parity is nearly achieved. An article published in The Hindu in March 2015 suggested cost of electricity generation through roof-top solar PV was almost at par with cost of conventional power for commercial consumers (rate of electricity in India varies depending upon state of location, e.g. Gujarat, Rajasthan, Haryana, etc., and type of consumer i.e. domestic/residential, commercial, industrial, and agricultural consumers) in 40% of the Indian states.

As the economic viability of solar power generation continues to increase in India, solar power is expected to gain traction over conventional energy sources, which would further accelerate development of solar market in the country.

Government incentives for solar development

Indian government has taken several initiatives to support solar market growth. Central and state governments offer both tax and non-tax benefits to promote investment in solar power sector.

TABLE I: Tax and Regulatory Benefits (Source: RE-Invest 2015)

Income Tax Holiday
  • 100% for 10 consecutive years – 20% Minimum Alternate Tax (MAT) to apply (if a company’s income tax in India is less than 18.5%, then it has to pay the MAT)
Accelerated Depreciation
  • Accelerated depreciation – 80% on solar assets
  • Additional depreciation – 20% on new plant/machinery in the first year
Deemed Export Benefits
(“Deemed Exports” refer to those transactions in which goods supplied do not leave country, and payment for such supplies is received either in Indian rupees or in free foreign exchange)
  • Advance authorization from Directorate General of Foreign Trade
  • Deemed export drawbacks on the customs duty paid on the inputs/components
  • Exemption/return of Terminal Excise Duty
Service Tax
  • Services of transmission or distribution of renewable source-generated electricity by an electricity utility are exempted from service tax
Customs And Excise Laws
  • Various duty concessions and exemptions to Renewable Energy (RE) Sector
Reduced VAT
  • Certain states allow reduced value-added tax rates (around 5%) on RE projects
Additional One-Time Allowance
  • 15% additional one-time allowance available in budget 2014 on new plant and machinery
Tax-Free Grants
  • Grants received from the holding company engaged in generation, distribution, or transmission of RE power

TABLE II: Non-Tax Benefits (Source: RE-Invest 2015)

Feed-in-Tariffs
  • Applicable when renewable generators sell to state utilities under the MoU route (MoU route means agreements entered into bilaterally without inviting bids)
Rebates
  • Available on the manufacturing of solar and wind components
  • Targeted at specific types of renewable energy technology
  • Include subsidies and rebates on capital expenditures
Government R&D Programs
  • Improve renewable energy technologies
  • Lead to growing performance, importance, and reducing costs

Government-led measures to create a conducive business environment for solar sector in India are expected to lure new players – local as well as global – and eventually expand the market space to support country’s solar mission.

Key challenges

Inefficient transmission infrastructure

Inadequate transmission infrastructure to connect solar power to the grid is expected to be a major roadblock to country’s 100 GW solar ambition. Federation of Indian Chambers of Commerce and Industry indicated in 2013 that the transmission and distribution losses due to poor grid structure were around 23% of the electricity generated. This clearly shows that a rapid up-gradation of transmission infrastructure would be essential to sustain the envisaged growth in solar power generation.

The solar target is very ambitious. There will be transmission and other infrastructure constraints to contend with.
– Bharat Bhushan Agrawal, Analyst, Bloomberg New Energy Finance, 2014

India has begun to work on developing high capacity transmission systems to accommodate the projected solar capacity as part of the US$6.96 billion ‘Green Energy Corridor’ project (announced in 2013), under which the government has planned to construct inter-state and intra-state transmission infrastructure across seven states of the country by 2017-2018. KfW, a German government-owned development bank, is expected to lend an initial US$285 million for this project. However, despite availability of funds, not much progress has been noted in the proposed ‘Green Energy Corridor’ project. By early 2015, just two sub-stations were constructed, one each in Tamil Nadu and Rajasthan, to feed renewable power to the main grid. Power Grid Corporation of India, which is to execute the project, argues that there is not enough renewable energy capacity addition and they are still on wait-and-watch mode. With this approach, the proposed green corridor project is likely not to be completed within the proposed time frame. So, it seems that despite concentrated efforts to improve the transmission infrastructure, the progress has been slow, which will hamper the proposed development plans of solar market in the country.

Difficulties in land acquisition

The challenges and menaces involved in sourcing land for large-scale solar projects is daunting many solar developers in India. Large-scale solar power plants require huge space – construction of a 100 MW solar plant typically require around 500 acres of land. The issue is that, in India, land is very fragmented (according to a media article by The Indian Express in March 2015, the average landholding size in India was three acres). And, as per the Land Acquisition Act (The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013), in order to acquire a tract of land, private companies need to get consent of 80% of the land owners of the particular area, while public-private partnership projects need to get consent of 70% land owners. Thus, it becomes extremely difficult to individually negotiate with all the land owners in an area selected for construction of a solar plant, and convince them to sell their respective portion of land and make a large space available. Furthermore, in India, the records of landholding cannot be easily verified and authenticated and many land owners do not have clear title to the land they possess, which might lead to litigations and disputes over the land at a later stage.

Land titles are usually not very clear [and] even if a land deed is shown to be in one person’s name, another relative can come forward and stake his claim and the matter can be sub-judice for years, if not decades. – Jasmeet Khurana, Solar Analyst, Bridge to India, 2014

Many solar projects have been stalled in the country due to these challenges in land acquisition, which has eventually impacted the project budget and costs.

Challenges faced by Essel Infraprojects in acquiring land for solar power plants

In June 2014, Essel Infraprojects, infrastructure arm of an Indian conglomerate – Essel Group, were nearing the completion of a 20 MW solar power plant in Maharashtra, and only last 10 km of transmission lines were to be set up to connect the INR 2 billion (US$31.5 million) plant to the state electricity grid. However, owners of the land on which the transmission towers were to be erected refused to allow their construction.

Negotiating terms with the land owners resulted in delay of project completion by six days. Though the delay was relatively short, unlike in other large-scale infrastructure projects where the litigations with land owners can go on for years, even the six day delay lead to a considerable loss of INR 500 million (US$7.87 million) in bank guarantees.

Learning from their experience in Maharashtra solar power plant project, for their next solar project (a 30 MW solar power plant in Punjab) Essel Infraprojects first acquired the land for transmission towers. In this case, the company struggled to acquire the land for plant itself. The company had started negotiating land deals at INR 800-900 thousand (US$12,598-14,173) per acre, but during the talks the price demanded by land owners increased, and the company had to settle paying INR 2.5 million (US$,39,370) per acre.

Land acquisition for solar projects has proved to be challenging not only for private companies, but also for state-owned enterprises. In 2014, Mahagenco, Maharashtra state-run power utility company, reported delay in construction of solar projects of 125 MW capacity (100 MW in Osmanabad and 25 MW in Parbhani) due to difficulties in acquisition of land. The land holdings on the proposed construction sites are in small segments and Mahagenco is facing difficulty in convincing all the land owners in that area to sell their respective parcels of land to create a larger land area available for the solar plant. Because of the delay, the state missed its target of installing 313 MW of solar capacity for 2013-2014.

Difficulties in sourcing land for solar projects has resulted in delay of project execution and escalated costs. Government has proposed amendments in the Land Acquisition Act, including removal of ‘consent’ clause, to ease and expedite the process of securing land for reform-oriented projects. But this proposal has been stalled due to immense opposition from most political parties and social activists, who argue that the proposed amendments would weaken the rights of land owners. Unless the issues pertaining to land acquisition process are addressed, the country’s solar ambitions are likely not to be achieved in the desired time frame.

Opportunities for global solar companies

Global solar companies eye India as an emerging market opportunity

Indian government offers favorable policy framework for foreign investment in solar sector. 100% foreign direct investment is allowed under the automatic route, without any approval from the government of India. Further, no approval is required for up to 74% foreign equity participation in a joint venture. Additionally, 100% foreign investment as equity is permissible with the approval of Foreign Investment Promotion Board. Investors are also allowed to set up a liaison office in India.

Apart from this favorable framework, global companies are attracted to Indian market thanks to the promising returns on investments. Bridge to India concluded in 2015 that global utility companies could expect 13-15% return on equity invested in solar projects in India, while return for global solar developers could be expected to be in the range of 15-17%.

India is seen as an upcoming solar investment hotspot. Given the conducive business environment and attractive returns, many global solar firms have announced investment plans in Indian solar market. These include leading global solar developers and utilities such as Acme (joint venture between France-based EDF Energies Nouvelles, Luxembourg-based EREN, and India-based ACME Cleantech Solutions), US-based SunEdison, US-based First Solar, France-based Solairedirect, to name a few.

Insufficient domestic solar PV cells and modules production capacity offers opportunities for global suppliers

Minister Piyush Goyal stated in 2014 that domestic manufacturing capacity of photovoltaic cells (PVCs), which accounts for 60% of the cost of a solar module, is 700-800 MW, which is not sufficient to meet country’s solar ambitions. Indian PVCs manufacturers have also been unable to compete with cheaper Chinese and Taiwanese imports. In 2014, the Ministry of Commerce in India proposed anti-dumping duties of between US$0.11-0.81 on PVCs/modules imported from China, USA, Malaysia, and Taiwan (accounting for about 80% of modules used in Indian solar projects).

Indian government rejected the proposal to impose anti-dumping duties on import of solar PVCs and modules, explaining that as the domestic solar PVCs and modules production capacity was inadequate to meet the demands of country’s envisaged solar plans, the proposed anti-dumping duties would result in higher costs for solar projects and eventually hinder the growth of solar market in the country. With no protective measures in place to support the indigenous PVC manufacturing industry, India’s dependence on imports of solar PVCs and modules is likely to increase with expansion of solar PV market, creating manifold opportunities for global solar PVCs and module suppliers.

EOS Perspective

Abundance of solar irradiation along with continuously falling solar PV prices have created a distinctive opportunity for electricity-deprived India to bank on solar power generation. Realizing this, Indian government is marching towards the goal of installing 100 GW solar PV capacity by 2022. Favorable policy environment and government incentives would be pivotal for the growth of solar market in India. Government’s dedicated efforts to raise institutional funding and develop other financing avenues to support country’s solar power ambitions have received impressive response from investors across the globe.

However, experts caution that most of the announcements in solar sector are made based on just preliminary commitments or MoUs. It is yet to be seen to what extent these plans materialize over the coming years. Despite challenges, Indian solar market is poised to grow rapidly in the near future owing to the euphoria created by recent announcement of government’s ambitious solar vision followed by private sector’s surge of enthusiasm in the solar market. However, whether the country will be able to sustain the growth stride, remains a question.

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