India's green horizons

Behind the smoke of terror and the clouds of economic gloom, India is emerging as an unlikely frontrunner in a cleantech future, argues Malini Mehra.

When India’s industrial giant Tata launched its £1,000 Nano car in early 2008, it also kicked off a furious debate. For some, the Nano was a triumph of social enterprise, bringing safe, affordable motoring within reach of tens of millions of Indian families. For others, it was environmental irresponsibility writ large – speeding India down the high-carbon road to climate catastrophe. The debate rages still. But behind the headlines lies another story – with far greater ramifications not just for India, but the future of sustainable business itself.

For the Nano isn’t just a car, but also a symbol of a wave of technological innovation sweeping the country, which is helping revitalise its business sector even as it struggles to navigate the rocky waters of a global downturn. And at the crest of that wave is clean technology.

“Venture capital investments in Indian cleantech are at an all-time high”

Even in the bearest of markets, and despite the credit squeeze which hits pioneering ventures harder than most (since they are more likely to require substantial debt financing), cleantech still holds promise for the courageous investor. In 2007, investment in the sector grew by 60% worldwide. And in the last few years, India has emerged as a preferred destination for cleantech money. According to the Cleantech Group, venture capital (VC) and private equity investments in this area in India more than doubled between 2006 and 2007, from US$140 million to $290 million. And it’s continued to flow even as recession starts to bite. The third quarter of 2008 marked an all-time high for VC investments in Indian cleantech, and the country is now the second largest destination for such funds.

It’s driven not only by domestic demand, but by the promise of an export market, too, one epitomised by the high-profile success of the Indian-made Reva electric car – the global top-seller in its class. Named after the manufacturer’s mother, this is sold in Europe as the ‘G-Wiz’. Redesigned to strengthen safety features since its infamous trashing on Top Gear, there are now over 600 on London’s streets. Its success has reportedly encouraged Tata to research electric and alternative-fuel versions of the Nano.

India’s cleantech sector extends well beyond cars, encompassing everything from water purification for rural villages, through revolutionary biodiesel projects to the world’s largest solar power station. It’s spurred by a government which, after years of denial, appears to be waking up to the twin threats of climate change and energy insecurity. Unlike Western countries, the effects of global warming are already being felt all too fiercely in India – particularly in the agricultural sector on which so much of the country depends, where harvests are already being hit hard by shifting weather patterns. Spending on adaptation methods is consuming around 2.6% of annual GDP, and rising.

Business, too, is increasingly aware of the climate threat. The Confederation of Indian Industry recently warned of the danger of a dramatic decline in crop yields, the desertion of 20,000 villages and the migration of one-fifth of the country’s huge coastal population due to rising sea levels. [For more details on the likely impact, see Green Futures Special Supplement, Monsoons and Miracles.]

In June last year, the government finally responded with its National Action Plan on Climate Change, setting out a series of ‘themes’ on everything from solar energy and energy efficiency to ecosystem protection. Criticised as “too little, too late” by some, it nonetheless set the tone for a much more proactive approach to the issue.

Two months later, prime minister Manmohan Singh used his annual Independence Day speech to signal a determination to pursue energy independence – through fast-track growth of renewables – primarily solar, wind, biomass and hydro. Crucially, he also announced his determination that, no matter how successful India’s economy, its per capita carbon emissions would remain below the average of the developed world.

Initiatives are starting to flow thick and fast as a new generation of ‘pro-cleantech’ politicians such as Vilas Muttemwar, minister for new and renewable energy (MNRE), flex their muscles. At the Cleantech India Forum in October, Muttemwar announced plans for a major expansion of solar power capacity by 2020, seeking to provide electricity to 20 million ‘off-grid’ rural households and build 20 million square metres of green buildings. The ministry is currently working on a draft renewable energy law that would stipulate that up to 25% of electricity must come from renewables by 2020 – so bringing India into line with, or even ahead of, European targets.

The MNRE is also backing the creation of a dedicated Special Economic Zone for renewable energy manufacturing in the city of Nagpur. This would focus on strategically important input materials, process and test equipment, devices and systems components. The ministry is offering to facilitate joint ventures and technology transfers to achieve this as part of an overall package of incentivising investment in this sector. Other measures include rationalising the customs and excise duty structure, liberalising project import norms, and providing income tax concessions and concessional financing.

Some state governments, too, are getting in on the act. The northern state of Haryana plans to spend $777 million to increase its renewable energy portfolio to 10%, in an attempt to meet the peak electricity demand shortfall of 15%.

So far, so encouraging. In little more than a year, the government has moved from climate complacency to active engagement. But there’s no doubting the mountain which it will have to climb to make good its newfound ambitions for low-carbon growth. The country’s overwhelming reliance on fossil fuels to power its industrial emergence has made it the planet’s fourth largest emitter of carbon dioxide – despite the fact that more than 400 million of its people still lack access to basic electricity.

India’s emissions worry the world. Although per capita these are just one-tenth those of the UK, the concern is what happens when its 350-million strong middle class adopts Western consumption patterns and its population expands. India is projected to overtake China as the world’s most populous country by 2030. Sixty per cent of these people will live in urban centres, and at present rates the country’s energy demand will multiply three to four times by 2030.

If India were to maintain its recent 8% GDP growth rate, it would need to add 500MW of power each week for the next 25 years. The International Energy Agency suggests that financing such a vast supply build-out would require US$1.25 trillion in energy infrastructure between 2006 and 2030.

In practice, efficiency gains could offset some of this demand. India has made considerable progress in decoupling economic growth from energy consumption – and compares favourably with other countries, according to analysts at HSBC. In 2004, it emitted nearly 300 tonnes of CO2 for each million US dollars of GDP, compared with 610 tonnes in China and 701 tonnes in the US. (The world average stands at 492.) By 2030, the US Energy Information Administration expects India’s carbon intensity to fall to just 138 tonnes per million dollars, an annual improvement of some 2.9%, outstripping the global average of 2.1%.

But none of this means India can afford to ease off the pressure for innovation. The country relies heavily on dirty coal-fired power for 70% of its electricity, and is dependent on imports for 75% of its oil supplies – projected to rise to 90% by 2030, in the absence of alternatives. With the import bill subject to volatile international markets, and the government paying out almost $60 billion in annual oil subsidies to keep consumers at bay, this is clearly a serious problem in search of a solution.

“After years of denial, the government’s woken up to the threat of climate change”

Enter the cleantech entrepreneurs. The country may be rocked by recession, but the stellar growth of recent years, launched on the back of sweeping economic liberalisation, has given its business sector a rare confidence. Which is just as well, as the government’s growing ambitions for a cleantech revolution depends on private sector enthusiasm.

Indeed in some sectors, this has triumphed despite, rather than because of, government policies. Suzlon, the wind energy giant which is now the fourth largest turbine maker in the world, with annual revenues of $850 million, was founded by Tulsi Tanti in response to the erratic cost of grid power for his textile factory. Reliance Solar (part of RIL, the country’s largest industrial house), is building a massive photovoltaics manufacturing plant. When complete it will have a capacity of around 1GW – equivalent to one-third of the world’s current installed total. Its construction owes less to government policy than to Reliance’s identification of a clear market gap as energy supply fails to meet demand and the clamour for cleaner fuels grows. Meanwhile, Indian renewables are becoming increasingly attractive to external investors, too, as demonstrated by Moser Baer Photo Voltaic Corporation’s $100 million venture investment in solar thin film manufacturing early in 2008.

At the other end of the scale, companies such as Cosmos Ignite, an Indian-led solar enterprise, are promoting a solar solution for the country’s poor. Amit Chugh, CEO, claims that his ‘Mighty Light’ can meet the domestic lighting needs of India’s rural households far more economically than the government’s current strategy, which relies on multi-million dollar subsidies for kerosene.

Reducing overall energy demand will be key – not least in India’s notoriously inefficient buildings. Rising from the outskirts of Hyderabad, the CII-Sohrabji Godrej Green Business Centre has set a marker for others to follow. This solar-powered showcase consumes just half the average energy of similar buildings, with energy for lighting cut by nearly 90%. Built largely out of recycled or recyclable materials, it also avoids discharging any waste water into the sewers, treating it all biologically on site instead. In Gurgaon, a boomtown on the fringes of Delhi, ITC Ltd’s Green Centre headquarters is designed to capture all its water needs through rainwater harvesting, heat the water via solar panels and minimise energy use (mainly for air conditioning) thanks to high standards of insulation and ‘heat shades’. It won the prestigious platinum rating from the US Green Building Council – the largest building in the world to have done so.

Cleantech breakthroughs are targeting the ‘bottom of the pyramid’ too – the 400 million mainly rural poor who survive on around a dollar a day. These include imaginative low-tech innovations such as Hindustan Lever’s PureIT water purifier, which consumes zero energy in use and provides clean drinking water much cheaper than the bottled variety; improved biogas plants which allow families with cattle to produce their own clean cooking gas rather than rely on expensive LPG or unsustainable wood fuel; and household-scale solar power which produces electric light for village homes while also connecting their inhabitants to the outside world via mobile phones. While lacking the sophisticated sparkle of some cleantech novelties, these not only provide essential services at an affordable price, but generate a substantial business opportunity for companies like Harish Hande’s SELCO, winner of a prestigious Ashden Award for Sustainable Energy.

For the millions of Indians for whom even the Tata Nano is out of reach, the rickshaw remains the transport of necessity, if not of choice. Considered a crushing human indignity by some, a cycle rickshaw is nonetheless a clean and relatively energy-efficient way to get around. Now a new version designed by the Institute of Transportation and Development Policy combines lightweight materials and sophisticated gearing to make the rickshaw much easier on the rider’s body. It’s caught on rapidly among rickshaw operators, with over 300,000 being sold in nine major cities. Riders of the modernised version report income increases of between 20% and 50%, thanks to being able to ride faster and for longer in relative comfort. There is even evidence that it’s persuading some motorised rickshaw drivers to switch to the human-powered variety [see ‘Sun’s up for rickshaws’].

“India is, relatively speaking, a low-carbon economy – and will remain so”

Boosting employment prospects at the grassroots is an often-overlooked aspect of the emerging green economy. In a country of chronic unemployment (and underemployment), this is no small issue. Unlike the IT sector which created wealth and value, but relatively few jobs, the shift towards the low-carbon economy can bring both business and employment opportunities. From tourism and transport to agriculture and manufacturing, imaginative investment could trigger a boom in green livelihoods. We now have some figures for what the employment dividend might be. According to Nicholas Parker of the Cleantech Group, for every $100 million of VC investments in cleantech, 2,500 direct jobs are created. Add the economic multiplier resulting from the current venture investment cycle, and today’s 1.5 million cleantech jobs will lead to an estimated total of 7.5 million indirect ones.

So apart from growing government support and concern over climate change and energy security, what other factors lie behind India’s emergence as such a promising haven for cleantech? The Clean Development Mechanism (which allows industrialised countries to achieve some of their greenhouse gas reduction targets through investments in emission cuts in developing economies) is far from perfect [see ‘Carbon markets: time to clean up’]. But it has helped spur projects in everything from factory clean-ups to solar lighting. India accounts for around one-third of registered CDM projects.

The country’s homegrown advantages may be more significant in the long term, though. For a start, there’s the talent pool. India produces the world’s largest number of English-speaking science and engineering graduates, and boasts a total of around 14 million recently qualified university graduates – twice that of the US, one and a half times that of China, and still growing, given India’s more youthful demographics. This has attracted hundreds of multinational companies to the country, drawn by the low-cost, high-skill talent on offer, which in turn has helped drive the skilling-up and professionalisation of a whole new generation of Indians.

Some of this talent is now fuelling India’s own cleantech enterprises. Take CleanStar. Established by two 20-something foreign-trained engineers, Sagun Saxena and Shasank Verma, it has pioneered methods of growing jatropha plants as feedstock for biofuels on marginal land with minimum water and energy inputs [see ‘Ethical oilman’]. Along with UK-based Regenatec, they are now developing a technology which allows diesel engines to run on pure plant oils.

"Indian IQ for Indian IP.."

The 20-million strong Indian diaspora is playing a role, too, as they look increasingly for investment opportunities back home. Business leaders such as New Look’s Tom Singh and Cobra Beer’s Karan Bilimoria epitomise this emerging group of ‘foreign returns’: a ‘brain gain’, as opposed to the ‘brain drain’ which characterised the economy in pre-liberalisation days, when the likes of Hotmail’s Sameer Bhatia, Sun Microsystem’s Vinod Khosla and Vodafone’s Arun Sarin left to seek their fortunes elsewhere. The government is responding by tightening intellectual property laws, which are markedly tougher than its rival, China, in an effort to attract ‘Indian IQ for Indian IP’.

India could be many things in this coming century. Whether it can rise to the challenge of tackling climate change while providing decent standards of living for its one billion plus people will define its character for generations to come. But the surge in its clean technology sector holds out some hope that it could yet make a decisive break with the fossil fuel age, and shift from being a ‘nation of entrepreneurs’ to one of true ‘solarpreneurs’.

Malini Mehra is founder and CEO of the Centre for Social Markets, www.csmworld.org, based in Delhi, Kolkata and Bangalore. Additional reporting by Martin Wright.

21 January 2009

Malini Mehra and Martin Wright

Add new comment