Sustainability is Sound Strategy, be it Finance or Energy

Two common threads connected my conversations with friends and family across the world in recent weeks.  First, the fallout from the financial crisis, and the second, the future of cleantech.

Regarding the financial crisis, everyone expressed incredulity at the scale of the implosion, wondered how long before things get better, and almost everyone blamed the financial industry’s greed. But only a couple of friends, in my opinion, actually got the fundamental reason for this mess right: our collective myopia and tunnel vision.

There is nothing wrong with greed. After all, to be human is to be greedy. However, simply for self-preservation, we needed to consider our actions in the context of the larger ecosystem and in the longer term. Such a consideration of “sustainability” of their actions would have kept consumers from buying over-sized houses and banks from trading AAA-branded subprime mortgage bundles. But, alas, that was not to be.

The second common topic of discussion was the future of cleantech. The questions asked were varied: Will solar survive? Can developing countries like India afford cleantech in this economic downturn? With oil so cheap, why stress the industry with tighter energy efficiency standards?

The answer is simple: Sustainability is sound strategy, be it in finance or energy. If we ignore the long-term, ecosystem-wide consequences of how we generate and use energy today, we will be guilty of myopia and tunnel vision, not different from what precipitated this financial crisis. Only, the consequences will be far worse and our ability to correct almost none.

For we are faced with two undeniable trends (despite current economic hardships): 1. Growing energy demand driven by developing economies and urbanization; 2. Climate change as a consequence of green house gas emissions.

Hence, a “sustainable” approach to energy must incorporate two ideas: Energy Efficiency and Clean Energy. Many argue that we already have the know-how to do the former, and few dispute the necessity to continue innovating for the latter. In 2008, even the oil industry came on board with this reality.

So cleantech is here to stay. And nations and businesses that embrace it will be the ones that come out of this downturn stronger and ready to compete in the long-term.

Solar photovoltaic prices set to tumble – By The Numbers

Solar industry experts have been predicting that solar grade polysilicon supply will catch up with demand in 2009. Check out the latest forecast regarding this in By The Numbers.

Finally, smaller retail players in emerging markets like India, at least those who are able to find funding, can make a push to expand and reach new customers. For the past few years demand from developed markets like Germany and high silicon prices together had pushed module prices beyond the reach of most customers in markets like India. Despite the tough economic outlook, this will surely begin to change that.

Plastic Waste Explosion! – By The Numbers

Researching for an upcoming post on Landfill Gas to Energy opportunity in India, I came across some astounding numbers that make clear how our use of plastics and rubber has exploded over the last decade. Check it out in By The Numbers. Use of paper has increased significantly too, but it’s nowhere near as dramatic as plastics and rubber.

There used to be a time when most of us carried our own bags or baskets when we went shopping for vegetables or groceries. Take the poll below and let us know whether you still do.

Oil Below $60: Time to Wean India off Petroleum Subsidies

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As oil fell below $60/barrel last week from its peak of $145 in July 2008, Indian government has come under increasing political and public pressure to decrease fuel prices. So far Dr. Manmohan Singh has held firm citing the need for India’s oil companies to make up some of the massive losses they incurred over the past couple of years. After all, as oil climbed to record highs, Indian government increased prices just twice in two years.

The move is in line with what most economists argue vehemently: if consumers and industry are protected with artificially low prices when oil prices in free markets soar, they should also be prepared to pay higher than free market prices when prices fall. Sure this is simple economic sustainability, but only in a rather narrow sense. In my mind, all this talk about what the price of petrol or kerosene should be misses a bigger and more opportune question to consider: Shouldn’t the government stop meddling in fuel prices?

Not exactly a new idea, I admit, but in the Indian context it would be radical. Not the least because it would take a significant shift in energy policy, and that too at a politically inconvenient time not far from general elections. Despite the seemingly insurmountable odds of getting this done, I strongly feel it’s an idea whose time has come.

For decades the Indian government has indulged in bizarre practices of price-setting and cross-subsidization of petroleum commodities in the name of protecting the poor. These tactics have proved downright counter productive. For example, the artificially low price of diesel have inflated demand so much that losses from diesel account for 50% of all petroleum losses. Why? Turns out the government has inadvertently made diesel cheaper than fuel oil, a commodity used in industrial power generation. This growth in demand, now at 18-20% per year, will force India’s public sector oil companies to import diesel as they are prepared to meet only 12-15% growth with domestic refining. This in turn will magnify the losses incurred.

Kerosene subsidies are another case in the point. Cheap kerosene is used to adulterate as much as 40% of petroleum products sold nationwide according to a study by CONCERT (Centre for Consumer Education, Research, Teaching, Training and Testing).

Add current energy price volatility to government’s inability to effectively limit subsidies only to those who truly need them, the result is that even the most well-intentioned price intervention is bound to result in perverse negative consequences that will hurt us for decades to come. Energy efficiency improvements and renewable energy resources, both critical for future economic and social health, are victims of petroleum subsidies.

If there ever was an opportune time to say goodbye to petroleum subsidies, it is NOW. Why? Because low oil prices allow such a move while inflicting least short-term pain on Indian consumers and industry. Global energy demand is expected to stay low over the next year, but as the economy recovers, so will oil prices as IEA predicted in its latest World Energy Outlook. So instead of incurring record petroleum losses (Rs. 1,30,000 Crores in this fiscal year), we would be much better served to find ways to divert that money to energy efficiency efforts, hybrid or electric vehicles, smarter electricity grid and local renewable energy resources instead.

Clinton Foundation plans 5 GW solar park in India

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The Clinton Foundation is working with the government of the state of Gujarat to develop an “Integrated Solar City.” Estimated to cost $4.75 billion (Rs. 20,000 crore), the “city” will manufacture solar power components in addition to generating power according to Business Standard. No details yet on whether “components” include photovoltaic cells or modules, nor is it clear which photovoltaic technologies will be used for power generation.

The foundation has already been talking with the state governments of Andhra Pradesh and Rajasthan to identify sites for clean power generation projects. In Anantapur district of Andhra Pradesh, it is considering a combined solar and wind project. In Jaisalmer district of Rajasthan, a solar plant is being considered.

With a reported sum of $12 billion set aside for clean power initiatives and backing of numerous corporations including GE and Microsoft, the Clinton Foundation seems set to heat up the large scale solar plants arena. Though a part of me couldn’t be happier about all this activity around large scale solar projects, another part of me has serious reservations. More on that in the next post.

Will Jatropha Impact Food Prices?

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It wasn’t long ago that corn ethanol seemed like a win-win idea from all angles. In the US, farmers, environmentalists and politicians of all stripes piled on. A few did acknowledge that Brazilian sugarcane was a better idea, and even fewer did point out the risk to food prices, but overall their voices and better sense were drowned by a wave of euphoria around corn ethanol.

Energy prices, of course, are the main cause behind increase in food prices, but not many dispute the fact that corn ethanol had a role too. In hindsight, that relationship is not hard to grasp: when demand for corn surged, the price did too without a similar spike in supply. It’s economics 101 – basic supply and demand.

Now, consider another plant that’s being widely touted as the ideal source of biofuels – jatropha. Jatropha is not a food crop,and it can be grown in barren and waste land with relatively little water. What’s not to like, huh?

Well, let’s apply some basic economics principles to this situation. Whenever the market price for a certain product increases, there will be more willing suppliers of that product. And that will be true for jatropha seeds too.

Large areas of the country have increasingly experienced drought conditions. Maharashtra, Andhra Pradesh, Madhya Pradesh and Karnataka have seen thousands of farmer suicides in recent years because of crop failures due to drought. It is not far fetched to think some of these farmers might find it easier to grow jatropha than, say, rice.

Leveling rice and wheat yields per hectare is a worrying sign in itself. If fuel crops like jatropha intrude into this traditional crop land, the price pressures on food grain will be compounded.

As the euphoria around jatropha grows, it will pay to remember the harsh lessons learnt from the corn ethanol experience. India has more than enough waste and barren land suitable for jatropha – 63.85 million hectares – to make a significant dent in the nation’s energy needs even with low biodiesel yields (say 650 litres/hectare as opposed to published highs of 1800 or 2200 litres/hectare).

If jatropha is allowed to take over too much food grain land, however, the only way to compensate for that with very little fertile land left to cultivate, will be with efficiency increases in food crops. And that’s something the country has failed to achieve in the last few years.

India’s Electricity Transmission and Distribution Losses

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According to World Resources Institute (WRI), India’s electricity grid has the highest transmission and distribution losses in the world – a whopping 27%. Numbers published by various Indian government agencies put that number at 30%, 40% and greater than 40%. This is attributed to technical losses (grid’s inefficiencies) and theft.

Theft, in Delhi, accounts for 42% losses as per this BBC article. For those who don’t understand how power theft actually happens, the photograph in this The Hindu article is instructive. (Incredible. Never ceases to amaze me.)

By contrast, China apparently loses just 3% of it’s electricity to theft as part of 8% total power transmission losses. OECD countries’ transmission and distribution losses are just 7%.

By the Numbers: Indians Without Grid Electricity

See how World Bank and Indian Government estimates of number of Indians without access to grid electricity compare in our new page: BY THE NUMBERS. You will be surprised.

By the Numbers: Jatropha

Just want to draw your attention to the new page on this blog “BY THE NUMBERS” (see title bar) I come across a lot of statistics/numbers related to cleantech while researching for my blogs. Instead of losing them, I thought it isn’t a bad idea to park them on separate page.

The first set of numbers compares Jatropha oil yield per hectare to other crops. Check it out.

Can the Poor Afford Cleantech?

That’s a question I get often from friends and family in India and the US. “We need to feed our masses and eradicate poverty before we can worry about the environment,” the logic goes. That there must be a trade-off between the economy and the environment is the entrenched public and political opinion in India.

On the surface, there appears to be plenty of evidence to support this view: Solar costs aren’t at grid parity yet. LED and fluorescent lamps cost way more than incandescent bulbs. The poor will never pay for water, leave alone the latest purification technologies. And the fact that electricity and water are both government-controlled utilities makes matters worse with red tape and inefficiency.

My response to this usually involves two examples: SELCO India and WaterHealth International. SELCO has been bringing photovoltaics to the poorest customers for more than 10 years now, while thousands of villagers are paying for water purified by WaterHealth’s technology.

How? Well, the secret sauce in their success, other than of course the extraordinary commitment of their leadership, is what Stu Hart terms “radical transactiveness.” To put simply, radical transactiveness is to dive deep into your customers’ experience, often with stakeholders other than just the company, to co-create/evolve a business model that works for the customers at the “base of the economic pyramid”(aka BOP).

SELCO recognized that its customers had no access to grid and were instead heavily reliant on kerosene! He recognized that with the appropriate microfinancing mechanism, daily payments toward a solar home system cost his customers less than what they shelled out for kerosene. The improved quality of light and air also enabled additional income generation and healthcare cost avoidance. (Click here for an awesome first hand account of how SELCO works by Raj Melville)

“Grid parity” simply does not matter to the approximately 100,000 villages of India that aren’t yet connected to the grid! Even in urban India, the cost of backup power generation from diesel or petrol must be accounted for to draw a fair comparison in many cases. (See article regarding India’s dependence on liquid fossil fuels for backup power generation.)

WaterHealth did not create a home purification system for the poor. Instead they discovered by engaging local communities and NGOs, that even the poorest were willing to “pay per use” via a community-level water purification system. The source of water itself does not change from before the project.

At 1 Rupee for 15 litres, 60% to 80% of total village population uses WaterHealth’s facilities. Turns out the poor will indeed pay for basic necessities such as clean water. Villagers reported improved health and ability to work for a living.

Any venture capitalist or entrepreneur will tell you that a superior technology does not ensure market success. That’s true for cleantech as well. I am not down playing the difficulty of introducing new technologies in the BOP market. But it’s not the technology’s fault if the business model imposed is inappropriate.

The poor certainly can afford cleantech. And as the examples above prove, often they stand to benefit the most from clean technologies.