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India's gross domestic product grew at 7.6 percent in 2015-16 thereby making it the fastest growing economy in the world. The country greatly benefited from the commodity price meltdown especially crude oil as India imports a majority of its crude requirements. For the country to improve on its energy dependency, there is an urgent need to shift the country's energy mix from 'fossil fuel' to renewables.
In September 2015, at the United Nations Framework Convention on Climate change in Paris, India committed to produce around 40 percent of its electricity from non-fossil fuel sources by 2030. This is a tall task for the government. However, Prime minister, Narendra Modi has already laid down an ambitious plan to create 100GW of solar capacity by 2022. There has been a drastic decline in the costs to setup solar farms. In addition, solar power tariffs continue to slide, the price per unit has fallen below Rs 5 per unit of electricity.
Oil marketing companies (OMCs) have now woken up to this change. In a bid to stay relevant, these companies are now looking for avenues beyond conventional sources of energy and are making a beeline to generate electricity in the renewables space. In its latest annual report, Indian Oil Corporation Ltd. (IOCL), country's largest oil marketing company has stated that it has ambitious plans to expand its energy basket to generate 260 megawatt of renewable power in the next five years. Hindustan Petroleum Corporation Ltd (HPCL) also has plans to generate 1000 megawatt in the same time period.
However, this is easier said than done as availability of land and infrastructure are major hurdles for companies who wish to enter the renewable segment. The Oil marketing companies will have to first acquire land, lay down the infrastructure and then also have a power purchase agreement in place. There are a lot of variables involved and execution will not be easy.
Oil marketing companies are keen to jump on the bandwagon of reducing carbon footprint by generation of clean energy. While the power generation on the whole has to shift towards non fossil fuel in the future, this shift we believe should not come at the cost of profitability. Important clauses such as the ability to pass on any increase in the costs for generating electricity i.e. the price escalation clause, an extremely crucial point needs to be addressed beforehand. Till then It remains to be seen whether the OMCs will be able to make some serious headway in their renewables foray.
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