Solar Power India

Businessworld
Dhanya Krishnakumar

Under the national semiconductor policy, the Centre agreed to bear 20-25 per cent of the capital expenditure of a semiconductor manufacturing or associated facility, including solar cell fabrication units (fabs), during the first 10 years. This led to spurt of interest and investments in solar energy, which is based on photovoltaic cells.

Photovoltaic refers to the creation of voltage from light. SPV systems directly convert sunlight into useful electricity. This process is called the photoelectric effect. The energy generator in a PV system is the solar cell, which are essentially thin wafers of silicon. These cells when connected in series and parallel constitute a solar panel.


That was the trigger for many players to rush into the solar photovoltaic (PV) space. With over $7 billion worth investments in PV units sanctioned in the new Fab City that is coming up in Hyderabad, and close to Rs 600 crore set aside for R&D in this area in the Eleventh Plan, the government’s solar programme is finally showing signs of growth.

The project phase itself takes about two years and only then will we get a clear picture of how much actual installed or generation capacity many of the players really have. India’s theoretical solar power reception just on its land area is about 5,000 trillion kWh per year. The daily average solar energy incident over India varies from 4 to 7 kWh/sq mtr. with about 2,300-3,200 sunshine hours per year, depending on location. This is far more than current total energy consumption. Which, even assuming 10 per cent conversion efficiency for PV modules, will still be a thousand times greater than the likely electricity demand by the year 2015.


Tata BP Solar recently signed an agreement with Calyon Bank (Credit Agricole CIB) and BNP Paribas to raise Rs 3.1 billion to fund its solar cell expansion project from the present installed capacity of 128 MW to 300 MW by 2012. Players such as California-based Signet Solar are also planning three PV manufacturing units in India at an investment of over $2 billion. Moser Baer is investing close to $1.5 billion; Titan Energy Systems is planning an investment of $750 million, Nanotech Silicon India $2 billion, and Hindustan Semiconductor Manufacturing Corporation $1 billion.

Reliance Industries has also approached the government with plans to set up a semiconductor wafer fabrication plant and solar PV module unit at a total outlay of over Rs 30,000 crore.

Moser Baer India is the first company to invest about $1.5 billion in thin-film photovoltaic and has plans to ramp up to 600 MW over the next two years from the existing project capacity of 40 MW. This will be done in partnership with Applied Materials. Moser Baer India's thin-film photovoltaic manufacturing capacities for crystalline silicon and thin film technologies are coming up in Greater Noida and Sriperumbudur.

At the current 20 per cent annual growth, India can emerge as the fourth largest generator of solar energy after Germany, Japan and China in the coming years.

Commodity prices and western consumerism

Businessworld

Kenneth Rogoff

Today’s soaring commodity prices scream a fundamental truth of modern life that many politicians, particularly in the West, don’t want us to hear: the world’s natural resources are finite, and, as billions of people in Asia and elsewhere escape poverty, western consumers will have to share them.

The US’ ill-considered bio-fuels subsidy programme demonstrates how not to react. Rather than acknowledge that high fuel prices are the best way to inspire energy conservation and innovation, the Bush administration has instituted huge subsidies to American farmers to grow grains for bio-fuel production. Never mind that this is hugely inefficient in terms of water and land usage.


Another wrong turn is the proposal recently embraced by two US Presidential candidates to temporarily scrap taxes on gasoline. But this is not the way to do it. The gas tax should be raised, not lowered. The sad fact is that by keeping oil prices high, OPEC is doing far more for environmental conservation than western politicians who seek to prolong the era of ecologically unsustainable western consumerism.

It is not just oil prices that are high, but all commodity prices, from metals to food to lumber. Prices for many have doubled over the past two years. Oil prices have risen almost 400 per cent in the past five years.

Admittedly, the global commodity price boom has had profound, albeit enormously complex and uncertain, effects on poverty. While surging commodity prices are helping poor farmers and poor resource-rich countries, they are a catastrophe for the urban poor, some of whom spend 50 per cent or more of their income on food.

For now, though, instead of whining about high commodity prices, governments should be shielding only their very poorest citizens, and letting the price spikes serve as a wake-up call for the rest of us. The end to western consumerism is not yet at hand, but high commodity prices are a clear warning that big adjustments will be needed as Asia and other emerging nations begin to consume a larger share of the global pie.

True, when today’s global economic boom ends, commodity prices will plummet, easily 25 per cent, quite possibly 50 per cent or more. Western politicians will cheer, and many pundits will express relief that less money will be flowing to undemocratic countries in the developing world.


ET

Gold prices in the 1970s, Japan’s equity market in the 1980s and tech shares in the 1990s all witnessed similar cyclical bear markets amidst secular bull runs. During their previous major bull phase from 1987-94, even emerging markets suffered two major setbacks of 30% in 1990 and 20% in 1992.

Research shows that commodity prices always lag the economic cycle and start to fall in earnest only four to five months after a major economic slowdown sets in. Admittedly, over the past decade emerging market demand has come to be the most important factor in determining commodity trends.

But changes at the margin matter the most in driving prices and US demand is still relevant for commodities such as oil. The US consumes just under a fifth of the total global oil output and latest data reveal that oil demand in the US is down 7% from a year ago.

Rising oil prices are currently the biggest obstacle in the way of stock markets rallying any further. Much of the bad news regarding the US credit crisis has already been discounted and valuations are supportive enough to engage long-term investors.

Lower oil prices will ease inflationary pressures and allow equity market valuations to expand again. In short, for the script of a secular bull-run in emerging markets to remain on track, commodity prices led by oil need to come off the boil, pronto.

Bush, OPEC, and oil prices

Businessworld

Omkar Goswami

OPEC was formed as a permanent inter-governmental organisation in September 1960. From its inception, OPEC’s objectives have been explicitly cartel-like; OPEC has 13 member countries. It began with five: Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. Subsequently, others joined the organisation: Qatar, Indonesia, Libya, the UAE, Algeria, Nigeria, Ecuador and Angola.

As I write this article, the OPEC’s weighted average basket is quoting at $111.66 per barrel. More ominously, on 28 April, OPEC president Chakib Khelil, Algeria’s oil minister, warned of the prospects of crude at $200 per barrel.


In fact, until 2007 the OPEC was not viewed as a price-gouging cartel. Barring 1973 and 1979, it has see-sawed between cutting and raising quantities. Till September 1999, crude was below $20 per barrel; and it remained below $30 right up to March 2004. So, what has made the OPEC so successful in not only maintaining hard prices, but steadily stepping these up to over the $110 mark?

Economists will tell you about the rising demand from India and China, uncertainties in supplies, and the role of commodity speculators. These are valid reasons. But to my mind, the biggest factor of them all is a man called George W. Bush.

If Bush had only alienated Hugo Chavez of Venezuela, the oil-consuming world would have breathed easier. But he has put off Iran, the UAE and, most importantly, its biggest oil-producing ally, Saudi Arabia. Gone are the days when the President of the US could have a quiet word with the King, and have the Saudis exercise restraint on the OPEC. Not so long ago, Bush’s father, George W.H. Bush, was welcomed as an honoured guest of King Fahd at Riyadh. Today, King Abdullah doesn’t feel the same about the son or his emissaries. For instance, Dick Cheney’s last avisit to Saudi Arabia was only politeness. The Saudis are irritated with Bush’s confrontational style; the US upsetting their neighbourhood, and not bothering to consult with them.


Thus, Thanks to Bush’ bellicose body language, the Saudis watch from the sidelines. Not once since September 2007 has the largest producer in the OPEC spoken of increasing supplies to dampen prices. With the Saudis remaining quiet, every other producer is making hay, including US-haters like Mahmoud Ahmedinejad of Iran and Hugo Chavez.

The US has become public enemy number one in the Middle East. And we are all paying the price. Long live Dubya!

But Saudi Arabia has resisted attempts by OPEC members to discuss the declining value of the American currency and thus decoupling Oil and the Dollar.

Global Slowdown

Businessworld
Srikanth Srinivas

The International Monetary Fund’s (IMF) World Economic Outlook (WEO) — a biannual report published every April and October — has estimates of 3.7 and 3.8 per cent of projected global growth for 2008 and 2009, which are lower by a full percentage point since January this year. The slowdown will be more persistent than earlier thought, it seems.

True, much of this slowdown will be felt in the US; growth prospects for that country have deteriorated more rapidly: Growth estimates for 2009 are 1.2 per cent lower. As US banks and financial institutions continue to take hits to their assets, those already pessimistic projects could go even lower: the WEO points out that if global growth falls below 3 per cent, we will be in a global recession. The probability of that happening is estimated at 25 per cent.

But there is a silver lining. Emerging markets, led mainly by China and India, will boost overall global growth, says the WEO; any slowdown in those economies is likely to be moderate, as they have no exposure to the credit crisis that has gripped the US and Europe.


Major concerns

The WEO identifies three major concerns that could impact the global economy more adversely that it has already:

Inflation — led largely by higher energy and food prices — is rising all over the world.

A price boom in the commodity markets. At least in part, says the IMF, the recent run up in commodity prices could be the result of investors seeing it as an alternative asset class.

Third, the financial shock emanating from the collapse of the housing markets and the subprime mortgage market crisis has inflicted considerable damage to institutions at the core of the financial system. Low liquidity in inter-bank markets and weak capital adequacy in banks has fuelled concerns about credit risk.

Risks for emerging markets

While India and China (and other emerging markets) will continue to experience high growth despite the global slowdon, their economies too will have to deal with some looming issues:

High on the risk table for emerging markets — including India — is high and persistent inflation. The producer price index — or the wholesale price index (WPI) in India shows some cause for alarm. In both China and India, producer prices show double-digit growth. Producer prices — mainly oil and raw material inputs — are rising faster than consumer prices.

Agricultural production — and given food price inflation — is a cause for concern. Tightening liquidity conditions, perceived high interest rates, a domestic credit shock and capital outflows together could be the perfect storm that drives growth rates below 6 per cent.

Prospects for India

Finance Minister P. Chidambaram doesn’t think that such a big drop in growth rate is likely either, even as he acknowledges that a slowdown may be necessary to bring down inflation, particularly food price inflation which can be critical in this election season.

We are reasonably self-sufficient in major commodities, and the food supply is more or less in balance. But food prices and commodity are likely to remain high, driven by growing incomes; but how much of that inflation is permanent and how much temporary is to be seen.


So while India may be relatively insulated from the contagion of the credit market, this is no time for complacency either. As IMF’s Johnson says, now is the time when prudent governments should draw up contingent plans to guard against deeper ‘tail risks’ — the risk that an unlikely event that can create catastrophic results.