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Renewable Energy 29 (2004) 1431–1447

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Diffusion of renewable energy technologies—


barriers and stakeholders’ perspectives
Sudhakar Reddy a, J.P. Painuly b,
a
Indira Gandhi Institute of Development Research, Goregaon (E), Mumbai 400065, India
b
UNEP Centre, RISØ National Laboratory, Roskilde 4000, Denmark
Received 26 September 2003; accepted 5 December 2003

Abstract

This paper presents the results of a survey administered to households, personnel belong-
ing to industry and commercial establishments, and policy experts with the objective of
eliciting their views on the barriers to the diffusion of renewable energy technologies (RETs).
Taking the Maharashtra State, India, as a case study, the paper develops a systematic classi-
fication of barriers to the adoption of RETs (economic, technological, market and insti-
tutional) and ranking them based on the perceptions of various stakeholders. The results
provide evidence of how the consumers receive RET information and make decisions using
their limited analytical capabilities. The analysis is used to enhance the knowledge by intro-
ducing ideas based on behavioural theory. Not only do these ideas help understanding the
consumer perspective, they also help develop policy interventions. The aim is to define each
barrier and describe its mode of influence that will help to develop policy measures for the
removal of each barrier.
# 2003 Elsevier Ltd. All rights reserved.

1. Introduction

The essential characteristic of a sustainable energy system is its ability to deliver


required services without exhausting resources. The first step to create such a sys-
tem is to use the existing resources efficiently and increase the use of resources that
are renewable.
Shifting from non-renewable to renewable energy technologies (RETs) should be
the top priority in moving to a sustainable energy system. Increased utilisation of


Corresponding author. Tel.: +45-46775167; fax: +45-46321999.
E-mail address: j.p.painuly@risoe.dk (J.P. Painuly).

0960-1481/$ - see front matter # 2003 Elsevier Ltd. All rights reserved.
doi:10.1016/j.renene.2003.12.003
1432 S. Reddy, J.P. Painuly / Renewable Energy 29 (2004) 1431–1447

RETs will not only meet the growing energy demand but also reduce adverse
environmental impacts of energy usage.
In a competitive marketplace, low impact RETs could satisfy consumer pre-
ferences for sustainable energy. Various estimates suggest that renewable energy
sources are capable of meeting a significant part of the energy demand even at the
current level of technological development [1,2]. However, as the past experience
has shown, this may not happen, unless we address the issues that prevent the pen-
etration of RETs. Even after governments’ best efforts to promote RETs, they have
failed to emerge as prominent competitors to the conventional energy technologies.
This means that there are significant barriers (either financial or non-financial) in
implementing the RETs. These barriers need to be identified and addressed in
order to design innovative policy approaches to help realise the potential. For this,
involvement of various stakeholders in the identification of barriers is extremely
important. The perceptions on barriers and barrier-removal measures vary across
the stakeholders and unless these are harmonised, policies devised may not work.
Most of the available work on barriers treats them as a technical and economic
issue, sometimes also reflecting the perspective of one or a few stakeholders.
The present work addresses the non-technological (but formidable) barriers
standing between today’s energy infrastructure and the deployment of RETs. It
investigates two RETs, viz., solar and wind. Personal interviews were conducted
with various stakeholders such as consumers, equipment manufacturers, energy
developers and policy makers to find out their perspective on the barriers to the
diffusion of these technologies. The findings reinforce the public perception that
penetration of RETs into the market has fallen far short of projections. Our analy-
sis indicates that the small market share of renewable technologies appears to have
more to do with changes outside their development rather than with their own
technological performance.

2. RETs—potential and status in Maharashtra

India is generously endowed with renewable energy sources, viz., solar, wind, bio-
mass and hydroenergy, widely distributed across the country. The overall potential
is more than the current total energy consumption [3]. India’s renewable energy pro-
gramme is the biggest and most extensive among the developing countries. By the
year 2000, the contribution of renewable energy to the total power generation
capacity of the country has been 1600 MW representing a little over 1.5% of the
total capacity [4]. The state of Maharashtra, with the highest installed electricity
generation capacity in India (peak demand of about 12,000 MW in 2000) has the
highest energy consumption per capita. The Maharashtra Energy Development
Agency (MEDA), a state government agency has taken several initiatives to pro-
mote RETs in the state and increase the power generation through renewables.
However, the results are not encouraging. In the state of Maharashtra, the installed
capacity of wind power was about 20 MW at the end of the year 2000 against the
estimated potential of 1000 MW. Less than 10% of the small hydro potential, and
S. Reddy, J.P. Painuly / Renewable Energy 29 (2004) 1431–1447 1433

1.5% of biomass power potential had been realised till 2000. Solar water heaters
(SWH) are considered technologically mature and economically attractive options
and yet their penetration is well below the potential. Despite a series of policy mea-
sures by the Government to promote RETs for several years, penetration has been
inadequate [3]. Considering the renewable energy resources in the state, potential for
their application, maturity level of the different RETs and a review of past efforts of
MEDA, two technologies—SWH and wind energy, were identified for the study of
barriers. The highlight of the study is an extensive consultation with a variety of
stakeholders including the consumers, manufacturers, experts and policy makers on
the identification of barriers and barrier-removal measures. The mismatch on the
perception of barriers and required RET policies between various stakeholders on
one hand and policy makers on the other could mean that no amount of policy
changes would be able to address this problem unless stakeholders are consulted.
The study attempts to address this problem through surveys of various stakeholders
and harmonises their perception on barriers and barrier-removal measures before
recommending policy measures.

3. Methodology

3.1. Stakeholder level survey

This 2-year study employed a multi-phase, stakeholder-based approach [5]. The


stakeholders include households, industrial firms, and commercial establishments
among the SWH users, wind energy developers and policy experts. They were
involved in the study throughout the process of questionnaire development, data
collection and stakeholder discussion work groups. During the study phase, stake-
holder representatives participated in working groups formed to discuss the mode
of survey and identify critical obstacles to data collection. These working groups
generated ideas that could be used to overcome barriers.
The survey first gauged the respondents’ perceptions as to the most significant
barriers to the RETs from a list of major factors (e.g., awareness and information,
cost, policy regulations, etc.). The survey then delved into each of these factors to
determine what aspect of this factor posed the greatest obstacle to RETs. The sur-
veyors asked the respondents how strongly each particular barrier would hinder
the penetration of RETs. Therefore, the survey was designed to not only determine
the major factors of concern but to also specify the major factors that need to be
addressed from a policy perspective and the significance of the barrier removal.
At first, information on the state of the two technologies (solar heaters and wind
energy), governmental policies, and data on factors effecting the penetration of the
RETs, etc., were collected. Then primary surveys were conducted to elicit infor-
mation from the stakeholders, viz., consumers, equipment manufacturers and pol-
icy analysts. The urban areas of Bombay and Pune in the state of Maharashtra,
where there was a concentration of a majority of stakeholders, were selected for
the study. Thus, from the point of view of management of the survey as well as
1434 S. Reddy, J.P. Painuly / Renewable Energy 29 (2004) 1431–1447

overall representativeness of the sample, it was an ideal geographical region for


data collection. A sample of 80 households was selected in the residential sector. In
the industrial sector, 10 firms were randomly selected covering various categories
such as fertiliser, iron and steel, non-ferrous, pharmaceutical, engineering, textile
and chemicals. In the commercial sector, 30 establishments were selected which
include hotels, shops and offices. Information on costs and benefits of SWH
was obtained from manufacturers. In the case of wind energy, 10 wind energy
developers were interviewed. Policy makers in the State’s Energy Department,
Maharashtra State Electricity Board (MSEB), MEDA, and energy researchers and
practitioners, etc., were also interviewed to get their views on barriers to SWH and
wind energy. For this, 20 experts were selected, of which, 15 responded. Of these 15
respondents, 10 were from the government agencies while the rest were from research
institutions. The survey was conducted during the year 2000. Table 1 provides a sum-
mary of the population sample, including the number of persons approached, the
number of responses, and the number of responses as a percentage. The research
results and conclusions in this paper are based on this sample population.
The information collected in the initial phase of the study was used in designing
the questionnaires for the survey. The questionnaires were structured to elicit infor-
mation on the perceived benefits of RETs, awareness of users about their costs and
benefits, and queries related to barriers such as lack of sufficient information,
non-availability of the product in the market, high initial cost, low electricity tariff,
lack of incentives, uncertain savings, quality and maintenance problems, lack of a
suitable agency to deal with problems, etc. The respondents were asked to identify
the barriers and rank their importance on a given scale. Rankings were normalised
and the weighted ranking was found for each barrier. Finally, the barriers were
grouped into six broad categories: (i) awareness and information (ii) financial and
economic (iii) technical (iv) market (v) institutional and regulatory and (vi) beha-
vioural.
3.2. Barriers and their ranking

Barriers to technologies discourage consumer purchases, even though these tech-


nologies have been shown to be cost effective when viewed from a societal perspec-
tive. Understanding the size and nature of the barriers is essential if policies to
increase the penetration of RETs are to be successful. The validity of these ideas is
to be tested through the dialogue with stakeholders in a number of specific, but

Table 1
The population sample
Details Households Industrial Commercial Wind energy Policy experts
firms establishments developers
No. of persons/ 80 10 30 25 20
firms approached
No. of responses 66 9 25 10 15
Percentage 82.5 90.0 83.3 40.0 75.0
S. Reddy, J.P. Painuly / Renewable Energy 29 (2004) 1431–1447 1435

representative, sectors. In the present study, a total of four sectors are chosen,
drawn from the residential, commercial, industrial and policy experts. Each respon-
dent was given a detailed examination of the context of the issues that are involved
together with the list of barriers. They were asked to indicate the importance of the
each barrier to them on a five-point scale. The ‘1’ on the scale indicated ‘extremely
important’ to them (indicating maximum impact of removing a barrier on adop-
tion of technology) and ‘5’ ‘least important’ (least impact of removing a barrier on
adoption of technology). Generally the ability to make qualitative distinction is
represented by attributes, viz., equal, weak and strong or to put it differently, rejec-
tion, indifference and acceptance. Each of these can be subdivided into low, medium
and high indicating nine scales of distinction. However, Green and Carmone [6]
indicated that one would need only five-point scale to distinguish between rejection
and acceptance. Since this method is simple and appropriate we used this method to
provide weights to various preferences. The weighted average score for each barrier
was found out using normalised weights and the barriers were finally ranked accord-
ing to the weighted average score. These final ranks indicate the relative importance
of the barriers from stakeholders’ perspective. The weights given to the scale of
importance (1–5) of the stakeholders were 5/15 points (to importance 1), 4/15, 3/15,
2/15 and 1/15 (to importance 5), the total of weights being 1. A no response was
given 0 weight, indicating that the barrier is not at all important to the respondent.
These weights were multiplied by the number of responses for each barrier and the
weighted average was found out. The barriers were ranked based on these weighted
averages. The weighted average has been obtained as follows:
X
m
W k Xk
yi ¼
k¼1
n

where yi, weighted average of ith barrier; Wk, weight of kth rank; Xk, responses of
kth rank and m indicates the total number of ranks and n indicates the total number
of respondents.
3.2.1. Taxonomy of barriers
The following section sets out the taxonomy of barriers to RETs. This frame-
work provides the basis for the empirical survey. The aim is to test each claim
through the analysis of survey data of various categories of stakeholders. In con-
ducting the survey, it was found that the distinctions between these barriers could
not always be sustained. Thus, in the results reported in the following sections, a
slightly simplified taxonomy is used. This reduces the number of barriers from 12
to 6. The results of the case studies are discussed using this reduced list of barriers.

(i) Lack of awareness and information: it is generally believed that the adoption of
RETs are often not undertaken as a result of lack of information or knowl-
edge on the part of the customer, or a lack of confidence in obtaining reliable
information [7]. Households and small firms and commercial establishments
face difficulties in obtaining information on RETs compared to the simplicity
of buying conventional energy technologies. In India, public capacity for
1436 S. Reddy, J.P. Painuly / Renewable Energy 29 (2004) 1431–1447

information dissemination is lacking. There is hardly any knowledge (software


and/or hardware) about RETs that is readily available and easily accessible
for the consumers. Under these circumstances, information collection and pro-
cessing consume time and resources which is difficult for small firms and indi-
vidual households. Even in industries, there is often a shortage of trained
technical personnel that prevents the adoption of RETs. Due to these obsta-
cles, the possibilities of acquiring and installing RETs are less.
(ii) Economic and financial constraints: for many RETs, initial costs are uncompe-
titively high which prohibit the consumers to adopt them. Many consumers
prefer to keep the initial cost low rather than minimising the operating costs
which run over a longer period of time. This balances first costs against ongo-
ing operating costs. This kind of first cost bias is more prevalent in countries
like India where low income consumers lack access to cash and/or credit.
(iii) Technical risks: technical risk pertains to the technical performance of individ-
ual technologies and the unreliability about its performance. Technical risk in
specific to a particular technology. Most of the RETs are well proven and
hence are apparently at low risk. However, there may be site specific reasons
which makes it a technical risk that will provide a rational reason for rejection.
(iv) Institutional and regulatory barriers: Many of the renewable energy technolo-
gies in India are still in the development stage. There are no sufficient govern-
ment regulations/incentives to stimulate the adoption of RETs by businesses
and industries. They include: (a) lack of explicit national policy for renewable
energy at end-use level; (b) incomplete transition to cost-based electric tariffs
for most residential and some industrial customers; (c) poor availability of
credit to the purchase of RETs in the economy; and (d) lack of application of
modern management skills in energy development agencies.
(v) Market barriers/market failures: market barriers refer to any factor which
explains why technologies which appear cost effective at current prices are not
taken up while market failures refer to those market barriers which corre-
spond to market imperfections. Markets need to be competitive if they are to
use resources efficiently. In conditions of market power, electric utilities are
able to charge prices in excess of marginal costs. Such situations are common
in natural monopolies such as electricity supply industry. The thrust of liberal-
isation in the energy supply industry is to introduce competition where it is
possible and to use economic regulation of private firms where it is not. Also,
if the market produces and transmits insufficient information, consumers will
be unable to decide about the purchase of the equipment. As with compe-
tition, the amount of information required for RETs cannot be precisely
established. Equipment manufacturers may be unable or unwilling to provide
information because they would be unable to capture all the benefits.
Another important barriers to the adoption of RETs is split incentives. The
most commonly cited example is landlords and tenants in the housing market
[9]. The landlord of a building may be unwilling to install an SWH to reduce
electricity use since the resulting savings would be realised by the tenant. But
S. Reddy, J.P. Painuly / Renewable Energy 29 (2004) 1431–1447 1437

at the same time, tenant will be unwilling to install since he may move out
before benefiting from the cost savings.
(vi) Behavioural: adoption of RETs are generally influenced by consumer percep-
tions of the quality and usefulness of these items when compared to conven-
tional technologies [8]. RETs are often perceived to be used with discomfort or
sacrifice rather than as providing equivalent services with less energy and cost.
Also, while purchasing a technology, consumers take the advice of their
friends rather than obtaining information from the experts and take decisions
which may not be economically rationale. Table 2 provide information about
these barriers.
Taking the above parameters into consideration, the analysis of the survey data
has been carried out. The data provided valuable insights into stakeholders’ aware-

Table 2
Taxonomy of barriers
Barriers Actors Perspectives Comments
Awareness and Organisation Access to information Lack of specific, simple and avail-
information able information in time makes it
difficult to take the relevant decision
Financial and Organisational and Access to capital Low income individuals and small
economic individual firms cannot invest in RETs due to
their high cost
Heterogeneity A particular RET may be cost effec-
tive on an average, but the hidden
costs (operation and management
cost, inconvenience, and the costs
associated with gathering, and ana-
lysing information) may be high
Market Organisation Market failure Market for RETs is subject to
imperfect competition with conven-
tional technologies
Uncertainty in future prices (both
conventional as well as renewable)
Technical Organisation Risk Investment in RETs represent a
higher technical or financial risk
than conventional technologies
Institutional and Organisation No institutional mechanism for
regulatory RETs. Regulatory control of uti-
lities (supplying conventional
energy) leading to prices departing
from marginal costs
Behavioural Individual Consumers resist change (not inter-
ested to shift from one technology
to another)
Constraints on time, attention, and
the ability to process information
leads to decisions that are not
rational
1438 S. Reddy, J.P. Painuly / Renewable Energy 29 (2004) 1431–1447

ness about RETs and barriers to their diffusion. The opinions of the policy analysts
on action needed to remove the barriers were also revealed.

4. Survey results—Solar Water Heaters

4.1. Residential sector

Of the 80 households who were contacted, 66 had responded. The sample con-
tained a mix of SWH users and potential users. In most cases, the head of the
household answered the questions, who is supposed to be the decision-maker in the
household. The educational qualifications of the respondents were solicited (edu-
cation plays an important role in decision-making). Most of the respondents (more
than 75%) were graduates. Majority (76%) owned the house they were living in,
facilitating decision to install an SWH. About 53% had four rooms or more, and a
majority (48%) were occupying an area between 500 and 1000 sq. ft. About 75% of
the households had a family size between 3 and 5. A majority of households (61%)
had income in the range of Rs. 10,000–25,000 per month, while 35% had more
than this. Most of the respondents derive their livelihood primarily form services
(47%) and business (23%). Nearly 90% of households used electric water heaters
(EWH). The sample was thus selected considering the users and potential users of
SWH, and sample profile can be expected to have bearing on the responses
received.
Water heating accounts for a large share (20–30%) of residential electricity con-
sumption in urban areas [9]. A majority of the households used hot water to the
extent of 50–100 l/day. On awareness about the cost of current fuel, about 61%
households were able to indicate the correct electricity tariff they were paying. The
respondents were asked to identify a number of potential barriers to the diffusion
of SWHs and rank them according to their importance from their perception.

4.1.1. Barriers
According to the survey results, financial cost has emerged as the overwhelming
leading barrier to the diffusion of SWH. Asked to choose their top perceived
barrier, 24% of the respondents selected, ‘economic and financial’ as the most
important barrier. Respondents’ views on cost, payback period, and interest rates
were included in this category. As could be expected, respondents’ perceived cost
as a significant risk to investment in SWH is the main reason for this response. A
full 20% identified ‘lack of market1’ as a strong hindrance for the diffusion of
SWH. Only 17% of the respondents were willing to buy SWH at prevailing prices,
indicating the importance of current subsidy schemes in promoting SWH. A
majority (65%) of SWH owners favoured a payback period of 5 years or less, but
about 25% wanted it to be less than 3 years. About 57% had availed loan to buy
SWH and a majority of respondents indicated that interest rates should be below
12%, whereas they would want a return of 30% or more if they were to avail the

1
Insufficient market development for SWH was cited as a barrier.
S. Reddy, J.P. Painuly / Renewable Energy 29 (2004) 1431–1447 1439

Table 3
Ranking of barriers—residential sector
Barrier category Ranks and responses (no.) Weighted average
1 2 3 4 5
Economic and financial 16 13 15 11 9 0.210
Market 13 13 12 10 13 0.188
Awareness and information 11 9 12 14 12 0.169
Technical 9 11 12 12 8 0.158
Behavioural 10 11 7 11 14 0.152
Others 7 9 8 8 10 0.122
Total responses 66 66 66 66 66 –

loan, indicating their high discount rate. The current payback period without
governmental subsidy thus appears to be too high. On institutional side, it needs to
be mentioned that MEDA is the only agency with significant presence in this area
with more than 75% share in installing SWH. About 20% of the households were
not satisfied with the service and approach and indicated the need for a better
institutional structure to diffuse usage of SWH. Small size of the market was men-
tioned as the next important barrier to SWH penetration. Although about 33% of
the SWH users were dissatisfied with the performance of the equipment, technical
barrier was ranked as least important, reflecting maturing SWH technology. The
dissatisfaction was for reasons such as relative ineffectiveness during winter, longer
time taken for heating and water not getting heated to required temperature.
Another response appearing most often in the choices of the important barriers
was pertaining to the ‘consumer’s behaviour’ which was selected by 15%. The rest
of the responses included ‘technology limitations’, ‘skilled workers unavailable’,
etc. These barriers were ranked (very important to negligible) by the respondents.
Table 3 shows the score of the ranking system from the highest rated barrier to the
lowest depending on the weighted average.
4.2. Industrial sector

Ten firms were selected for the survey which include categories such as iron and
steel, chemicals, textiles, engineering, paper, pharmaceuticals, glass, metallurgy,
non-ferrous, etc. Fifty percent of the respondents had professional qualification,
and of the rest, 40% were graduates or above. Turnover of the firms in the sample
varied from 10 to 1000 million rupees with a bulk (50%) of them in 10–100 million
rupees range. Hot water is used for industrial purposes and in canteens. The hot
water use varied from less than 50 kiloliters per day (klpd) to above 100 klpd, with
60% of the firms consuming more than 50 klpd.

4.2.1. Barriers
Overall, ‘technical’ barrier emerged as the most significant barrier (44%). The
respondents were not satisfied with the performance of SWH, a major reason being
the high maintenance costs. In addition to this, there were doubts about the
1440 S. Reddy, J.P. Painuly / Renewable Energy 29 (2004) 1431–1447

Table 4
Ranking of barriers—industrial sector
Reasons Ranks and responses (no.) Weighted average
1 2 3 4 5
Technical 4 2 1 1 1 0.252
Institutional 2 3 2 1 1 0.230
Economic and financial 1 1 2 3 0 0.156
Behavioural 1 1 2 1 1 0.133
Others 1 2 2 3 6 0.230
Total responses 9 9 9 9 9 –

claimed savings from the SWH use with most putting the electricity savings below
10%. Similar doubts about the life of SWH were expressed by the firms with the
majority perceiving it to be less than that of electric water heater. Other technical
barriers included a lack of expertise with the firms to operate SWH, limitations on
available sizes, and a lack of heat control mechanism. On the economics of SWH,
a majority of the firms did not give any opinion on the cost of SWH. Of those who
responded, the majority opinion was that the cost was on a higher side and they
were not sure to buy at that price [9]. On the interest rates, the firms wanted an
interest rate below 12% for the loan, whereas they expected a rate of return 25%
and above on their investment. A majority of them (75%) favoured a pay back per-
iod below 3 years. On institutional issue, only 16% were dissatisfied with the
agency that installed SWH but a majority of them favoured better institutional
structure to promote SWH. Awareness was not an issue among the firms; trade
fairs and exhibitions, newspapers, and suppliers of SWH were sources of their
information (Table 4).
4.3. Commercial sector

4.3.1. Sample profile


Sixty percent of the commercial establishments (18 out of 30) had installed
SWH. A majority (83%) was owners of the premises, which could have made it
easy to install SWH. Almost 80% operated in more than 1000 sq. ft area and most
of them had SWH with a capacity of 2000 lpd, although the range varied from 100
to 4000 lpd. Most of the respondents interviewed were employees in the establish-
ments and well educated (graduate or more).
Although the sample members as a whole (90%) had awareness about SWH,
they considered that, in general, market imperfection is the most important barrier,
indicating relatively poor access to information compared to the conventional
energy technologies. Newspapers and magazines were the primary source of their
information. Financial and economic barrier was the next important barrier. A
majority of the establishments (59%) considered the cost of SWH to be high and
only 30% were willing to purchase it at the prevailing prices. The saving potential
was seen to range between 20% and 30% by the majority whereas more than 30%
S. Reddy, J.P. Painuly / Renewable Energy 29 (2004) 1431–1447 1441

Table 5
Ranking of barriers—commercial sector
Barriers Ranks and responses (no.) Weighted average
1 2 3 4 5
Market 6 5 5 4 4 0.21
Financial and economic 6 6 3 4 3 0.20
Technical 4 6 5 3 6 0.19
Behavioural 4 3 5 5 5 0.17
Awareness and information 3 4 4 5 4 0.15
Others 2 1 3 4 3 0.09
Total 25 25 25 25 25 1.00

wanted a rate of return of above 25%. A majority was comfortable with a pay
back period of 4–5 years, but wanted the interest rate on borrowed loan to be
lower than 10%. Next in the rankings were technical and behavioural barriers.
Although almost 40% of SWH owners were not satisfied with its performance,
technical barriers overall ranked only 3rd. Ineffectiveness during the winter, water
not getting heated to required temperature and longer time to heat water were
cited as the main technical issues. A lack of professional approach and slow
response were mentioned by a few as the reasons for dissatisfaction with the
agency handling the installation of SWH (Table 5).
4.4. Wind energy developers

Twenty-five wind energy developers were contacted of which 10 responded. The


installed capacities of wind energy ranged from 100 kW to 2 MW. The cost of
installation was about Rs. 40 million per MW (1998 prices). The annual cost of
operation varied from Rs. 400 to 800 per kW (depending on the installed capacity).
On an average, the generation was about 150 kW h/kW per annum.

4.4.1. Barriers
Information-related issues emerged in the category of most important barriers.
Economic barriers were of major concern to the wind energy developers. Forty
percent indicated that the problem in access to finance was a major barrier. The
regulatory barriers resulted in problems in land acquisition and problems in getting
clearances whereas a lack of infrastructure facilities added to the cost. Ever chan-
ging governmental policies created uncertainty and increase in associated costs. In
addition to this, economic barriers were perceived to be due to the high cost of
development and inadequate incentives, and delay in receiving money from the
governmental agencies. Seventy percent of the respondents considered cost of
energy production form wind as high in the given circumstances. Withdrawal of
the sales tax benefit and changed depreciation norms were also seen as the factors
for the increase in the cost of wind power. They were also of the view that the buy-
ing rate of power by the utility was quite low. Failure of the existing institutional
set-up to deliver the results is evident from the responses received. A majority of
1442 S. Reddy, J.P. Painuly / Renewable Energy 29 (2004) 1431–1447

Table 6
Ranking of barriers—wind energy developers
Barriers Ranks and responses (no.) Weighted average
1 2 3 4 5
Problem in land acquisition 4 3 1 0 1 0.267
Lack of infrastructure 2 2 2 1 0 0.193
Inadequate incentives 2 1 2 2 1 0.185
Problems in getting clearances 1 1 1 2 2 0.133
Changes in government policies 0 1 1 1 2 0.081
Delay in receiving payments 0 0 1 2 1 0.059
Others (specify) 0 1 1 1 2 0.081
Total 9 9 9 9 9 –

the respondents were also felt that various organisations including governmental
agencies were not sensitive to the needs and concerns of the wind energy devel-
opers. The barrier rankings are indicated in Table 6.
4.5. Policy makers and experts

In this category, energy analysts, equipment manufacturers, government func-


tionaries, planners and policy makers are included. For the most part, issues of
public policy that respondents identified as the most significant barriers echoed the
overall concern of the experts. A significant number of (35%) respondents saw the
government policies on renewable energy as hindering in the emergence of RETs.
An additional 28% saw a moderate impact of the issues. Economic and financial
barriers were ranked as the most important barrier category. Within this, the high
cost of wind power generation was considered as the most important, followed by
the low price of competing fuels such as grid electricity and kerosene. It needs to
be noted that the MSEB on the other hand had pointed out that the price offered
by them to wind energy developers was higher than their marginal cost of power
generation, and also well above their average revenue realisation. Uncertain bene-
fits, problems in selling surplus power and inadequate incentives were cited as
other important economic barriers in that order. Next in importance was regulat-
ory barriers, reflected in problems in land acquisition and getting necessary clear-
ances. Information and awareness was the next category of barriers, with a lack of
adequate awareness about costs and benefits of the RETs among stakeholders
resulting in a lack of interest and commitment to promote them. They also sug-
gested the setting up of demonstration projects for this purpose. Institutional bar-
riers were also indicated as an important barrier but this was because the existing
set-up was found to be lacking in professional approach, technical expertise,
accessibility and sensitivity to the programme. A lack of an appropriate insti-
tutional set-up to promote wind energy was also reflected in the major concern of
the experts and policy makers on lack of infrastructure facilities. Inadequate mar-
ket and social acceptance of new technologies were also mentioned as barriers for
RETs. Technical barriers, although relatively less important as a category, included
S. Reddy, J.P. Painuly / Renewable Energy 29 (2004) 1431–1447 1443

Table 7
Ranking of barriers—policy experts
SI. no. Barriers Ranks and responses Weighted average
1 2 3 4 5
1 Economic and financial 6 4 2 1 1 0.244
2 Institutional 3 3 2 2 1 0.169
3 Information and awareness 3 2 1 2 1 0.138
4 Regulatory 2 1 3 1 2 0.120
5 Behavioural 1 2 2 1 2 0.102
6 Market 0 2 1 3 3 0.089
7 Technical 0 1 2 2 1 0.067
8 Others 0 0 2 3 4 0.071
Total 15 15 15 15 15 –

some barriers such as seasonality of power generation (rated fairly high in the
importance), difficulty in finding skilled man power, and poor quality equipment.
The ranking of barriers by policy experts is included in Table 7.
4.6. Comparative analysis

Fig. 1 shows that all the four stakeholders are more or less in agreement as to
what the barriers are although the relative importance they place on each one does
vary. Industry considers the technical barrier as the most significant one, house-
holds and commercial establishments put emphasis on awareness and information,
whereas the policy experts view financial and economic barrier as the most impor-
tant one.
These findings also reveal the differences in perceptions between the individual
consumers and that of the firms. All the four stakeholders considered cost barrier
to be the relevant. The strongest levels of agreement were found on barriers con-
nected with technical, economic and institutional. Even though, the present study
was limited to two technologies, viz., solar energy and wind, it provides significant
insights for other RETs as well.

5. Discussion: from barriers to policy

5.1. Financing

The data reveal that the adoption of RETs is influenced by the consumers’ per-
ceptions of the quality and usefulness of technologies when compared to the con-
ventional ones. The survey information reveals that the RETs were perceived to be
of discomfort rather than the ones as providing equivalent services with more
reliability and less environmental degradation (compared to conventional technolo-
gies). In addition, RETs may seem to have a greater risk, or perception of risk,
than other forms of investment. A case in point involves the homeowner who is
unlikely to fully recoup the additional incremental cost paid for the replacement of
1444 S. Reddy, J.P. Painuly / Renewable Energy 29 (2004) 1431–1447

Fig. 1. Perspective of stakeholders for various barriers.

his SWH system when eventually selling the house. The respondents felt that there
are not many market-based instruments which influence the penetration of RETs.
The major incentives that are being given to the producers and consumers are the
subsidies. Though they are supposed to stimulate the market penetration, the fact
is that the burden is shifted from the consumer to the tax payer. Also, once the
subsidy scheme is stopped, consumers will automatically stop buying the equip-
ment. Providing financial incentives is important to renewable energy projects,
which are not only capital intensive but also involve project risks and unpredict-
able government policies. However, the policy makers have to choose the right
choice of financing schemes taking into consideration various factors that can have
a decisive impact on the economic viability of a project: type of scheme (private,
corporate, participation, project, and third party), ownership (single, corporate,
participation, project finance, and third party) and legal entities (personal, partner-
ship, corporation, and co-operation). In developing countries like India, financing
should be adapted to local needs and traditions—such as through revolving
funds—that has proven to be crucial in the diffusion of small RETs, such as house-
hold photovoltaic systems. Coping with the demand put on financing by the spe-
cific characteristics of renewables is an important challenge for financial
institutions [10].
5.2. Taxation

The general and specific tax rules in India can work for or against RETs. Prefer-
ential tax treatment, tax exemption, accelerated depreciation, and other approaches
can promote RETs. Tax mechanisms must be carefully designed to avoid undesir-
able consequences such as low incentives for project performance. Experiences
were similar in the initial years of wind power development in India.
S. Reddy, J.P. Painuly / Renewable Energy 29 (2004) 1431–1447 1445

5.3. Market-based approaches

Increasing consumer willingness to pay a premium for renewable energy can gen-
erate higher revenues that may be needed to recover the production costs. This
approach is spreading fast in many countries through the increased marketing of
environmental labelling and green pricing mechanisms. Retail competition and the
subsequent need for suppliers to diversify and to become more customer oriented is
an important driving force, an outcome of the commercial impulse to diversify and
add value to basic products [11].
5.4. Regulation

All over the world, the focus of most regulatory approaches to promote renew-
ables has been the electricity sector. Mechanisms to promote renewables through
regulatory approaches can be categorised as obligations to buy and obligations to
supply. In this mechanism, power supply from RETs, particularly from wind
energy developers, stipulate under what rules the power producers get access to the
grid and economic compensation for delivered electricity. This approach is com-
monly used in monopoly markets to ensure access for independent power produ-
cers with renewable energy. Regulated access and prices reduce transaction costs.
Prices are usually based on avoided costs to the utility, and the principles by which
these are calculated are important for the outcome. Obligations to buy may be
complicated to maintain in liberalised electricity markets with competition between
suppliers.
A lack of regulation can also hinder exploitation. For example, the exploration
and exploitation of such natural resources as minerals or fossil fuels are usually
regulated through legislation and involve selling or giving concessions. The absence
of corresponding regulation for wind concessions, which would secure the rights to
a resource, can be a barrier to commercial investments in exploration and exploi-
tation. Hence, coherence should be sought between regulation in the renewable
energy area and in other domains also.
5.5. Demonstration and cost-reduction strategies

Demonstration programmes are necessary to test new energy technology manu-


facturing (such as solar photovoltaics or fuel cells) and energy conversion facilities
(such as integrated biomass gasification combined cycle plant)—and to prove their
technical and economic viability. The private sector may find it difficult to build
demonstration plants for various reasons—high capital requirements, required
rates of return, high risk, and difficulties to appropriate the long-term benefits.
Thus, support from governmental agencies is needed when clear public benefits can
be associated with the technology.
In the case of RETs, significant time is being taken during the phase between
demonstrations and commercial competitiveness. For essentially all technologies
and production processes, a substantial amount of experience or learning results
from their application, which in turn reduces costs. For various products and pro-
1446 S. Reddy, J.P. Painuly / Renewable Energy 29 (2004) 1431–1447

cesses about 20–30% reduction in costs has been observed with each doubling of
cumulative production. This phenomenon—called the experience curve or learning
curve—if works for RETs, can motivate private firms to enter into this business.
That is, they initially sell products below production cost under the expectation
that learning effects will drive down costs and that profits will be generated later.
For this, financial support from the government agencies in combination with
other measures can be a key to success.

6. Conclusions

The enormous potential of renewable energy sources is sufficient to meet the


world energy demand many times. They can enhance diversity in energy supply
markets, contribute to long-term sustainable energy supplies, and reduce local and
global atmospheric emissions. They can also provide commercially attractive
options to meet specific needs for energy services, particularly in rural areas, create
new employment opportunities, and offer opportunities to manufacture much of
the equipment locally. However, to achieve this goal, a number of barriers will
have to be overcome to increase the market penetration of RETs. Few RETs can
compete with conventional fuels on a strict cost basis. Clearly, the cost of pro-
duction has to come down. The RETs problem is a complete lack of market-based
approach and it is important to initiate such a mechanism. Currently, it is
extremely unlikely that a profit-oriented entity will spend the cash needed to
develop such a mechanism. Past failures with these technologies and the lack of
high growth margins would tend to lead investors to seek their fortunes elsewhere.
Thus, there is a need for a public policy to invest in this approach.
A transition from conventional to renewables-based energy systems would have
to rely largely on successful development and diffusion of RETs that become
increasingly competitive through cost reductions resulting from technological and
organisational development—and on the political will to internalise environmental
costs and other externalities that permanently increase fossil fuel prices. Different
technologies vary widely in their technological maturity, commercial status, inte-
gration aspects, and so on. Policies aimed at accelerating renewable energy must be
sensitive to these differences [11].
Overall, the survey results overwhelmingly point to numerous significant cost
and awareness related issues as potential risks to the growth of RETs. According
to the survey, with the RET market still in a relatively nascent stage, representa-
tives of business, industry, government and customers have a number of barriers to
address before RETs penetrate on a national level. Also, the rules of the energy
market are based on decades of experience with one system—a monopoly system
that provided more or less reliable power once upon a time, but with shrinking
supplies now. In order to ensure reliability and availability, as well as reap the
energy-savings and environmental benefits attention must be paid to all barriers to
the deployment of RETs. For this, innovative policy framework is needed to
address various barriers. State actions can do much to aid the evolution to a com-
S. Reddy, J.P. Painuly / Renewable Energy 29 (2004) 1431–1447 1447

petitive market that rewards the most productive and innovative technologies. If
the government can remove barriers and create a restructured and competitive
energy industry based on market efficiency, it will spark immense benefits for both
the economy and the environment.

Acknowledgements

This paper is based on the work carried out for the UNEP Collaborating Centre
on Energy and Environment (UCCEE), RISØ, Denmark. We are thankful to Dr.
John Christensen, Head, UCCEE. The MEDA and the Ministry of Energy and
Environment, Government of Maharashtra, India, had provided the necessary
inputs. Thanks are due to Dr. Pramod Deo, former Secretary, Energy and
Environment, Government of Maharashtra and Sri. Mayabhate and Sri. Salunkhe
from the MEDA for providing the valuable information on various RETs in use in
Maharashtra and helping us in collecting the primary data. We record our appreci-
ation to Dr. P. Balachandra, Department of Management Studies, Indian Institute
of Science, Bangalore, and Sri. Rajarshi Pandit, Indira Gandhi Institute of Devel-
opment Research (IGIDR), Mumbai, for carrying out the survey and collecting
data for the project.

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