Priority Areas of Cooperation
A wind power plant in India
What India Needs Most Is Environmentally Friendly Energy
The poor in the slums of Mumbai and Calcutta have barely any
idea that also their fate depends on the environmentally sound
development of India's energy sector. Today, economic growth is
already being constrained by a shortage of power. First of all, too
little electric power is generated. Secondly, too much of what is
generated is lost through an inefficient and in some cases
dilapidated supply network. These losses amount to up to 35 percent
of the power generated. The power shortfall is currently 11
percent, and at peak times the shortfall even reaches almost 14
percent – a gap that could only be closed by rehabilitating the
power supply grid.
India's installed capacity of 147 gigawatts (GW) is only slightly
higher than Germany's. Its annual per capita consumption of 700
kilowatt hours (kWh) is only half as high as China's. This power
deficit means that industry falls far short of being able to grow,
and thus create jobs and income, on a scale commensurate with its
real potential. India therefore plans to increase its installed
capacity from almost 150 GW to around 200 GW by 2012.
To generate power India currently uses mainly coal; this accounts for 52 percent of the capacity, which among other things explains the heavy air pollution in the cities. Environmentally friendly hydropower accounts for 25 percent, followed by gas (10 percent). Germany is supporting India in various areas to help develop more environmentally sound capacities, and increase the efficiency of production and the grid.
More Economical Power Plants
India's coal-fired power plants achieve an efficiency of just 31 percent. The result is that India not only needs to use large quantities of raw materials, but also then faces considerable dust and pollutant emissions. This is why KfW Entwicklungsbank, on behalf of the German Federal Ministry for Economic Cooperation and Development (BMZ), is financing, among other things, the construction of new power plants, and the modernisation of existing ones. Through these activities the carbon dioxide emitted by a power plant, for instance, can be reduced from an average of 1,100 grammes per kilowatt hour to 840 grammes.
Through the Indian Renewable Energy Development Agency (IREDA), KfW Entwicklungsbank is financing – on the BMZ's behalf – sub-loans to promote the development of renewable energies. These activities include, for example, wind power plants, small hydropower plants, combined heat and power, and biomass projects.
Good Location for Hydropower
German-Indo cooperation focuses special attention on the
construction of new hydropower plants and the modernisation of
existing ones. India has major water courses that are well suited
to producing electricity from hydropower. India's hydropower
potential is estimated to be 150,000 megawatts, the current
installed capacity being 35,000 megawatts. Over the next few years
Germany plans to continue providing considerable funds and
expertise for hydropower development.
India's geographical position also makes it a suitable location for
generating electricity from solar energy. KfW Entwicklungsbank is
currently financing a study on the construction of a solar array at
an existing power plant in Anta in Rajasthan.
KfW Entwicklungsbank is also supporting India in halving the enormous power losses caused by higher voltage levels, particularly in rural supply networks, from the current level of 20 to ten percent.
Shortage of Expertise
When tackling its problems, India often lacks not so much the funding but rather the necessary expertise. India sometimes invests large amounts of money in programmes to reduce environmental damage and poverty, although these projects are often not designed sustainably. With its experience in environmental protection and ecologically sound natural resource management, German Development Cooperation is able to offer support here.
In Tripura, KfW Entwicklungsbank is financing – on the BMZ's behalf – a project in 104 villages with a total of around 250,00 inhabitants who currently live from itinerant agriculture in the middle of a state forest. Due to the poor soil quality, the crop farming practices that now provide food security for only nine months a year need to be redesigned. Due to over-utilisation the forest is already badly damaged, and population pressure is growing.
Within the project, farmers will form communities and be allocated land-use rights. As responsibility is transferred, reafforestation measures will be implemented, and marketing of the forest and agricultural products improved. An intact forest managed by the farmers will then create opportunities for the sale of forest fruits, medicinal plants, spices, bamboo, rattan and rubber. And as the forest is selectively cleared, valuable teak will be obtained. It is envisaged that higher incomes will ultimately be generated through wise management of the forest, as opposed to just chopping down trees.
Barely Any Credit for the Poor
Although the economy is booming, more than anyone else the poor population in rural areas, as well as small and medium-sized enterprises, lack capital. Farmers have barely any opportunity to obtain small loans and invest in machinery or seed. Nor are they able to save for hard times. Although around 75 percent of Indians live in rural areas, their aggregate share of the Indian banks' credit portfolio is just 26 percent. India has also recognised this problem, and is currently conducting a fundamental reform of rural finance, supported by KfW Entwicklungsbank.
The support of small and medium-sized enterprises (SMEs) is a
further focus of the economic cooperation. The banks still
concentrate mainly on large companies that are solvent. Between
2003 and 2006 the share of credit granted to SMEs even fell from 10
to just 4.2 percent, even though SMEs posess major economic
potential and play a key role in poverty reduction. Only they can
create sufficient jobs to also provide work for those 350 million
Indians who are currently living on less than a dollar a day.
This is why KfW Entwicklungsbank has committed refinancing funds
that will be delivered through an Indian bank specialising in small
and medium-sized enterprises. The focus will be on investing in the
SMEs' fixed assets, environmental protection and energy
efficiency.
Last updated: April 2009
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