India's ONGC to invest millions in renewable energy

Nov 22, 2010 12:00 AM

The state-owned Indian oil and gas company, ONGC, has announced that it will invest about $ 110.5 mm to promote research and development of renewable energy sources.
The announced was made by the company chairman at a summit organized by the Confederation of Indian Industry (CII).

The Oil and Natural Gas Corporation (ONGC) is Asia’s largest oil exploration and production company. It has 77 % share in the Indian oil production market and 81 % share in the natural gas production sector. The company is actively involved in exploration of oil and natural gas in several parts of India.
A subsidiary, ONGC Videsh takes care of the international business overseas. It has high value stakes in oil and gas fields in countries like Russia, Iran, Vietnam and Sudan. It is believed that it will also partner with a Russian firm to bid for rights to explore the Arctic for hydrocarbon reserves.

This rosy picture, however, fails to bring profits for the company. Due to the government’s intervention, the oil and gas process remained low for the past several years. So while the companies imported oil at international prices the government maintained lower domestic prices in order to shield the people from inflation; therefore all the state-owned companies operated in heavy losses for several years.
Only recently did the government loosen its grip on the pricing mechanism and allowed the companies to decide domestic prices according to the international oil prices.

It was obvious for these companies to search for another revenue stream and investing in the government-backed renewable energy projects seems perfectly logical. With the National Action Plans on Climate Change launched, several financial incentives announced, state-owned companies, private companies and foreign investors are pouring millions in the renewable energy programs.
Wind energy technology is well-established in India and contributes the most to the country’s renewable power generation. Several oil companies and other industries have acres upon acres of wind farms spread all across the country. The loans are more favourable and the technology is quite cheap too as India is home to Asia’s largest wind energy company, Suzlon Energy.

There is also the National Solar Mission which aims at setting up 20,000 MW solar power generation capacity. The government is offering highly attractive financial incentives like tax breaks and duty exemptions for setting up solar energy plants.
The government is overwhelmed by the number of bids submitted for solar power projects under the first phase of the Mission. The project developers are also offered high premium tariff rates.

The government has launched several schemes like the minimum mandatory renewable power generation targets and the renewable energy certificates scheme.
ONGC is probably looking at expanding the renewable energy infrastructure in the rural areas which represents the highest potential of growth in the sector. Once the technologies of power decentralized power generation and power evacuation and a profitable business model has been established, the company could go forward with its expansion plans.

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