India needs more power – Germany has excellent technology to help the subcontinent
India is facing a green revolution. Government and business leaders recognize that the scarcity of fossil fuels is one of the major risks for economic growth and understand the urgent need to take countermeasures and make green energy viable. German companies have many of the solutions India needs and they in turn need the Indian market.
- India has a huge potential for renewables, given its resources, policies and requirements
- Success for international companies requires significant adaptation of products and business models
- Given the long-term market opportunity adaptation makes economic sense
According to a recent study by Ernst & Young, India is ranked 4th amongst the most attractive countries for investments in the field of renewable energy. Today, a growing number of German companies want to do business in India. They have leading technologies and an excellent reputation in India. However, few succeed in establishing themselves in this complex and dynamic market. India s unique characteristics require an entrepreneurial approach and a long term, proactive strategy.
Many German companies from the wind, hydro, solar and biomass energy sectors expect the subcontinent to be one of the leading markets in the future. Siemens plans to invest 250m in India s renewable energy market. The fast growing Indian economy is driving the rapidly growing demand for power thereby causing a base-load deficit equivalent to 16GW in 2010. This makes the power market in India attractive in the long run.
To ensure a sufficient power supply in the future, India plans to triple its total generation capacity to 450 GW over the next 12 years with renewables playing a major role. On the supply side, renewables will be encouraged through preferential feed-in-tariffs and subsidies. On the demand side, state utilities will be obliged to purchase a minimum share of energy from renewable sources. This creates huge opportunities: from 2012 to 2022, the market for solar power is estimated at 55 billion. Similarly, the market estimated for wind is 53 billion, for biogas is 23 billion and for small hydropower is 12 billion.
According to the Ministry of New and Renewable Energy, by 2022, ten percent of India s electricity will be derived from renewable sources. Now is the perfect time to get involved in the Indian renewable energy market: businesses that step into the market early can actively influence the decision-making and development processes, shaping them to their own advantage. However, in India, business success is neither quick nor easy. Even large companies with a long-term approach, such as the German wind turbine manufacturer Enercon, have faced difficulties.
International companies are confronted with challenges that are not easy to overcome. It is crucial to understand that the country is made up of a variety of individual markets with very different conditions. This is particularly true for renewable energy: energy policy and incentive schemes (such as feed-in tariffs) vary with individual Indian states.
Infrastructure, legal protection and availability of finance are further areas with considerable variations across regions. It takes time to develop an insight into complex market structures, gain consumer confidence and overcome bureaucratic barriers. While doing so, local partners can be of great help as well as can be somewhat of a challenge. They may be able to easily establish contact with decision-makers or give access to distribution channels. India is a country of networks. The success and failure of an enterprise is highly influenced by personal and family relationships. Though they rarely proceed without problems, joint ventures with Indian companies do present an opportunity to take advantage of existing networks.
A peculiarity which applies to infrastructure projects in general and is very distinct in India is the importance of bureaucrats and politicians. For the most part, projects require numerous licensing procedures: to buy property, to fulfil environmental regulations or to feed power into the electricity grid. As a consequence of India s slow and often arcane bureaucracy, many business deals take longer. For this reason, patience is one of the key success factors in the Indian market. Companies such as SMA, Astonfield, Voith or Bosch, have shown that to invest time and capital with a long-term strategy can lead to good results.
Solar power, especially, is now offering a very attractive opportunity for international technology leaders and investors. By launching the Jawaharlal Nehru National Solar Mission, India s government has taken a major step towards simplifying the implementation of projects. Clearand uniform regulations and a long-term approach, now give security to investors and are proof of the Indian government s intentions to establish this market permanently.
Given the aforementioned obstacles, a strategy for India should always be based on a long-term perspective. As a first phase, German companies can position themselves in niche markets by exporting high-end products. However, to make use of the full scale of the market (which is, after all, its most attractive feature), products need to be adapted to the price-sensitive Indian market. This can take the form of modifying the product to better suit local conditions, sourcing and producing in India to reduce costs, or even developing new business models to ensure competitiveness. A research project by Professor Wildemann of the Technical University of Munich, in cooperation with BRIDGE TO IDNIA, is presently investigating the best possible mode of adaptation for German state-of-the-art technology to Indian market conditions.
Siemens is a great example for a company that successfully adapted to India. Having operated in India for 140 years, a research centre was established in 2004. According to CEO Peter L scher, Siemens benefits from the opportunities of Indian growth and offers specially tailored products .
For successful international companies, the main competitors are not their traditional international rivals but fast-growing, rapidly changing and highly price-competitive Indian companies. International technology leaders therefore continue to face serious challenges and competition. However, this competition can be extremely healthy. A company that can offer renewable energy solutions to the Indian customer will find an almost limitless market in India and in other developing countries.
This article originally appeared in German in Sueddeutsche Zeitung in February 2011