In an excellent interview with FE, K Subramanya of Tata BP Solar talks about the challenges and opportunities in the most happening energy segment in the country.
He also chairs Ficci’s solar energy task force and advises Indian Semiconductor Association (ISA) and SEMI-PV India.
Will competitive tariff bidding in the first phase of the National Solar Mission (NSM) lead to faster lowering of costs or deployment of cheap technology?
Competitive tariff bidding is suitable in mature markets, but not in a nascent market like solar power where the cost and price benchmarks are still evolving and awareness about the technology per se is very limited. Lowering of costs is certainly an important objective but what’s the use of lowering of tariff to the extent that the project becomes not just unprofitable but unviable? We fear that in their bid to install projects at the lowest possible cost, developers might use cheap technology, which will turn out to be unreliable — and actually more expensive — in the long run.
How can a balance be struck between the stated indigenisation objective, which is costlier, and lowering of costs, which can be achieved through imports?
Indigenisation is a primary objective without which the overall NSM target of 20,000 mw cannot be met. Lowering of costs is also important. Solar project costs have fallen by 25% between 2008-09 and 2009-10 (from R22 crore/mw to R17 crore/mw). In 2009-10, the Central Electricity Regulatory Commission (CERC) had set a tariff of R17.91/ kWh for solar PV projects assuming a capex of R16.9 crore/mw. But in the NTPC Vidyut Vyapar Nigam Limited (NVVN) bidding in November 2010, the tariff was bid at 30–40% discount and went down to an average of R11.50/kWh. Such a low tariff is unjustified and untenable since the capex has not come down 30-40% in the meanwhile.
The way to strike a balance between indigenisation objective and lowering of costs is to insist on indigenisation without leaving any loopholes. At the same time, the tariff bidding should have some safeguards such as stringent pre-qualification of bidders by reputable credit rating agencies. Tariff bidding should be done in such a way that it discovers the “average” price and not the lowest price. The required number of project applicants, which bid closest to the “average” price should be selected since this is the reflection of the market assessment of the real price. Such an approach would be fair to all parties concerned.
Financing is said to be a big hurdle. What can be done to make it easier and also secure the interests of banks?
Banks and FIs need to be sensitised to the solar technology and its long term reliability and all relevant issues around that. Indian bankers must visit the solar power plants in India/Europe to gain confidence in the technology. After the several iterations, the PPAs (power purchase agreements) and PSAs (power sale agreements) to be signed by NVVN with the solar power developers and discoms respectively are better than they were originally but there is still the issue of the financial health of some of the electricity boards and discoms. The Ministry of New & Renewable Energy (MNRE) has clarified that they will support payment to the solar power developers in case of any difficulties. It remains to be seen how this mechanism will play out over the next few years.
Finally, what more needs to be done to accelerate the achievement of solar energy targets?
The first year of the Phase 1 of the solar mission has been dominated by the megawatt scale grid connected plants but the importance of decentralised, roof-top and off-grid applications cannot be overlooked in a vast country like ours where 70% of the population lives in rural areas. There has to be a renewed focus also on technology innovations and R&D as well as capacity building to drive the mission targets forward.
While Mr. Subramanya’s fear is certainly genuine and warranted that in their bid to install projects at the lowest possible cost, developers might use cheap technology, which will turn out to be unreliable — and actually more expensive , Panchabuta understands that a lot of developers might not have not done their detailed techo commercial and techno economic studies in details.
This has led to a lot of project bid at prices that are definitely challenging to execute and finance unless, the developers have specific plans and strategies to fund it.
What was certain at the time of bidding itself was that stand alone, with such aggressive tariffs, a lot of projects did not warrant or make themselves capable of project financing.
Panchabuta and a lot of other industry hopefuls have expected that the idea to bid at low prices by some of these projects was a conscious decision by the developers to have a first mover advantage in this exciting space with tremendous opportunity that has turned out to be highly competitive.
The topic of domestic content is one that can be debated in detail with views both for and against it by both manufacturers and developers and this is a policy decision that has to be taken by the government without any loop holes as Mr. Subramanya has rightly said either with or without the content requirement.
We completely agree that the importance of decentralised, roof-top and off-grid applications cannot be overlooked in a vast country like ours where 70% of the population lives in rural areas. There has to be a renewed focus also on technology innovations and R&D as well as capacity building to drive the mission targets forward.
In fact we have often stated that as a thought leader we believe in the immense potential of offgrid solar- especially in the telecom space-particularly in the rural telecom and telecom tower space. We have also mentioned that there is immense potential in the defence and the railways for solar pv based solutions. There are also immense opportunities and potential for solutions in the low and medium temperature thermal collectors space.
There are also innovative solutions that can be found to what is called the “energy poverty” in a country like India which we believe is more “energy availability” and this can he handled by innovative cleantech-clean energy solutions in conjunction with rural and social networks as a financing and distribution model that help in the scalability of such solutions.