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Sunshine on solar power in India

According to reports, the chase to set up solar power units in India has more to it than the country’s tropical locale.

Earlier this month, over 150 companies evinced interest in setting up plants grossing 2,500 megawatts (MW) in response to a government invitation for 350MW. The invitation, which is the second offering under the first phase of the National Solar Mission (NSM) policy, is no doubt tempting.

The winners don’t have to deal directly with the buyers of power—distribution utilities that are financially fragile.

Instead, they get to sell power to a credible Union government-nominated intermediary that insulates them from the utilities’ risks. The latter, like hidden pain, is surfacing with intensity that is otherwise throwing lenders off the sector.

It is only to be expected that the first phase of NSM will be a resounding success. The target of 1,000MW is more or less on course to be set up by 2013, raising the issue of whether the target for the second phase of 4,000MW needs to be upwardly revised.

This optimism does take a beating if a critical policy incentive given for the first phase is revisited. The question is: should the government, or its nominee, continue to play the role of a financially credible intermediary?

“Mixing drinks” may not work into the future. This is because NTPC’s “unallocated” power capacity, which is not linked to any buyer, is limited at 4,000MW. It is this inexpensive, conventional fuel-fired power that is mixed with green energy to make it affordable for utilities.

More importantly, states need to get off this crutch and learn to absorb solar power directly from developers.

Conventional fuel-based electricity is getting expensive on the back of rising global fuel prices.

Some states such as Gujarat and Tamil Nadu have moved ahead on their own to solicit green power. Gujarat has been a success story—for one, the distribution utilities are charging tariffs that, on an average, are only 10% shy of costs; second, it has a significant Renewable Purchase Obligation (RPO), a regulatory instrument that forces utilities to absorb renewable energy. And therein lies an answer—catalyze solar power by getting state power regulators to ratchet up RPO.

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