According to reports, three years after the launch of an ambitious programme to cut its emission of greenhouse gases, India’s plans to harness its abundant solar energy appear to be quietly chugging into daylight.
In June, Indian Railways announced that it will start making solar-powered air-conditioned coaches—a first for the nation.
Two months later, the energy group Welspun Energy Ltd commissioned what it said would be Asia’s largest single-location solar power plant in Jodhpur district of Rajasthan.
In the same month, media reports said India’s first floating solar power station was being set up on a pond at Kolkata’s Victoria Memorial.
Things are not roaring yet, but East to West, that’s more concentrated innovation and activity in three months than in a long time in India’s quest for solar power.
These efforts aren’t entirely unique—cities and countries across the world have been racing to tap solar energy.
Antwerp, a port city in Belgium, opened a solar-powered railway tunnel two years ago to power trains running on the Paris-Amsterdam high-speed railway. France, Australia, Switzerland and other nations are experimenting with a variety of floating solar technologies.
In India, the fact that solar energy appears to be gaining some traction at long last is the result of a few key factors—including political will and the economics of renewable energy—coming together.
In 2011, when the government invited bids to build 500 megawatts (MW) of solar power capacity, participants quoted an average Rs.12.15 per unit of power—an astronomical rate when compared to the Rs.2.50-3 per unit price for electricity generated by coal-fired utilities. But in just two years, the gap has narrowed drastically. The price of coal-fired power now is about Rs.5 per unit and electricity from sunlight costs about Rs.7.
This happened for two reasons: traditional utilities’ dependence on imported coal supplies increased as local production failed to keep up with demand; and the price of solar photovoltaic (PV) cells that convert sunlight into electricity dropped.
Last September, audit and consultancy firm KPMG Advisory Services Pvt. Ltd predicted that the cost of solar power in India will be on par with other conventional sources of electricity by 2017. In fact, analysts and industry executives now think parity can be achieved a year earlier.
India announced its national solar power policy in 2009 as part of a plan to combat climate change, aiming to reduce greenhouse gas emissions by 434 million tonnes a year by 2050.
In January 2010 the government launched the Jawaharlal Nehru National Solar Mission (JNNSM) with a target of deploying 20,000 MW of grid-connected solar power by 2022.
Under the mission’s second phase draft guidelines published in December, India should be able to produce 5,000 trillion units of solar power, making up the nation’s entire energy deficit.
That’s a formidable task: renewable energy contributed only 6.4% of the total power generated in India in 2012-13, up from 4.7% in 2010-11 and 5.5% in 2011-12, according to official data.
By any reckoning, the 20,000 MW-target is a long way off. By 31 May, only about 1,760 MW of grid-connected solar power projects and 60 MW of off-grid solar projects had been commissioned, according to a 1 June government statement.
But Vineet Mittal, managing director of Mumbai-headquartered Welspun, one of the few independent power producers in India to focus solely on renewable energy, believes many large office complexes, shopping malls and multiplexes in metro cities like Mumbai, Delhi and Bangalore are interested in buying solar power since it is now available at around Rs.7—cheaper than the Rs.8-9 a unit they currently pay for power.
Key to achieving grid parity —the point at which alternative means of generating electricity is equal in cost, or cheaper than grid power—is the cost of the PVs, say experts.
“The cost of PVs has demonstrated a significant downward trend—primarily as Chinese and Taiwanese companies added manufacturing capacity. Extrapolating the same, one might say that grid parity could be a matter of a few years,” said Sumant Sinha, chairman and chief executive officer of ReNew Power Ventures Ltd, an independent renewable energy power producer.
Policy initiatives by the Central and various state governments—especially in Gujarat, Rajasthan, Tamil Nadu and Andhra Pradesh—to encourage the use of solar power have added to the momentum.
Gujarat is home to more than half of India’s solar power projects, its formidable solar policy having been laid down in 2009, ahead of the Centre’s national solar mission.
Gujarat’s target under the policy was to generate 500MW of power from solar plants, but it has nearly doubled that target, having contracted 971.5MW.
Vijay Kundaji, a consultant to electronics lobby group Semiconductor Equipment and Materials International (SEMI), said that until 2009-10, manufacturers exported almost 70% of their solar power products, offering the remaining 30% domestically, primarily due to government subsidies.
“All that has changed with the national solar mission that has energised megawatt scale grid-connected plants based on PV. From almost nothing, we have come up to 1,700MW.”
In a country like India where electricity supply is often erratic and inadequate, independent solar power generating equipment that aren’t connected to the main power grid can play a major role in bridging the gap between demand and supply. These include products such as solar-powered water heaters or field pumps, or larger independent solar power generating plants that can relieve power grids of substantial strain.
“If a family of five uses solar-based water heating solutions, then it saves five units of electricity every day and recovers its initial capital investment in 3.5-4 years,” said Nitin Sangle, spokesperson for Racold Thermo Ltd, which supplies solar-powered water heaters. Industrial consumers can recover their investments within two years, he said.
Off-grid solar systems can also play a major role in running water pumps in the fields. According to the Planning Commission’s estimate, the government spent Rs.2.07 trillion in subsidising electricity supply to farms between fiscal years 2008 and 2012, putting a massive financial strain on state governments and their distribution utilities.
As a result, “distribution utilities try to compensate themselves by imposing higher tariffs on the industrial and commercial sector to offset the impact of subsidies given to agricultural sector,” said Hitesh Doshi, chairman and managing director of Waaree Engineers Ltd, which manufactures solar power agricultural pumps.
“This makes Indian manufacturing uncompetitive compared to other emerging economies.”
India needs to promote off-grid solar power to achieve its goal of 100% electrification, according to Mahesh Bhave, a professor at the Indian Institute of Management, Kozhikode. “In rural areas, because of terrain and lesser density of population, taking grid-connected electricity is not economically viable, but solar power can bridge this gap supported with micro wind projects or power projects based on bio-fuels,” he said.
The ministry of new and renewable energy (MNRE) claims that under its rural electrification programme, it has provided electricity to 10,154 villages and hamlets as of 30 June. The target was 12,771 villages and hamlets.
The regional rural banks that finance the village electrification projects are refinanced through the National Bank for Agriculture and Rural Development and “40% component of the cost is provided by MNRE as a subsidy,” said Tarun Kapoor, joint secretary in the ministry.
The MNRE offers a subsidy to all the residents of villages where providing grid-connected electricity is not possible either due to geographical limitations or because it is financially unviable.
The problem is that despite having a 10-year-old law that allows it, it’s not easy to buy electricity from independent producers, including solar plants.
The Electricity Act of 2003 allows consumers whose daily consumption is above 1MW to source power directly from a power producer, but state-owned utilities are unwilling to give up their monopoly over distribution as they fear losing high paying industrial and commercial consumers. Industrial and commercial consumers pay much higher tariffs than most others as they cross-subsidize consumers such as the poor and agricultural users.
“Artificial barriers like mandatory domestic content incorporated in the second phase of JNNSM should be removed,” said Sumant Sinha, chairman of ReNew Power Ventures Ltd, an independent producer of renewable power. The draft guideline published by MNRE for the first batch of the second phase of JNNSM says that out of 750MW of projects for which bids will be called, 75% or 562 MW will be reserved for project developers using domestic equipment.
Another problem is that the solar power sector is “too dependent on government for its success”, according to Bhupesh Trivedi, a Mumbai-based solar power consultant. “Feed-in tariffs (price at which power is sold to the grid) are so low that if we bid at these rates it’s no longer sustainable since discoms (distribution companies) delay payments. This increases our interest costs.”
“We are aware about the concerns of solar power developers (and these) will be taken care of when guidelines for the second phase of JNNSM are finalized,” said Kapoor of the renewable energy ministry. The government is likely to finalize the guidelines by the end of September, he said.
In a September 2010 report, India’s Centre for Development Finance and the World Resources Institute’s New Ventures Program pointed out that 45% of India’s rural BoP (bottom of the pyramid, or poorest) population of 114 million households did not have reliable access to electricity and relied on kerosene for lighting. Over 85% relied on firewood and dung for cooking.
“We estimate India’s potential rural BoP energy market to be $4.86 billion per year,” said the report, adding that decentralized renewable energy (or off-grid renewable power) would account for 95% of the total potential rural BoP market for clean energy.
Industry experts said more than 100,000 diesel generators purchased in the country annually can be replaced by solar power generators. These numbers pertain to just the organized sector.
So the potential is huge—as are the hurdles.
“It sounded very romantic when we entered the field but off-grid, as we realized later, is an extremely challenging business to be in,” said Vinay Jaju, CEO and co-founder of Punam Energy Pvt. Ltd, a Kolkata-based renewable energy company. According to him, since solar power is not a commodity, one has to create an entire ecosystem to sell it, which involves creating demand, large-scale service infrastructure, and making solar panels affordable with the assistance of rural banks and micro-finance institutions.
India has “no vision on decentralized solar power”, says Chandra Bhushan, deputy director general of the Centre of Science and Environment (CSE), an environment lobby body. “What we need are mini-grids or small solar plants in villages. Instead, the government is distributing solar panels and lamps to villagers. This strategy will work only when people are very poor. Else, households require electricity to run lights, fans and TVs too.”
In January 2010, the Central Electricity Regulatory Commission (CERC) made it mandatory for all state-owned distribution utilities to purchase 10% of their power requirements from renewable sources. These are called renewable purchase obligations, or RPOs. The purchase is to be raised by 1 percentage point every year until fiscal 2015.
The regulation also provides for so-called renewable energy certificates (RECs). Distribution utilities that cannot meet their RPO obligations can instead buy these certificates from the market and trade them on power exchanges.
However, in the absence of any penalties for not meeting the RPOs, few utilities have shown any commitment to fulfil it. Environmental campaigning group Greenpeace in a report published in May said that out of 29 state utilities, 22 had failed to meet their RPOs in 2012.
Proper implementation of RPOs “in spirit is the key to attracting investments towards solar power sector”, said Santosh Kamath, partner at management consultancy practice at KPMG.
What India’s solar power industry needs, according to former power minister Suresh Prabhu, is stability of regime, especially in the states. “The Central government should do some hand-holding at state government-level and ensure the policies are not changed frequently.”
India definitely needs grid-connected solar power but it should also promote more off-grid solar power, Prabhu said, “and I believe the recent policy announcement by the Tamil Nadu government is something worth to be looked at by other states too.”
The Tamil Nadu government in March announced a policy it called “net metering”. If roof-top solar power plants or larger solar power plants installed for captive purposes produce more power than required, then the owners of these plants can pump the additional electricity generated to the main power grid.
The state also made it mandatory for certain industrial and commercial consumers to buy 3% of their total power consumption from solar power generated from those captive solar plants.
The tariff for the first batch of the second phase of JNNSM has been fixed at Rs.5.45 per unit. To make projects viable at this rate, the government offers capital subsidy to project developers, also known as viability gap funding, at Rs.2.5 crore per MW or 30% of the project cost, whichever is lower.
Shirish Garud, senior research fellow at The Energy and Resources Institute, doesn’t agree this is the best model. “In my opinion,” he said, “if the government had used the Gujarat model where you offer high feed-in tariff for the first few years and then the tariff is on par with the grid, it would have helped the government to attract genuine players instead of those who are just interested in getting capital subsidy.”