According to reports, policymaking in India is more often than not credited for its high nuisance value, rather than for positively aiding growth. Whether oil & gas, power, mining or any other core sector of the economy, government policy has frequently hampered rather than assisted the positive development of these industries. There is however one segment of the renewable energy space – solar power, that’s vastly benefitted from concerted government action in the past few years that is paying off in a big way now.
A Solar Sunrise in India
A new World Bank report titled ‘Paving the Way for a Transformational Future: Lessons from JNNSM Phase’ predicts India will become a global leader in the development of solar power and credits a lot of its success to the centre’s Jawaharlal Nehru National Solar Mission (JNNSM) and individual state missions for helping India take giant leaps in implementing its green agenda.
Since its launch 3 years ago, installed capacity of solar power in India has increased from a meagre 30 MW to more than 2000 MW. More importantly, cost of solar energy, which at one point was prohibitively unaffordable has come down to as little as Rs 3.5 crore per megawatt or Rs 3.5 per kWh according to the Gujarat Energy Research and Management Institute (GERMI) from around Rs 15 per kWh when the mission was launched, making India one of the lowest cost destinations for grid-connected solar photo-voltaic (PV) power.
Two unique features of the government’s mission have led to this transformation according to the World Bank.
A) High cost solar power was bundled with lower cost unallocated thermal power to reduce the net average cost of electricity for distributers and end consumers, making solar energy more affordable.
B) Introduction of reverse auctioning (where sellers typically decrease prices to undercut each other and offer the lowest bid to the buyer) led to fierce competition for contracts and developers drove down prices by giving significant discounts to CERC (Central Electricity Regulatory Authority) set benchmark tariffs during bidding.
A global decline of prices in solar components further aided developers to reduce tariffs, making the prospect of solar energy attractive and viable.
Clearly while the first phase of the mission which had a conservative 1000 MW target has been a resounding success, the overall objectives of JNNSM are ambitious, with targeted installed capacity of 20 GW or 20,000 MW by 2022. A number of challenges need to be addressed if these targets are to be met says the World Bank.
1) Bank Financing: For starters, a majority of the funding under the first phase of JNNSM was through multi-lateral organizations, NBFCs or even on recourse basis. Bank financing was virtually absent as bankers were concerned about the viability of solar as a technology. However absence of financing from scheduled commercial banks remains the biggest worry going ahead as funding requirements have escalated sharply to $4.1 billion for phase II of JNNSM where 3,600 MW of capacity will be added through the central scheme and 6,400 MW under state schemes.
2) Implementation Bottlenecks: The age old problems of land acquisition, delays in state level clearances, and inadequate water and power evacuation infrastructure continues to be a drag on this sector as well. Land acquisition in particular is an issue given the large tracts of land required for setting up solar plants.
3) Commercial Viability: The bundling mechanism whereby 1000 MW of solar power was bundled with 1000 MW of NTPC’s thermal power to drive down costs is no longer an option with limitations on unallocated power available. Payment security for solar developers from SEBs also remains a concern since NTPC’s trading arm which guarded against default from distribution entities will no longer guarantee refuge without a bundling mechanism in place. The enforcement of renewable purchase obligations (RPOs) whereby SEBs have to buy a certain portion of their power from green sources has also been tardy due to the financial health of distribution companies.
There are also niggling technology issues and problems in developing a manufacturing base for solar components that need to be attended to according to the report which recommends developing solar parks like Charanka in Gujarat to help increase efficiency and lower costs, rather than focus on standalone projects.
With no respite in sight for gas based power plants, coal shortage issues still remaining unresolved, a peak power deficit of 9% and the demand-supply rift in the power sector is only expected to widen further, it seems imperative for India to continue giving a thrust to renewable sources and address the impediments to mitigate its power woes.
A growing backlash against India which has been obstructing progress on international climate talks is another reason why meeting voluntary goals on emissions is absolutely vital. According to a report on www.slate.com, India recently overtook Russia to become the world’s third-biggest greenhouse gas polluter. Though we are still behind China and the United States in this dubious distinction, our growing reluctance to commit to reducing carbon emissions on a global stage is angering developing countries who are quickly losing patience with India’s ‘obstructionist’ tactics.
In this backdrop, sustaining the momentum of the solar mission, which can become a critical showpiece for India’s effort to address climate change on global forums is an imperative.