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Pashupathy Gopalan: Changing India’s power mix

According to reports, We need to reduce carbon dioxide emissions to keep our planet safe for future generations. India being one of the world’s largest countries, this is as much our responsibility as it is others. As the effort by the campaign “Keep it in the Ground” by The Guardian discusses, we need to keep the global warming under 2 degree celsius to pre-industrial level to avoid catastrophic climate change impact, and to do this, we have a carbon budget of no more than 565 gigatons of carbon dioxide emissions. At present, 80 per cent of the power generated is using fossil fuels and if all the existing fossil fuel reserves are used, 2,795 gigatons of carbon dioxide will be emitted which is far more than permissible levels.

Power generation worldwide has increased by almost 3x in the last 40 years and is expected to increase further by 50 per cent in the next 20 years. India and China will contribute to 90 per cent of this increase, according to IEA, as these nations continue to grow rapidly and have large existing populations with very low energy use per capita, at present.

Clearly, not only the use of fossil fuels needs to go down, the demand gap for future also needs to be filled in. Renewable energy is the only way to go. Sun could be the world’s largest source of electricity by 2050 according to IEA. Solar energy harnessed by the sun is reliable, 100 per cent clean and with the rapid fall in cost structure, has also become one of the cheapest sources of power.

Globally, the total installed renewable energy at the end of 2012 was 560gw with India’s contribution barely 28gw. This was only 12 per cent of its total energy capacity, 59 per cent being coal. Current renewable power generation in India is concentrated in only a few states. Wind power generation is mostly in the southern states, such as Tamil Nadu; hydroelectricity is generated mostly in the northeastern states; while solar is mostly concentrated in Gujarat and Rajasthan.

With growing energy demand, global focus on green energy, climate change issues and a high scope of harnessing solar energy, India becomes one of the most attractive solar energy destinations. The country has a huge amount of solar potential with substantially high insolation levels (5.3-5.8 kWh /m2/ day) throughout.

Prime minister Narendra Modi has set a target of deploying 100 GW of solar energy by 2022, and we believe this is very much possible. Major states and central bodies have started promoting solar power in a big way. State governments in Andhra Pradesh, Karnataka, Telangana and Punjab have floated large tenders, while others like Tamil Nadu have announced large feed-in-tariff programmes. Approximately 5-7 gw of solar energy will be built in these states in the next couple of years.

The Union government is also taking several initiatives like the green energy corridor project and renewable energy policy. It has set aside a clear budget to invest in making the grid stronger, as large capacities of renewable energy get deployed. Most experts recognise the challenges in integrating infirm resources like solar and wind into the grid, but these are issues that many countries have learnt to address and we cannot let these challenges derail the bigger cause.

There are still some challenges that need to be solved, as we look for deployment of solar in a big way. First, solar power plants require large parcels of land. 100 go of solar projects would require as much as 500,000-800,000 acres, depending on the kind of technology deployed.

That poses considerable difficulty in India, as the land needed for a project is often dispersed among several small landowning farm families. The resulting negotiations typically lead to delays and cost overruns, raising the cost of projects and making them economically unviable. The government needs to step in and solve this problem in a coherent way.

Another major barrier in the deployment of solar as well as other renewable energy is that these technologies are very capital intensive and almost all expenditures are made upfront. India will require an investment of close to $100 billion for deploying 100 gw of solar energy. Renewable energy projects provide long term, secure, consistent and reliable stream of 30-year cashflows and can match the long tenor liabilities of certain asset class like the pension funds and insurance companies, making it ideal for infrastructure investment trusts (InVTs).

We believe that the cost of capital will come down significantly, as investors become comfortable with renewables as an asset class, with associated growth prospects, and a large pool of investments can be unlocked.

Lastly, with solar bids becoming highly competitive and the rapid fall in prices, we believe that the government should focus on supporting development of fully integrated solar photovoltaic manufacturing facilities that needs to start with polysilicon manufacturing.

With the availability of raw material locally, cost of solar energy could come down further. India can also become a leader in solar power deployment through rural off-grid installations like solar water pumps for irrigation and rural micro-grids. There is a 100-150 gw of opportunity to replace the current 25-30 million irrigation pumps in the country with solar water pumps which not only saves the diesel/electricity cost for the farmers, but also gives them a predictable supply of water, increases land utilisation and crop efficiency. This also solves the problem of the state distribution companies that provide free power to the farmers.

Also, almost 300-400 million people do not have access to grid and solar microgrid can be a potential solution. The cost of solar power combined with storage is rapidly coming down, making this a real possibility. Combining solar microgrids with anchor loads like the telecom towers can create a bankable business model. While few challenges remain, we are confident that the government is trying its best to solve them systematically. We believe that solar will be a significant contributor in India’s power generation mix by 2022, making India one of the world’s largest solar energy operators.

By Pashupathy Gopalan, President, Asia Pacific, SunEdison

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