India's solar power industry's future looks bright: but challenges abound
India is in the midst of a momentous leap in terms of the proposed use of solar power as part of its overall renewable energy mix. In the past two months alone there have been two big announcements to install large scale solar projects. And its coming from both the government – that has a vested interest in substituting oil for less expensive and more environmental friendly options – and, as well as the private sector. Last month the government of India announced plans to build the world’s largest solar plant to generate 4,000 MW near Sambhar lake in Rajasthan. What’s more, the plant plans to sell electricity at an estimated rate of Rs 5.50 per unit, as against the current cost of Rs 7 per unit. This month private player Welspun Energy announced that it will invest $1.6 billion to build the world’s second largest solar power plant.
Time in the sun:
With a confluence of factors coming together, India is currently at the tipping point in terms of solar power installations. With more than 300 days of sunshine, and total capacity for producing power from sunshine is estimated at 5,000 TWh of solar insolation annually, India never lacked in terms of potential. What was needed was government will, cost of generating solar power reducing, international solar giants coming in with the technological know-how and Indian private players investing more. That’s happening now.
To be sure, India has always been advocating the use of solar power, but it received a shot in the arm when the Jawaharlal Nehru National Solar Mission was launched in 2010, with an ambitious target of deploying 20,000 MW of grid connected solar power by 2022. The mission plans to reduce the cost of solar power generation in the country by achieving grid tariff parity by 2022. JNNSM plans to follow in the footsteps of global leaders like Germany, Japan and China and become a solar producing power in its own right.
Everything comes together:
A 2011 report by GTM Research and Bridge to India states that the next five years will witness a flurry of frenetic activity in the Indian solar industry and total solar installations will expand from just 54 MW in 2010 to more than 9,000 MW by 2016. Its the perfect storm: demand is peaking, supply from the state grid is buckling under the pressure, cost of production is dropping inching ever closer to grid parity and Indian players are forming crucial alliances with big global players.
India has a peak-hour demand of 128 GW but is short by 5.8 percent. It came as no surprise that in July last year, India was home to the world’s largest blackout, that left nearly 700 million people without electricity. Cost of oil imports is increasing due to the weakening rupee. Luckily the government is driving the use of renewable energy by providing grants and drafting favorable policies.
The states have picked up the gauntlet thrown by the government. Gujarat commissioned the 214 MW Charanka Solar Park in April last year. States like Rajasthan and Punjab have also picked up the cue. In Rajasthan, the 40 MW Dhirubhai Ambani Solar Park was commissioned on March last year.
Why giving solar a boost is not just a choice but a necessity:
Promoting solar power is not just good economics but is also good for the environment, and social development overall. India’s growing GDP will mean that the appetite for power will only increase. Other than costly oil imports, India’s only other option is to use its large coal reserves, and coal as is well-known is hugely polluting. China has found this out the hard way, its huge manufacturing led GDP growth fueled by coal, has come at a great cost. The country is world’s largest polluter and that has lead to tremendous environment degradation of its soil, air and water. China’s greenhouse-gas emissions are 30 per cent of the world’s total. This has led to tremendous conflicts with its population: China’s biggest cause for internal conflict is no longer illegal land acquisition, but the environment. The country is throwing $275 billion at the problem. India will not be able to afford such largesse.
No other country in the world has more people with no access to electricity than India, with more than 400 million of its population off the grid. This stifles social development, with education taking the biggest hit, and so does communication.
Challenges:
While there’s no doubt to the enormous potential that solar power holds in India, there are some big challenges to be surpassed, before the country lays stake to becoming a true global leader in the space. These include funding, commitment from state governments to but the power, cost of solar power decreasing, will-power of the government to back its policy and private players being able to execute the projects planned without going belly-up.
According to the report by GTM Research and Bridge to India, financing the mega-projects might prove to be India’s Achilles Heel. “Financing is the number one concern for anybody developing solar in India,” says Shayle Kann, MD of solar power, GTM Research. There is a danger that the central government facing a severe fiscal deficit may not follow through on its commitment to fund the mega-projects and cash-strapped state governments may not be in a position to buy power from the central government or private players.
While Welspun’s announcement is grand, we have to only look at China and Germany to understand that the best laid plans sometime fail. Last year, China’s biggest solar company Suntech Power went bankrupt, in 2010, Germany’s biggest photovoltaic company Conergy Group filed for bankruptcy. Indian private players, and MNC entering India should be cognizant of this fact and plan to make their businesses commercially viable and not depend too much on grants.
Conclusion:
India could solve most of its power problems even if 10 per cent of India’s total solar power potential is tapped, For that to happen, all actors in the ecosystem will have to play their part: this includes government, solar energy companies and state-owned power distribution companies. The country is aware of the challenges and has unveiled atleast a couple of measures this month to address concerns related to financing, leadership and policy formation.
Earlier this month, India called for bids for the first national auction since 2011, to build 750 megawatts (MWs) of solar plants and is offering about Rs.18.75 billion ($303 million) in grants, which will cover as much as 30 per cent of the project cost. A task force was set up by The Planning Commission to be headed by B.K. Chaturvedi to oversee efforts to up production of solar energy. They will suggest policy interventions for improving domestic manufacturing solar energy products, availability of cost-effective finance, ensure effective implementation/strengthening of the renewable energy certificates mechanism and seek involvement of state governments for solar capacity development.
While making ambitious plans is good, execution will be key, and a shared urgency that if India doesn’t act now, the future won’t look at it too kindly for letting this opportunity slip.
