India has one of the highest Solar potential in the World. Can it tap into it build a sustainable economy?
India generated 68% of its electricity from coal in the fiscal 2013-14. The inability of Coal India Ltd (the state-owned monopoly) to ramp up coal production resulted in 65,000 MW of installed capacity being stranded, causing a power deficit of 5.4% in the fiscal 2013-14. To plug the gap, imports rose to 152 million tonnes in 2013-14 (20% of total coal requirement) resulting in higher power prices. This situation, together with climate change imperative impels a rapid movement towards greener and cheaper sources of power, primarily solar energy.
Rising dreams and falling prices
Source: Financial Express
The movement is already under way as a result of Government’s ambitious ‘National Solar Mission’ announced in 2009 which envisages 20,000 MW solar capacity installed in the country by the year 2022. The Narendra Modi-led Government raised that target last month to 1,00,000 MW of installed solar capacity, inviting domestic and foreign companies to invest about $ 100 billion in the country’s Solar power sector. The buoyant mood behind this ambitious target is supported by 4 key factors. First is the abundant solar resource availability. India receives about 4.5-7 kWh/m^2 of solar energy on average with 1500-2000 hours of sunshine per year (depending on the location). This is enough to generate power more than 1000 times the current demand. A second factor is the falling prices of Solar Photovoltaic modules. Large-scale production, especially in China, has caused the module prices to drop by 80% between 2008 and 2014, dropping by 12% last year alone. As a result the tariffs for grid-interactive solar power have fallen from Rs.17.91/ kWh in the year 2011 to Rs. 5.73 /kWh in the latest round of auctions held by the Andhra Pradesh state government.
The third factor has been the tremendous rise in efficiencies of solar PV-modules. Over the last 8 years, research and mass-scale production have resulted in rise of conversion-efficiency for crystalline silicon modules from 12% to about 19% and that for thin-film (Cd-Te) modules from 8% to 13%. Companies like SunPower (in USA) are already manufacturing silicon modules with 25% efficiency commercially. Scientists at Fraunhofer Institute in Germany recently developed solar cells modules with 44.7% efficiency. This combination of falling costs and rising efficiencies has resulted in solar power approaching grid-parity. KPMG, a consulting firm, predicts solar tariffs to achieve grid-parity by the year 2018-19. Solar power is already more economical than diesel power with an average tariff of Rs. 7/kWh against Rs. 15/kWh for the latter.
The fourth significant factor has been the Government support to build the solar power sector. The ambitious ‘National Solar Mission’ provided various fiscal incentives like preferential feed-in tariff, excise duty concessions, wheeling-charge concessions, income-tax holiday, an 80% accelerated depreciation on solar-equipment, etc. Besides, off-grid solar plants receive a capital subsidy of 30% of the entire-project cost (and of 70% in North-eastern states and J&K). These factors along with falling prices have resulted in rise in installed capacity from 161 MW in 2010-11 to 2,319 MW in 2013-14.
Sunshine on the horizon
This is however only a small amount of the total potential, which is estimated to be in the range of 7,00,000 to 11,00,000 MW. For the non-grid applications, Rooftop solar represents the most lucrative opportunity. It can fulfil 30% of the entire demand generated during the sunshine hours. The example of Germany shows that with robust and attractive policy, Rooftop solar can be effectively leveraged upon. Out of the total Solar capacity in Germany, 80% is via Rooftop solar modules which can meet about 10% of total demand on a typical summer day.
Apart from using Photovoltaic modules, Solar energy can be harnessed through thermal systems as well. In this domain, Solar cooking and Process-heating are the major segments. Of these, Solar cooking is the most mature category with an estimated potential of 2.6 lakh m^2 collector area and target installation sites like temples, hostels, canteens and prisons. Already, successful examples of mass-solar cooking like Shirdi temple and IIT-Roorkee’s student messes exist. But the most lucrative opportunity (of about 46 lakh sq. Metres of collector area) lies in the industrial heating segment. Indian industry accounts for 40% of the total primary energy consumption of which thermal-form accounts for a massive 70%. Solar process heating can easily replace Diesel, LDO or FO-fired boilers in industries like Textiles, Dairy, Pulp & paper and Food processing.
Clouds spoil the mood
Despite massive potential and Government’s good intentions, severe challenges face the nascent Solar power sector in India. The utility-scale projects through PPA-mode (Power Purchase Agreement) have persistently been under the shadow of poor financial condition of the state-owned distribution companies. The retrospective tariff reduction by Gujarat’s power utility and non-honouring of PPA agreement by Tamil Nadu’s power utility has made the investors apprehensive, lately. The health of the utility-scale projects via REC-mode (Renewable Energy Certificate) is even more precarious. Non-enforcement of RPOs (Renewable Purchase Obligations) by the state-governments has forced the REC prices to tumble by 70% from Rs. 9.5/kWh to Rs. 2.85/kWh. Only 2% of total solar RECs were traded in October 2014 as compared to 18% in April 2012. This has put projects of 500 MW capacity (1/6th of India’s current solar capacity) in a cash-crunch.
For the Rooftop solar industry, the main hurdle has been the indecisiveness in coming up with an effective policy for residential rooftops. In August 2014, a 30% capital subsidy was announced for Rooftop installations but this was applicable to only Government buildings. Moreover, there have severe delays for the last 8-10 months in subsidy payments as the MNRE budget was reduced from US $246 million in 2013-14 to US $72 million in 2014-15. A local rooftop installer, Zolt Energy’s Pradeep Palleli, said “Announcing subsidies and not releasing it in time is really a major hurdle hindering the growth of the rooftop solar industry.” Even the Solar thermal industry has hit a road-block after the Government withdrew the 30% capital subsidy on solar water heaters on October 1, 2014.
Who will make them?
The weakest pillar in India’s solar industry however is the crippled manufacturing-base. Global over-supply of cheap modules from manufacturers in China and USA has put many domestic-manufacturers out of business. For those who are left, capacity-utilization of factories remains below 30%, putting them on verge of bankruptcy. The high cost of domestic finance has been another major disadvantage. Solar-developers are getting access to loans at 3-4% from US Export-Import Bank (Ex-Im) while domestic interest-rates remain above 13-14%. Solar-developers have taken loans in excess of US $1 billion from the US Ex-Im Bank. But these come with riders to procure modules from US-based manufacturers, thus putting Indian module-manufacturers out of business.
Government to the rescue
To eliminate the barriers and shortfalls in the sector, the Government has to take proactive steps. Foremost among them should be creating an environment of certainty and stability, where in, programs are sustained and incentive-payments never delayed. To reduce the debt costs for developers, funding avenues like long-tenure, tax-free solar bonds. Lastly, the government can also leverage the ‘Make in India’ campaign to create a robust and sustainable solar-manufacturing industry in the country. Solar-sector focused Manufacturing and Investment zones should be set up to provide business friendly ecosystem along with superior physical infrastructure.
Work has already begun on many investment-encouraging initiatives. As a result, India is building the world’s largest solar-power plant in Rajasthan with a capacity of 4,000 MW, which is expected to bring the cost of solar down to retail tariffs (and even lower in some locations). Big business-houses like Tata-group, Mahindra Group, Reliance, NTPC, Aditya Birla Group and others have already planned investments worth thousands of crores to make the best of the solar-opportunity. The US $ 100 billion solar-investment plan by the Modi Government takes India’s commitment to solar technology to an unprecedented level. The sun has begun dawning on India. Combined effort by Government and Businesses can take it up the horizon and shine upon India’s future.
Harsh Jain is a second year student at IIM-Ahmedabad. He completed his graduation in mechanical engineering from IIT-Roorkee. With extensive research exposure in the form of market research projects and industry review reports in the energy sector, Harsh is an environment enthusiast and actively follows the latest trends in the power and automobile industries.