Renewables

Great Expectations: India’s hopes for solar power growth

Issue 6 and Volume 20.

The 600 MW Gujurat Solar Park
The 600 MW Gujurat Solar Park was completed in just two years and covers 1200 hectares of desert. The western state of Gujurat now has an installed solar capacity of 655 MW, with more due to come on line

With more than 300 days of sunshine a year, India is a prime candidate for solar power success. Yet its power industry has some mighty hurdles to overcome to realise its solar ambitions.

Nicholas Newman

India is looking to solar power as part of its plans to mend its chronically dysfunctional power sector. Solar power is seen by both the federal government in Delhi and state governments as an essential contributor to help meet increasing demands for power.

About 288 million people in India — a quarter of the population — have no permanent access to electricity. According to the United Nations, India is a country where, at peak times, electricity demand exceeds supply by 14 per cent. This, combined with a rapidly growing population and average yearly economic growth rates of between 5 and 8 per cent, place India’s per capita electric consumption of 639 kWh among one of the world’s lowest. At the same time, with 75 per cent of Indian electricity produced by burning coal and natural gas, it is among the world’s highest carbon emitters.

To meet both growing population and industrial demands, India needs to expand its generating capacity by at least 8 per cent a year or by some 400 per cent between 2011 and 2030, observes Vikram Mehta, former chairman of Shell India. The International Energy Agency (IEA) estimates that India needs to add at least 600 GW of additional new power generation capacity by 2050. Such an increase in new capacity would be roughly equivalent to the 740 GW of total power generation capacity of the European Union in 2005.

More immediately, India’s National Solar Mission plan, published in January 2010, contains the ambitious target of expanding installed solar power from about 190 MW to 20 000 MW by 2022. According to the IEA, solar power contributed in terms of capacity just under 1000 MW in March 2012 out of a total installed national generating capacity for its electricity sector of 20 GW — the equivalent of 18 nuclear reactors. Of this, India’s western state of Gujarat already has an installed solar capacity of 655 MW. Ambitious plans for Rajasthan’s Nagaur plant, as well as federal government ambitions to install 20 million solar lights and 20 million m2 of solar thermal panels, give considerable impetus to solar energy development.

It is therefore not surprising that analyst Sunil Gupta of Standard Chartered has forecast that India’s share of global solar installations will increase from just 1 per cent in 2012 to 5 per cent by 2015.

In comparison, in the next five years, India’s power ministry plans to add 76 000 MW of electricity capacity in its 12th Energy Plan (2012–17), of which wind power will contribute 15 000 MW, solar 10 000 MW, biomass and biofuel 2700 MW, and small rural hydro schemes 2100 MW. The rest will come mainly from new coal plants.

The Case For Solar

It is not surprising that solar power is an attractive option for India given that it enjoys between 300 to 330 sunny days a year, or more than 5000 trillion kWh, which is far greater than its total annual energy consumption, reports Indian Solar Market Outlook 2012. It is estimated that to meet the target of 20 000 MW by 2022, investors will need to find just $30–40 billion, said Sunil Gupta. That is a fraction of the cost of building similar capacity using conventional coal fired power generation technology.

Likewise, solar power is relatively quick to build. In April 2012, the world’s largest solar park was completed in less than two years in the western state of Gujarat. This 600 MW plant uses the latest in thin-film photovoltaic (PV) technology and covers an area of 1200 hectares.

Lastly, a government subsidy for wind and solar power plants at the rate of 12 rupees (30 US cents) per kWh is predicted to generate 10 billion rupees in private investment by 2018.

Moreover, the price of solar panels has dropped by 48 per cent in the past year owing to oversupply by Chinese manufacturers and dwindling demand in Europe. Chinese manufacturers of solar power units have increased manufacturing capacity to some 50 GW against a global demand of 20 GW, reports Maulik Pathak, industry analyst at LiveMint.com. Already the price of solar power has dropped 28 per cent since 2010, according to Bloomberg New Energy Finance.

In addition, power prices from solar power of just 8.78 rupees/kWh substantially undercut heavily subsidised, diesel-powered standby gensets at 17 rupees/kWh – due to the dramatic plunge in the cost of technology on world markets, rather than improvements in the ability of such panels to convert just 15 per cent of the energy they receive into power.

Chase Manhattan forecasts that the cost of buying solar capacity will become cheaper than diesel in the next seven years. In addition, due to increasing reliance on more expensive coal imports, power supplied from conventional coal plant will increase from 3 rupees/kWh to 6 rupees/kWh in the next few years. It is not surprising, therefore, that Mittal and Coca-Cola are switching from standby diesel power to solar to bridge gaps in power supplies in the national grid.

Projects underway

In India, solar technology is being used to power mobile phone networks, pumping systems, lighting, cooking, air conditioning and even heating. Solar power has also been used to provide industrial steam for processing oil recovery and is being considered for the solar boosting of conventional fossil fuels thermal power stations.

In Rajasthan, there are plans to build 200 MW of solar capacity for connection to the regional grid. In addition, a 35 000 km2 space in Rajasthan’s Thar Desert has been allocated for solar power schemes, sufficient to produce 700 GW to 2100 GW. At least 50 per cent of India’s installed solar capacity by 2022 might come from this desert state, declares Satya Kumar, managing director of Shri Shakti Alternative Energy. Bids for this project came from Welspun Group, India’s largest solar PV developer, backed by Apollo Global Management co-founder Leon Black and Mumbai-based Visual Percept Solar Projects, owned by the Enam Group. Also, the Asian Development Bank (ADB) in April announced plans to lend India’s Reliance Power $103 million to help finance a 100 MW concentrating solar power (CSP) being constructing next to the 40 MW Dahanu solar PV farm in Rajasthan. Reliance’s Rajasthan CSP project is ADB’s first CSP financing, as well as one of India’s largest solar power projects.

Greenpeace India's solar project
Greenpeace India’s solar project in Bihar. Some 82 per cent of the state’s population have no access to electricity.

Siemens has announced orders to supply 17 000 UVAC 2010 solar receivers to two plants: a 50 MW facility owned by Abhijeeta and a 50 MW plant in Andhra Pradesh. Meanwhile, Areva Solar has been awarded a contract by Reliance Power to build a 250 MW CSP installation in Gujarat, which, the company claims, will become “the largest in all of Asia”. Areva Solar will also be supplying two 125 MW compact linear Fresnel reflector (CLFR) power plants in the desert state of Rajasthan.

By contrast, in the power-hungry state of Bihar, where 82 per cent of its 100 million population have no access to electricity, investors and non-governmental organisations like Greenpeace India are working together with German owned MNC Bosch India on a pilot scheme involving distributed microgrid-connected 10 kW solar power plants.

But commentators have questioned whether India can achieve its solar power target. Rohit Bhatia, chief executive at Wade Maritime Consultants, claims that Indian government’s solar ambitions are unlikely to be achieved by 2020. First, Indian manufacturers like Tata BP, Indosolar and Moser Baer India received almost no orders for the 700 MW-plus of capacity under local construction last year and have idled their factories, he says. Second, there is a problem of access to the grid and delivery of power to the customer. Already, India’s national transmission grid network is under pressure to cope with existing market demands. There are also doubts over the calibre of the leadership and its ability to oversee the implementation of planned grid upgrades and capacity enhancements fast enough to keep pace with market developments.

Mannish Rammedia, solar power expert at Greenpeace India, observes: “In the current scenario, the Indian grid network would not be able to handle a huge influx of renewable energy, as they are fluctuating in nature. There has to be equal emphasis on grid reformation and development, as the country’s transmission and distribution losses are amongst the highest in the world, at around 30 per cent.”

He adds: “The grid needs to become more flexible — the grid has to be redesigned for a larger uptake of renewable energy. Grid integration tech for small-scale and decentralised plants has to be explored, with smart metering and grid optimisation.”

This seems to indicate considerable barriers to meeting solar targets. It is, therefore, unsurprising that some investors are having doubts about India’s solar power programme. Industry observers suggest that half the plants in operation today will be closed within ten years. Naturally, money lies at the heart of incentives to produce solar power and in India there is a dual pricing system. For example, in Gujarat, the state government has promised to pay a generous 15 rupees/kWh for the next 12 years, which is to fall to an uneconomic 5 rupees a unit for the subsequent 13 years. At federal government level, price is decided by a Dutch auction. Last December, at the second national solar auction for 350 MW, the winning firms committed themselves to selling power at the uneconomic price of just 7.5 rupees, or 25 per cent below the 10 rupees/kWh it costs to build and operate the plant.

Cresil Research has suggested that developers who have bid below 9 rupees a unit relied on availability of low-cost debt and expectations of continuing price falls in solar technology. In contrast, Cresil expects production prices to stagnate in 2012, due to the significant reductions in the margins of module suppliers in 2011 and increasing consolidation by manufacturers globally. Also several global producers have announced production cuts, while major players including Sondra (USA), Q Cells (Germany) and Solar Millennium (Germany) have filed for bankruptcy.

Some industry observers suggest it is likely to take at least seven years for a solar power project in Gujarat to achieve break-even. Perhaps it is not profit but tax advantages that motivate solar power developers, suggests LiveMint.com’s Pathak. Moreover, to add to the disincentives, solar power operators have other considerations to be concerned with, including access to the national grid and a shortage of water to keep the panels clean. It is also likely that, as in Europe, India is going to experience funding problems not only from the current worldwide financial crisis but from established energy interests facing a potential shake-up in public subsidy. It does not help that many state-owned distribution companies can be best described as fiscal zombies. Lastly, it is becoming clear that government efforts to encourage a domestic industry of solar power technology are not working, since prices for thin-film technology are cheaper abroad than they are in India. However, what is really holding back the success of solar power in India is the lack of political leadership to fully reform India’s whole energy sector, suggests Greenpeace India’s Rammedia.

Need for super energy ministry

Unfortunately for India’s long-suffering consumers, the government’s track record for tackling the country’s power problems can be best described as dismal. There are doubts around the current coalition government’s ability to provide the leadership and scale of financial aid promised in the National Solar Mission. Nine separate ministries share responsibility for energy policy at federal government level. Moreover, co-operation between central and state level is not always as it should be – indeed relationships between leaders in respective power centres is often discordant, according to Mehta.

Prospective investors must also confront India’s failure, like many developing countries, to sort out land rights. Projects can be delayed for years by disputes over who owns a particular parcel of land. It is not surprising that Mehta wants an energy super ministry to provide strong leadership and holistic energy policy-making framework to tackle India’s problems so that India’s great expectations for solar energy can be reached.

It is interesting that both Rammedia at Greenpeace and Mehta agree that further market reforms are required, though prescribing different solutions. Rammedia suggests the energy sector needs to be made into “a level playing field”. “Now there are subsidies and perks to conventional forms of energy, these need to be discouraged or phased out. Provide incentives to solar generation, make it a priority lending sector, make easily available loans for buying solar.”

Mehta calls for “a holistic approach to energy policy”. In his view, the country must face “five hard truths about the Indian energy sector: demand is surging, supplies are struggling to keep pace, technology is under- utilised, the institutional structure does not support an integrated energy policy, and the environment is suffering”.

Can the expectation be realised?

Is India’s solar power sector a cause for great expectations? Despite the many and varied obstacles faced by power sector innovators, investors and operators in this complex business culture, much has been achieved, notably a five-fold increase in installed capacity.

However, despite government local content provisions, it is significant that domestic solar manufacturing has failed to benefit. Until the government of India and its partners at state level can learn to co-operate, India is unlikely to reach, let alone surpass, its modest goals for its solar power sector. In India, investors require greater certainty and clarity before they will invest in this promising sector.

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