Bridge India

The Indian government is planning to amend the Electricity Act 2003 in a fundamental power sector reform. The goal is to break the monopoly of power distribution companies on the end consumer and allow for more effective competition in the last-mile delivery and sale of power (refer). The proposed amendment of the Electricity Act would have an impact on the viability of solar BRIDGE TO INDIA believes that fundamental power sector reforms would be very beneficial for the solar power business These measures will also change the landscape for solar project development in the country

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Last week, speaking at a UNEP and FICCI conference on ‘Designing a sustainable financial system for India’, the Minister for Coal, Power and Renewable Energy, Shri. Piyush Goyal reiterated the government’s plan to achieve 100 GW of solar by 2022. This is a very ambitious goal – to say the least. Is it feasible? The short answer is: it depends on political will. And it will require a huge amount of political will. Initial demand creation through an enhanced obligations mechanism, an increased role for distributed generation, an escalation based tariff structure and non-subsidized growth of the sector are some of the highlights of how the government is thinking of going about it. The government is planning to give a new impetus to the solar sector The ministry clearly understands that the solar sector at this scale cannot be driven by subsidies and steps need to be taken for it to become commercially viable and sustainable BRIDGE TO INDIA believes that achieving the distributed generation target will be most challenging but perhaps also most rewarding for a sustainable market growth

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Over the past few weeks, India’s minister for power, coal and renewables, Mr. Piyush Goyal has publicly stated on several occasions that he envisions India to have 100 GW of solar capacity by 2022. This is very ambitious. For this target to be achieved, India would soon have to start ramping up solar capacity at a pace similar to that of China, which plans to add another 40 GW in the next three years (avg. 13-14 GW per year) to reach its target of 70 GW by 2017. To put it into perspective: China’s current installed solar capacity is approximately ten times that of India and, per capita, China’s power consumption is around five times that of India.  A drastic upward revision of India’s solar target makes sense. The speedy developments in the solar market have made the current 20 GW target by 2022 seem unambitious. 100 GW in the next 10 years will be a stretch, but can be achieved   

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The Indian government clearly understands the impact and importance of low cost finance for the solar sector in the country and has taken up efforts to woo international institutional capital to the sector. Latest step in this direction is a Memorandum of Understanding (MoU) between US-EXIM and IREDA for a financing support of up to USD 1 billion (INR 61 billion) for made-in-America renewable energy goods and services (refer). This MoU is expected to be signed next week at the India-U.S. Technology Summit.  Steps are being taken by the government to enhance access to financing and certification of off-grid technology Multi-pronged approach to attract institutional capital to the solar sector is a welcome step BRIDGE TO INDIA believes that the government should put additional effort towards ensuring more of private sector participation

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Over the past few weeks, we have been discussing the various positive and ambitious announcements of the new Indian government on the solar sector (refer blog 1, blog 2 and blog 3). Now, the government has started announcing broader coal and power sector reforms in the country. It is clear that power sector is top priority for the new government and that should be highly beneficial for the overall economy. Pooling of domestic and international coal to arrive at a balanced coal price could lead to an across-the-board increase in power prices by around INR 0.50/kWh The e-auction process for the cancelled coal blocks, might be the first step towards privatization of coal mining Given India’s huge power deficit and social-cum-environmental imperatives, increase in coal and thermal power output is unlikely to affect growth prospects for solar power

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 Following the U.N. climate week, India’s Prime Minister, Narendra Modi, is meeting US President Barack Obama on the 29th and 30th September 2014. According to reports (refer), one of the items on the agenda is to form a ‘working group’ that would plan the roll out of 100 GW of solar in India over the next ten years. Two key items on the agenda of this working group are likely to be: i) engagement with US institutions and companies to set up manufacturing capacities in India that will help meet India’s future demand domestically; and ii) financing India’s ambitious solar plans. “Make in India” campaign, launched last week, can be a win-win for both the countries Financing support from the US could lead to more rapid solar growth in India An adequate policy framework in India can support solar and make it more price competitive on a large scale

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Around this time last year, after a lot of mid-course process changes, quick fixes and haggling, Tamil Nadu’s power generation company TANGEDCO (acting as a process manager) signed power purchase agreements for 708 MW. They had a “workable” tariff of INR 6.48/kWh and a 5% escalation (equivalent to around INR 8.3/kWh on a levelized basis). However, this tariff was rejected by the state electricity regulator (TNERC) on the grounds that it was not pre-approved by the them and all the projects stalled. Next, the electricity regulator published a consultative paper, proposing a lower tariff of INR 5.78/kWh without escalation, dashing all hopes for a quick resolution  Now, a year later, the same regulator has published a final order that offers a fixed solar tariff of INR 7.01/kWh (without depreciation benefits) and INR 6.28/kWh (with depreciation benefits) (refer).  BRIDGE TO INDIA still believes that Tamil Nadu should have a strong solar market. It just makes a lot of sense for the state Today India’s pipeline for state and central solar allocations is at an all-time high Tamil Nadu should push more aggressively into the distributed solar market

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The new government in India is considering revamping the country’s flagship National Solar Mission (NSM) and making it considerably more ambitious. The recently announced draft scheme for solar parks (refer) is only a part of this development. Next, we can expect an announcement to cancel the planned allocation of 1,500 MW. In its place, we expect a new, higher target and a more streamlined and predictable process. The plot is thickening. The government is starting to deliver on the hopes it raised. The original plan under phase two of the NSM was to add 9 GW between 2013 and 2017 The 15 GW target might be spread across three phases of allocations. The allocation process for the first solar park could begin as early as next month There is a high probability that the NSM bids will be moved online to reduce the allocation timeframe and improve process efficiency and transparency

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