THE BRIDGE TO INDIA BLOG
Around 70% of India’s power comes from coal, less than 1% from solar. Will that change in the next 20 years? Can solar become the new backbone of the Indian electricity system? There is a good possibility that it will. Let’s look at some key drivers.
- India is just beginning to build the energy infrastructure it needs
- Solar is practically unlimited and cost trends are strongly in its favor
- As the energy market will become more flexible, investor preferences will shift away from coal and towards solar
Most sections of the overall Indian industry have labeled the budget presented on Saturday (28th February 2015) as an incremental progress in the right direction and not a ‘big-bang’ or reformist budget (the yardstick being the 1991 budget). While infrastructure has received its due attention, unfortunately, for the solar industry, incremental progress just doesn’t add up to the new and ambitious targets promised for the sector (100 GW by 2022).
- Planned budgetary allocation has marginally increased to INR 62 billion, not in line with the new plans
- There is a risk of underfunded new programs being started with negative consequences
- Some benefits in the form of custom duty exemptions have been provided for inverter assembly and PV cell manufacturing
On the 28th of February, India’s finance minister has presented the widely anticipated first full budget of the new Modi government. After all the fanfare around growing the Indian solar market including at the recent RE-INVEST, the industry was expecting if not real boost to the sector, at least a clear directional step towards creating a sustainable and fast growing solar market. This expectation was not met.
- A couple of measures will help solar manufacturers and solar developers
- Many new laws were promised – but we need to move to implementation
- The bigger picture of building a healthy economy (driving power demand), building a healthy power sector (pricing) and enabling solar to take a large share of that (grid access) were not satisfactorily addressed
This is Arvind Kejriwal’s plan to provide power to Delhi: He has asked the government to supply a coal block for a new ultra mega power plant. This plant would then be operated by a private company and would sell cheap and reliable power to Delhi. What a nice thought! Except, we don’t live in fairyland. Better idea: let power prices be determined by the market and give Delhi a workable regulatory framework to build rooftop solar.
- AAP wants a dedicated, privately run 4 GW coal plant for Delhi
- The center (BJP, pro-market) is very unlikely to grant Delhi (AAP, cheap power populism) that wish
- Instead of bad ideas from the past, the Delhi government should look at good ideas for the future – e.g. solar
India can build excellent rockets. Last September, it successfully sent a space mission to Mars – and that, too, at a slim $74 million. Now, India’s government is again reaching for the stars. Actually, it is reaching out for a specific one, the sun. Mr. Modi has announced that India wants to build 100 GW of solar power in five years. That is nothing short of spectacular. Only, we have no idea of what rocket will take us there. Now all eyes are on the budget, due on the 28th of February. What can we expect?
- The focus needs to be on building the solar market, not on building solar projects
- Building the solar market is directly linked to cleaning up India’s energy market and growing the economy
- Despite the government’s large announcements, we cannot expect a rocket to be built for us. But that is not needed, anyway
Punjab had floated a tender in December 2014 (refer) for the second phase of allocations in the state for 250 MW of solar PV projects. The state received eligible bids for over 300 MW (our estimate 344 MW) but details have not yet been officially released. Projects were divided in three categories: category one was for a total of 50 MW with project sizes between 1 MW and 4 MW, category two was for 100 MW with project sizes between 5 MW and 24 MW and category three was for 100 MW with project sizes between 25 MW and 100 MW.
- Despite severe land constraints in Punjab, developers prefer larger projects with comparatively lower transaction costs and more options for financial engineering
- Among the prominent developers that have participated in the bidding were Solairedirect, Acme, Azure and Welspun
- Post the Punjab allocations, new state level allocations are now expected only in Uttar Pradesh and Tamil Nadu
India has 3+ GW of solar installed. On the basis of that, in the last years, the country has built a broad ecosystem of manufacturers, installers, project developers and financiers. This sounds like a healthy launch pad for a big jump in capacity addition (perhaps even to an incredible 100 GW) – but it isn’t. Very few players in the market so far have made a good return. A common concern in the industry is the unavailability of finance. The government is focusing on solving that. However, finance follows returns (and low risk, but that is no longer the main concern). As soon as returns are attractive, there will be plenty of finance for the industry.
- Most solar players are not earning reasonable returns from their solar business in India
- A “strategic” rationale for investing into the solar industry has some merit, but cannot sustain the market
- If India is serious about building a 100 GW (or even a 10 GW) market, it needs to offer solid returns from solar projects
On Sunday (15th February 2015), India’s first government organised renewable energy investment summit got underway. Prime Minister Narendra Modi inaugurated the event at Vigyan Bhawan, New Delhi, in the presence of Indian and global industry stakeholders. Minister for New and Renewable Energy, Piyush Goyal, called it a ‘historic day’ that will pave the way for making India the ‘renewable energy capital of the world’ and the Prime Minister related the ambitions to energy access for all (see Prime Minister’s address here). The country aims for 100 GW of solar, 70 GW of wind and significant additions of small hydro and biomass power.
- Solar think tanks presented several valuable ideas and suggestions at the REINVEST 2015
- Andhra Pradesh announced a concrete policy on the first day, a target of 10,000 MW of renewables by March 2019
- Industry stakeholders opined that 100 GW is a desirable and feasible target but very ambitious and will require a step change in policy commitment