Recently, the Ministry of New and Renewable Energy (MNRE) released a draft of the “National Renewable Energy Act” (refer). Along with the proposed amendments to the Electricity Act 2003 and the National Tariff Policy 2005 (refer), this act will create structural policy changes to help increase the share of renewables in India’s energy mix. In the first section, the document describes in detail how institutional structures would be created. However, it is the subsequent sections that have caught our attention. This is our take:

  • National, uniform and mandatory regulations will govern renewable purchase obligations
  • A “National Renewable Energy Fund” will be created and a fixed portion of the National Clean Energy Fund will be directly channeled into it
  • There will be guidelines for renewable energy procurement, including but not limited to competitive bidding processes

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On Sunday, 5th June 2015, one of India’s leading economic journalists, Swaminathan Aiyar, in his weekly column “Swaminomics”, wrote that India should wait for five years before trying to implement big plans for solar (refer). He argues that solar is still a comparatively expensive energy generation technology and that because India is an evening peak country, increasing the share of solar would be a “double whammy”, by driving up indirect costs for thermal, peak power generating sources. As a result, he concludes, India should go all out on solar only after it is fully established that the cost breakthrough has been achieved and the technology is more mature. While there are interesting insights in the article, we disagree with his conclusions. Here is why.

  • Solar costs are not as high as Swami claims. In fact, upcoming NSM bids will show that it’s neck to neck with        new thermal projects.
  • India is an evening peak country right now but as the economy develops the peak will move into the daytime          (cooling).
  • Global investors already see the social and economic appeal of solar and are moving out from coal to the                sector.

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In the early 20th century, when cars started to compete with horse-drawn carriages in Europe, they still had innumerable technical teething issues and no distribution channels. Germany’s last emperor William II famously said (possibly while sitting on a horse): “I believe in horses, automobiles are a passing phenomenon.” Well, you know which side of history he was on. Cars, of course, did not only complement horse-drawn carriages, they replaced them. I would argue that we will see something similar in our energy future, where renewables will not only complement, but replace fossil fuels.

  • Most energy projection see a gradual shift in the energy mix
  • However, as the cost of renewables continues to fall quickly, the shift may be much more radical and abrupt
  • Investor may preempt this development and move the shift forwards even more

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Last week, 300 MW of solar capacity was auctioned in the Indian state of Madhya Pradesh (MP). The record low tariffs surprised most observers. Canadian developer Sky Power offered to sell solar power at INR 5.05/kWh (50 MW capacity). The bids closed at INR 5.64/kWh with the median tariff at INR 5.34/kWh. The auction received a lot of interest and over 2,200 MW of projects were offered at tariffs below INR 6/kWh.

  • Solar tariffs in India are falling dramatically
  • At these tariffs, effectively, there should be no need for incentives anymore
  • Are return expectations sufficient for scaling up?

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A year ago, the Indian government announced a goal of 100 GW of solar by 2022. Large parts or the markets (including us) were skeptical. In the last couple of months, however, the mood has changed.

  • We revise our growth projections for 2015 up from 3 GW to 4.5 GW
  • Solar tariffs have dropped to as low as 5.05 per kWh
  • Some stumbling blocks remain

These are the reasons to be optimistic:

  • Real growth on the ground:In the last three years the Indian market grow by 1 GW per year. This year, India is expected to add as much as 5 GW (1.1 GW already commissioned). Until recently, our estimate was 3 GW but now revised our projections upwards (see our India Solar Handbook). In 2016, India may add 7-10 GW of solar (the government plans to auction 10 GW this year).

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