THE BRIDGE TO INDIA BLOG
Last week, we discussed the proposed changes in the Electricity Act 2003 and, in particular, the proposed 10.5% solar RPO target (refer link 1 and link 2). To give the market further impetus, in the past few days, the government has announced fund allocation for solar parks infrastructure, viability gap funding for public sector led projects and new funds for canal-top solar (refer). However, growing the market from 1 GW a year to 15 GW a year requires a deeper, sustained, market-level effort making the economic fundamentals irresistible.
- If solar is cheaper than other sources of new power generation capacities, the difference will induce discoms and consumers to switch
- BRIDGE TO INDIA estimates that if cost of debt financing can be reduced to 8%, tariffs can come down to INR 5.4/kWh with an annual escalation of 2% per annum
- We suggest to decouple the tax benefits from the solar investment and instead make it a tradable benefit
The recent announcement by energy giant, E.On: What are the three key lessons for the Indian utilities?
E.ON is among the top multi-utility player of Germany with diversified business in power generation, natural gas, energy trading, retail and distribution operations. It has decided to spin off the fossil fuel business (together with some other businesses, such as energy trading and exploration) and focus on renewables, on grid management and on “customer services”. This is a drastic step as it would lead to shrinking the company to half its size. Indian utilities should take note: there are important lessons for them.
- E.On, like the other large German utilities, fatally slept through Germany’s tectonic energy changes
- It is the first large utility anywhere to completely transition its business model to renewables
- E.On’s move is at once a validation and a critique of Germany’s energy politics
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
India’s new government has been very bullish on growing solar. Plans are underway to revise the National Solar Mission (NSM) target to 100 GW by 2022. There is a lively debate in the industry about the achievability of the targets and about the best ways to reach them. Now, it transpired that the Ministry of New and Renewable Energy (MNRE) wants to increase solar Renewable Purchase Obligation (RPO) targets for obligated entities (including distribution companies) could be raised to 10.5% from the current 3%.Is that a good idea?
- An RPO target of 10.5% would be in tune with the government’s goal ofhaving 100 GW of solar by 2022.
- Cash strapped distribution companies (discoms) might not be able to bear the burden of purchasing so much solar power
- The government is planning to reduce the cost of solar power to discoms through a bundling mechanism and low cost financing
BRIDGE TO INDIA recently carried out a first of its kind analysis on India’s rooftop solar market in India (refer here). It is based on extensive interviews the team has conducted with almost all stakeholders in the market over the last few months. With about one-fifth of all rooftop solar installations concentrated in Tamil Nadu, the state has emerged as the largest rooftop solar market in the country.
- Adoption rates seem to be driven by growing consumer awareness, leading to less business development effort by the installers and EPC companies
- Long and frequent power cuts and high usage of expensive backup sources of power have made solar attractive.
- However, Tamil Nadu has currently achieved a much more stable power supply, leading to a reduction in solar demand. We believe that this is a short term effect.
- Awareness and dissemination of knowledge is crucial if the rooftop solar market is to grow
India’s new government is revamping the National Solar Mission (NSM). The target has been revised to 100 GW by 2022 from the originally envisaged 20 GW. Based on unconfirmed information, 30 GW has been earmarked to come from distributed generation. This target is very ambitious, considering the fact that India’s current distributed solar capacity is only 285 MW, which is less than 1% of the target (refer to our recent India Solar Rooftop map).
- Space will not be a constraint for installation of 30 GW as the theoretical potential of rooftop solar in India is over 132 GW by 2022 (refer to our recent report)
- Not the entire 30 GW can be built on government subsidy – nor is it necessary. But government support can help kick the market off
- Cost effective storage solutions will be the game-changer for the distributed solar market
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
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