How can market growth be triggered for solar in India?
BRIDGE TO INDIA has launched the June 2013 edition of the INDIA SOLAR HANDBOOK, a bi-annual introductory report to the Indian solar market. This post is an excerpt from the report’s section on ‘What is the future of the Indian solar market?’.
A capacity of 1.7 GW has already been installed and close to 1.5 GW of PV is currently under development in India. BRIDGE TO INDIA expects a capacity of over 1 GW to be installed in 2013. Going forward, while a lot of momentum is building up for capacity additions in 2014, many steps can be put in place in order to trigger growth.
- A regulatory environment conducive for decentralized generation can help make projects and development more feasible and streamlined
- The large uncertainty surrounding Renewable Purchase Obligations (RPOs) need to be addressed with stricter enforcement and adequate incentives
- Availability of performance data for previously executed plants will be key for seeking future investments into projects
The steps to propel the growth of the Indian solar market in the coming future are:
Conducive regulatory mechanism for de-central generation
Regulations related to power generation in India have been formulated with centralized generation in mind. This means that for interconnection to the grid, a power generator must account for open access charges, cross-subsidy surcharge, transmission charges, transmission losses, wheeling charges, wheeling losses, etc. This regulatory mechanism is not conducive for decentralized generation using solar PV. These charges should be removed or minimized for generation using solar PV. Also, there needs to be uniformity across states for such levies. For example, cross subsidy surcharge varies from INR 0.53 (EUR 0.008) to INR 2.84(EUR 0.04) depending upon the state, type of consumer and the type of feeder. A regulatory environment that is conducive for decentralized generation can help make projects more feasible and development more streamlined.
Stricter RPO enforcement
One of the key challenges faced by the solar power sector in India is the degree of uncertainty surrounding the enforcements of RPOs. The RPOs are fixed and enforced at a state level, and though most states have a solar RPO they are not taking any steps to actively enforce them. In order to enforce RPOs effectively, states have to put in place a stringent penalty structure, wherein the penalty is higher than the forbearance price of solar RECs. Alternatively, adequate incentives can be provided to obligated entities to meet their RPOs (as practiced in countries like the UK and Australia).
Re-adjustment in the REC mechanism
The solar REC mechanism is yet to gain popularity in the Indian solar market. The primary reasons surrounding this is the lack of RPO enforcement and the uncertainty surrounding the price of the REC beyond 2017. For the REC mechanism to pick up pace in the market, states have to make it mandatory for obligated entities to fulfill their solar RPOs. Also, if an aspect of certainty is brought into the long term pricing of RECs, it would be easier to obtain financing for REC projects, thus inducing more players to enter this sector. Various proposals like providing more certainty on prices, adoption of vintage RECs, etc. are under consideration. Unless there is visibility on prices, investors will continue to be hesitant to invest. The mechanism in its current form has been unable to work as expected and a change in the mechanism is has become necessary.
Easier access to finance
Availability of finance has been a key challenge in the Indian solar market. The primary reason for this has been the bankability of off-takers and apprehension about actual power production meeting expectations. Many projects in India are not performing as expected and this is a key concern for financing institutions that are invested in such projects. Project developers need to maintain the quality of projects to ensure performance. Availability of performance data for previously executed plants is going to be a key for developers to seek future investments into their projects.
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