Dr. Tobias Engelmeier is founder and Managing Director at BRIDGE TO INDIA. He consults international companies in developing successful market strategies in India.  The following post analyses the state of the PV ‘Market’ in India. The ‘Market’ forms one part of BRIDGE TO INDIA’s INDIA SOLAR NAVIGATOR – India’s only dedicated online business intelligence tool that is being designed to enable leading solar companies to take strategic decisions to succeed given the ever-changing landscape of the Indian market.

Solar PV in India will be driven by commercially attractive opportunities, not by government subsidies. These opportunities are already there, but to realize them, some challenges need to be overcome.

• Falling PV solar costs, rising costs of coal and oil and India’s vast power deficit pave the way for commercially viable PV solutions
• Solar power can already compete with commercial grid power tariffs in many parts of the country. Replacing diesel generator sets and rural electrification could follow soon
• Creating drinking water with efficient means could be a key business model of the future

Solar PV is still one of the most expensive ways of generating electricity. Then why should India focus on solar power as opposed to cheaper alternatives to be sufficient for as many people as possible, as quickly as possible? The cost of solar PV has fallen by 40% in the last 18 months, suddenly making it an attractive alternative to diesel power generation and even grid power for some customer segments. Solar PV also has the great advantage of being easily and de-centrally applicable in small generation units (as small as a solar lantern). India suffers from a large and growing power deficit, resulting in the unavailability of grid power to millions of people and major challenges in developing a high quality distribution grid. Solar PV is helping to fill this gap, rather than replacing another, perhaps cheaper form of energy. This is a key difference from developed markets. In the long-term, solar power also promises to provide India with more energy security, as it is a plentiful and domestically available energy source. Also, we can reasonably expect the cost for solar PV power to continue to come down, while at the same time the cost for fossil fuel based power generation is likely to rise, making solar increasingly more competitive. In that scenario, solar PV would find its place based on the commercial, developmental and political merits of the technology for India rather than climate change considerations. If you are interested in reading more about the Indian solar market, you can download our free INDIA SOLAR HANDBOOK and have a look at our other blog entries, where we discuss some of these issues in more detail.

There are a number of segments in the Indian market, where non subsidized solar PV is currently feasible:

• Providing commercial tariff customers with solar solutions to complement their current power supply, thus reducing their Levelized Cost of Energy (LCoE). There would probably be no storage and the PV system size would be designed to ensure the peak PV power generation is directly consumed.
• Providing telecom towers with hybrid diesel PV solutions to reduce the cost of power to the tower operating company. Out of India’s estimated 400,000 towers, perhaps 50,000 to 100,000 run on more than 10h of diesel. Individual PV system sizes would be small (5-15kW) and managing uptime is crucial.
• Replacing diesel back-up. Solar PV power is already cheaper than diesel power in most cases. According to some estimates, there are as many as 60GW of installed diesel gen-sets in India. These range from MW-scale systems powering factories or real estate developments to small systems powering an AC. Here a key concern is the availability of space for PV installations, as many back-up systems are located in urban areas.
• Providing electricity to customers who previously did not have any power, especially in rural areas. There are a number of great ideas, companies and projects out there (e.g. Sellco, Simpa Network), but I there are some questions about their profitability, risks (payment by customers who have very little money) and therefore investor attractiveness and scalability.

Despite its feasibility, there are still many challenges that can be seen with providing commercially viable PV solutions to the Indian market:

• The most important challenge is to overcome the liquidity gap: On a per kWh basis, PV may already be competitive with other sources of power. However, as opposed to grid power, the system needs to be entirely pre-financed. It is a Capex model competing with Opex models. In order to level the playing field, the solution provider would have to invest into the plant and provide a solution to a customer wherein the solar power is sold per unit. For that, the investor needs a secured payment stream for 15-20 years. Given the Indian legal environment and the dynamic economic development, this is perceived as high risk by many investors.
• If the power consumer would invest into the plant himself, he often does so only if the rate of return is at least as high as his core business investment opportunities. Currently, a reasonable return on investment for solar PV in India is 15%. This is too low for many Indian investors.
• Developing off-grid systems is often hampered by their limited size. Pilots are needed as a proof-of-concept. However, the transaction costs for projects smaller than 5MW are often considered to be too high. Project development margins for the first projects are low and many banks are unwilling to carry out due diligence for such small projects.
• In addition to these systemic challenges, there are a number of regulatory uncertainties (such as with respect to open access regulations) and the availability of information on crucial elements like electrification rates, actual diesel prices or end-user tariffs are difficult to obtain.

Market Intelligence at BRIDGE TO INDIA provides analyses on the Indian solar market in the form of published reports. You can buy our reports by visiting our Reports page.