The Tamil Nadu Solar Policy: An innovative, ambitious work-in-progress

Dr. Tobias Engelmeier is founder and Managing Director at BRIDGE TO INDIA. He consults international companies in developing successful market strategies in India.

BRIDGE TO INDIA has published its first INDIA SOLAR POLICY BRIEF on the Tamil Nadu Solar Policy. This policy brief presents a detailed analysis on the risks and opportunities on the state’s ambitious 3 GW solar power target till 2015. With its policy announcement in October 2012, Tamil Nadu becomes the seventh Indian state out of 28 to announce an official solar target. No breakup between photovoltaic (PV) and concentrated solar power (CSP) projects has been given as part of the policy.

The highlights are:

The policy document provides a break up of 1,500 MW of allocation to utility scale projects, 350 MW from rooftop projects and 1,150 MW through the renewable energy certificate mechanism (RECs)
Tamil Nadu has introduced this policy at a good time given the lull in the market due to no new allocations in the recent months
The policy has introduced innovative measures such as net metering that have not been implemented under any Indian solar policy so far
BRIDGE TO INDIA believes that while the policy is innovative and ambitious, implementation challenges need to be tackled for the policy to succeed in achieving its target

The policy is targeting 1,500 MW of capacity addition through utility scale installations. Of this, 1,000 MW will be allocated through competitive bidding for sale to Tamil Nadu Generation and Distribution Company Limited (TANGEDCO). The remaining 500 MW will be driven by private power purchase agreements (PPAs) with power consumers who need to fulfill solar purchase obligations (SPOs).A further 350 MW capacity addition is being targeted from rooftop solar installations. Of this, 300 MW is expected from the rooftops of government owned buildings, while 50 MW is expected from privately owned or domestic rooftops. For both, net metering is allowed. The remaining 1,150 MW of the total target is to be added through REC projects.

Tamil Nadu already has significant experience with the generation and transmission of renewable energy as it has the highest installed capacity for wind power in India (over 40% of total installed capacity; a total of 6,613MW in December 2011)[1].

At the same time, the state has a significant energy deficit. The total annual electrical energy deficit in the financial year 2011-12 was 8.9m MWh with a peak monthly deficit in March. The peak power deficit during that year stood at 2,247 MW or 17.5%. The Central Electricity Authority (CEA) estimates that the annual electrical energy deficit will significantly rise to 27.4m MWh (29.6%) in the financial year 2012-13 with an anticipated peak power deficit of 4,123 MW (30.7%)[2]. Power generation in Tamil Nadu comes mostly from wind, coal and hydro power plants. The state’s main industries are textiles and automotive.

Solar power could help reduce the deficit and the use of expensive diesel for back-up gen-sets. The generation potential in Tamil Nadu is high. Taking the average of various cities in Tamil Nadu, based on 2011 data from the Central Electricity Regulatory Commission (CERC)[3], we arrive at the following data points:

Average irradiation: 5.36-5.67 kWh/m2/day
Average ambient temperature: 28.8 degree celsius
Expected plant output: 1,560 MWh/year/MW
Capacity Utilization Factor (CUF) for a year: 17.81%

The Tamil Nadu distribution company (DISCOM) is a high loss making entity that can currently hardly afford to purchase expensive solar power over a long period of time through, for instance, long term Feed-in-Tariffs (FiT). The policy reflects this concern to some extent by shifting part of the financial burden from the DISCOMs to large power consumers.

The timing of the policy is good: The first wave of installations under the National Solar Mission (NSM) Phase I and the Gujarat Solar Policy has created a spurt of growth from almost nothing to 1,000 MW between early 2011 and mid 2012 with grid-connected power plants being built mostly in the states of Gujarat and Rajasthan in India’s north-west. Since then, the market has been very slow, waiting for the second phase of the NSM and new state policies such as the Tamil Nadu Solar Policy to be announced.

So far, the policy has attracted great initial enthusiasm from a number of new entrants: project developers from south India as well as large power consumers (obligated entities). However, the policy is still a work-in-progress and a number of essential aspects such as implementation of SPOs and other aspects or a payment security theme that ensure a realization of the targets are under discussion or need to be tackled. The strongest part of the policy so far is the SPO, which nudges industrial and commercial customers that are already plagued by high and rising power costs and low supply security towards adopting solar power quickly. The most interesting aspect of the policy is the net metering for 350 MW of rooftop projects as it has the potential to structurally change the solar market in Tamil Nadu and India as a whole (if implemented successfully). Most doubts come around the proposed targets for REC-based projects.

For the complete analysis on the Tamil Nadu Solar Policy, download the policy brief for FREE.

[1] Ministry of New and Renewable Energy (MNRE) annual report financial year 2011-2012
[2] “Load Generation Balance Report 2012-13″; CEA. The annual peak power deficit is calculated by subtracting the highest availability at any point in time from the highest demand at any point in time during that year.
[3] “Performance of solar power plants in India”; CERC