Weekly Update: India’s national policy is betting big on centralized solar power

Weekly Update: India’s national policy is betting big on centralized solar power

Average project allocation sizes under India’s National Solar Mission (NSM) have been increasing ever since the mission started. The batch one of phase one allowed a single developer to take up a capacity of up to 5 MW. This was increased to 50 MW in the second round. In the first round of phase two, it has been increased to 100 MW. With this, the direction of the national policy is clear. It is moving towards ever larger projects.

  • MNRE plans to set up five ultra-mega renewable power plants to add up to a capacity of 18 GW over the next 10 years
  • The central governments focus is on centralized solar primarily to bring down costs and ensure hassle free meeting of targets
  • According to BRIDGE TO INDIA, it is more important to help solar stand on its own feet than just to meet targets

Now, the Ministry of New and Renewable Energy (MNRE) has taken it a step further by announcing ultra-mega solar power projects. These are envisaged to be gigawatt scale projects. The first of its kind is the 4 GW project that has been allocated to a joint venture of six government owned companies (refer). Bharat Heavy Electricals Limited (BHEL), one of the project proponents, is expected to announce EPC bids for the first 1 GW capacity by March 2014.

According to media reports (refer), the MNRE may be planning to set up five ultra-mega renewable power plants which will add up to a capacity of 18 GW over the next 10 years. However, it is important to note that these are renewable parks and not solar parks . Hence, this would not increase India’s solar capacity by nine-fold as claimed in the report.

According to BRIDGE TO INDIA, the MNRE will stick to its target of allocating 2.52 GW of solar PV capacity by 2017 (refer). The only shift that can be envisaged is that the 1.08 GW of solar thermal capacity will also be diverted to solar PV. This means that a maximum of 3.6 GW can be allocated to solar PV by 2017. Considering that 750 MW is already being allocated under batch one of phase one of the NSM and 1,000 MW is being allocated to the first ultra-mega project, only 1,850 MW will be left to be allocated until 2017. Most likely, up to four projects with a capacity of around 500 MW each will be allocated in 2014 to meet the current five year plan (2012-2017) targets. Apart from this 3.6 GW capacity, any predictions for allocations beyond 2017 cannot be made as of today as they will be guided by a new policy document for phase three of the NSM.

With very little emphasis on decentralized solar under the central government policy, it seems like India has put all its eggs in one basket, i.e., centralized solar. From the ministry’s perspective, the key objective of doing this is to bring down costs and ensure a hassle free meeting of targets.

However, all these decisions are being made by the ministry even when the debate about centralized solar vs. decentralized solar, as the way to go for India, has not even begun. Centralized solar offers economies of scale and helps bring down costs on the generation side. However, this power needs to be transmitted to the consumption end and the losses in between can be as high as 20%. Moreover, in the centralized framework, solar power is competing with the cost of power generated from other sources of power such as thermal, wind and nuclear. Also, under the centralized model, new transmission infrastructure in the form of green corridors needs to be set up.

On the other hand, solar power, unlike most other sources of power, can be generated directly on the consumption end. Under this framework, there is no need to set up new transmission infrastructure and there are no transmission losses. The drawbacks of decentralized generation include higher cost of generation due to the lack of scale and new investments in making the distribution of power smarter at the last mile. Within the decentralized framework, economies of scale can be created if the market size increases and investments in making the grid smarter can also help make distribution of conventional power more efficient.

As a country, until we have a clear answer as to whether centralized generation is better than decentralized generation or vice-versa; it might not be very wise for us to choose a side.

According to BRIDGE TO INDIA, creating an ecosystem which will help solar to stand on its own feet in the future is more important that just meeting the target numbers set under the policy document.

This post is an excerpt from this week’s INDIA SOLAR WEEKLY MARKET UPDATE. Sign up to our mailing list to receive these updates every week.

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