Bridge India

Default over Design: How India will really grow its solar industry

Can India achieve 100 GW of solar in five years? Technically: yes – if politicians are willing to put enough support behind it. Realistically: not likely – there is still no strategy in place for achieving this number. Does that matter? No. As solar becomes ever more viable and India’s energy demand rises rapidly, the mountain will come to the prophet. However, it will be a market by default, not by design. My conversations at REINVEST suggest that most players are aware of that and are willing to use the positive mood created by the government and the event to drive their different business models.

  • The grid-connected market will be driven by public sector companies; project returns are ok, but unexciting.
  • The distributed and “solar as a solution” market is still too small for most larger players and investors, but holds the greatest promise.
  • In the past, faulty market designs (REC, rooftop subsidy) have been counterproductive and stopped the default markets from taking off. This has to be avoided.

I had many very interesting conversations at REINVEST in Delhi over the last three days. It was clear that there is a sense of optimism in the market. Great optimism from afar, and more cautious optimism, the closer you got to the details. But still: there is an air of possibility that has been lacking for the last years. One immediate achievement of the government’s drum-beating was that there was a new set of players around: large Indian business houses and international investors who now see a chance for projects big enough to warrant their time and efforts. Also, Indian manufacturers have not been so happy in a long time. They can expect sizable and stable orders from public sector companies in the coming years. Another visible change was the presence and active involvement of financial institutions. They finally seem keen to actively develop this market. A fourth positive momentum was provided by the Andhra Pradesh government around Chief Minister Chandrababu Naidu who was beleaguered by developers ready to invest in solar in his state.

Does all this add up anywhere near to the governments 100 GW target? No. There were commitments given by Indian private sector companies to develop 166 GWs of solar, but they have no legal basis and hardly reflect more than a broad, general, and in some cases quite unfounded ambition. At the same time, the big question of: who will be the bankable buyer of these large amounts of solar, remains unanswered. India today is a 1 GW a year solar market. Under the current policy design, it could grow to become a 3 GW a year market in the next three years. That would make it larger than the German market and most existing players would be quite happy.

But take a moment to look at this from another perspective, the perspective of what is needed. Even 100 GW of solar would only provide around 10% of the power India will likely need in five years. The country’s power demand is enormous – and it will grow even faster, if a much-needed process of industrial growth can be triggered. And how will that power be provided? Today, coal is the backbone of India’s energy system. Due to changing economics, environmental concerns and infrastructural bottlenecks, solar has the potential to become that backbone in 10 years time. That would then require much more than 100 GW. It would also require grid management skills, storage and demand management – but that should be feasible by then. A lot of it (as the government already proposes) would be distributed, where power is consumed near to its point of generation.

Such a market would start as a default market. For more and more energy-starved customers, solar will offer the best solutions. While these markets (private PPAs, mostly captive, for industries or telecom towers or appliances) are still small, they will scale up as tariffs rise, as consumer awareness and confidence grow and as sales and maintenance channels become established. They can offer companies a chance to innovate, excel and drive customer value, and by extension provide investors with more attractive returns.

In the meantime, it is important that policy design focus on enabling the market. Net-metering helps a lot, but has to be implemented well. Higher duties on diesel will become very effective when oil prices will rise again. An environmental tax on fossil fuels like the coal cess is good. Feed-in tariffs, capital subsidies or RECs are not really needed and, if not reliably paid out, are counterproductive. The energy access market will arguably need some support to reduce the share of energy spending in the budgets of poor households. Many of the industry stakeholders I spoke to, left aside the government targets and got on with the business of creating value for their customers and a sustainable business model to service India’s long-term energy needs. That, to me, was the best news at the conference.

 Tobias Engelmeier is the Founder and Director of BRIDGE TO INDIA

6 comments

  • A precise and succint analysis! Solar in India ia at the stage wind was about a decade ago – fiscal incentive driven, rather than being efficiency driven. The introduction of Generation Based incentive (GBI) briefly drove developers to pay attention to good pre-project engineering and efficient operations and maintenance. (Fiscal incentives have been re-introduced and this will result in engineering being forgotten).
    We are now chasing MW figures and not kWhrs.
    This is not good for the long term for solar, where the better sites will be cornered by those with money in their hands. A few thousan MWs will be installed and forgoten once payback has been achieved. Hardly the kind of environment in which one can generate serious amounts of energy!

  • Well done! A much needed, sobering article related to India’s Solar “buzz”.
    With all the talk surrounding the new target, I have been researching the current market. I find it hard to navigate India’s current LDC/state websites to extract the required data in order to support a business case to explore the Indian Solar market. Questions I have (for all states):

    1. Where can ground mounted projects be located?
    2. How large can a project be? (from what I understand unlimited?)
    3. What is the process to connect to the distribution and/or transmission grid?
    2. What are the development fees?
    3. What approvals are needed?
    4. What are the rules for net-metering?
    5. Any resources or mechanisms for developing a village micro-grid?
    6. Incentives and Challenges for foreign investors/entrepreneurs?

    Thank-you!

    Imran
    Simplistic Technologies

  • Tobias,
    Seems the govt push is focussed mainly on large players..
    The distributed rooftop segment for most part simply ignored.
    As you have rightly mentioned the ambiguity on the subsidy part is proving to be a major road block..
    Even the NetMetering is not taking off well..
    We have a lot of enquiries for residential roof top plants..but we are not able to close those due to govt lack of policy and interest for this sector..
    In Tamilnadu pepople have installed ongrid rooftop plants..and waiting for the Netmeter..since June 2014..
    Hope things will improve soon..
    –Sundar

  • Tobias
    The best thing Govt of India should do is drum up the business potential by highlighting what the market needs, removing policy confusion and bottle necks, and ensuring stable and predictable business climate.
    They SHOULD NOT, announce subsidies, feed in tariffs or even determine what the rate ought to be. As is the Indian business men like to make a quick buck, with Govt in the fray it gets murkier.

    InSolare was firmly in the market before 2009, when the GOI announced the central scheme with rich subsidies etc. It killed our market for over a year as clients convinced about Solar value decided to wait for policies with free Govt money (everyone wants a free lunch!). We still don’t have the subsidy money released to us for projects which were approved back in 2012! So we are hoping GOI admits they do not have money, and behaves as such.
    On the other hand the Indian Solar industry has its warts to show off, because in addition to the rush for dole outs, the scheme drew into the market unprepared and unqualified players, who caused upheavals in pricing by cutting corners and killing the very basis of Quality and engineering.
    An unfortunate outcome of these ill executed policies is that we see a lot of under-performing projects in the field, our worry is that this will sully the Solar sector as a whole especially for the international financing of projects just when solar in India is really going to take off.
    Hope that folks realize sooner rather than later, that Quality for 25 years of operation means more than mere certifications of products, but has many components in it including (surprisingly for some) good engineering.
    So in conclusion GOI should be marketing for the sector, and enabling of development of the right business climate. But entrepreneurs and customers have to realize that no short cuts should be used where the plants are supposed to outlast few generations.

  • Tobias,

    This is a helpful summary of the solar scenario in India. Great blog!

    You rightly point out that net metering needs to be inplemented well. The biggest argument against net metering is cost recovery (for the utilities) and cost shifting (towards the non-DG customers). We’ve worked on numerous cases where utility rate structures have changed post implementation of net metering.
    This definitely increases the pay-back for any residential roof-top solar. I hope we learn from the mistakes of Germany and US while developing a solar policy in India.