Bridge India

Weekly Update: What Modi’s victory means for solar in India

Modi’s election victory was overwhelming. His party, the BJP, has won a clear majority in the lower house with 282 out of 543 seats. Previously, as Chief Minister of Gujarat, Modi had presided over the most successful Indian solar policy. So is Modi good news for solar in India? With the election results barely more than a week past, it is still early to take that call. But let us look at what we know, what he is likely to do and then what the solar industry can hope for.

  • We know that Modi has a strong mandate for new policies and a good solar track record
  • It is likely that Modi will make solar a central element of an integrated energy strategy
  • We hope that the focus will be on growing the solar market and not on protectionist measures

narendra modi blog photo

What we know
We know that Modi has an exceptionally strong mandate. This gives him room to maneuver, to initiate new policies and reforms. His government is strong enough to deal with setbacks and hence take risks. He does not have to accommodate regional parties in a coalition and can choose his cabinet, based more on merit than politicking.

We also know that Modi has a good track record in Gujarat when it comes to improving energy infrastructure and implementing solar policies. His Gujarat solar policy still accounts for around one third of India’s capacity to date. We also know that for him solar is a means to an end: cheap, plentiful, reliable power supply. As per our conversations, he understands that the comparison should be on a Landed Cost of Power (LCOP) basis. Once the Gujarat solar policy was completed, he did not initiate a new phase with government incentives. Instead, Gujarat focused on smaller, innovative models around rooftop solar and micro-grids.

What is likely to happen
Now let’s look at what is likely in store for solar in India. First of all, the general macroeconomic environment in India will probably improve. Modi is the preferred choice of Indian business, as well as of international investors. The stock markets have opened with a 4.5% jump on the day his victory was announced. A better macroeconomic environment would reduce inflation, strengthen the Indian Rupee and drive power demand up. These are all factors conducive to investment into solar. There is a backlog of pent-up solar investment that might now be converted.

During the campaign and after his victory, Modi has also stated that he believes solar has a key role to play in India. He wants to bring solar lighting to the around 80 million Indian households without electricity. He also wants to reduce India’s dependence on imported coal, oil and gas. It is therefore reasonable to expect that the existing policy targets of the National Solar Mission (10 GW cumulative by 2017) will increased.

Another very interesting suggestion that has been made public in the last few days is creation of a new Energy “Superministry”, bundling together the current Ministry of Petroleum and Gas, the Department of Atomic Energy, the Ministry of Coal, the Ministry of Power and the Ministry of New and Renewable Energy. This would allow for a holistic approach and make it easier to reform the energy market in India. This could be good for solar, if it is a step towards bringing it into the mainstream of an overall India energy strategy. It could also accelerate a much-needed reform of the power sector, which is one of the main hurdles to growth of the Indian market in general and the solar market in particular.

What we hope for

Then there are a couple of things we can only hope for. Modi is very close to some of India’s largest business houses. Some of them have benefitted (perhaps unduly) from their links to him. What the solar market needs, however, is not cartelization, but liberalization, competition and innovation. In a similar way, Modi’s Hindu nationalist credentials might lead him to favor protectionist measures for the ailing Indian solar manufacturing industry. What the market needs, however, is the lowest possible cost of solar, international investment and a much more integrated and dynamic ecosystem of research, deployment and finance.

Thirdly, solar was, in Modi’s past announcements, sometimes clubbed together with developmental goals. While solar is a great way of providing power in remote rural areas, its scope in India should be much larger. It should be seen as a key building block of India’s long-term energy supply. To that end, it is very important that Modi picks the right minister of whatever ministry solar will fall under.

Overall, Modi’s election victory is very likely good for solar. It has already begun to change the mood in the investment community. It will take time for him to turn the Indian ship around and tackle large, structural reforms in the power market. Delivering on that, however, would create the platform for long-term growth. In the meantime, we would not be surprised to see a complete revamp of the National Solar Mission in the next year, including much more ambitious targets and a stronger focus on distributed generation. Revoking the anti-dumping duties could be another immediate action.

Tobias Engelmeier is the Director at BRIDGE TO INDIA.