Why the ‘I know the Chief Minister’ claim doesn’t work for solar in India
Dr. Tobias Engelmeier is Founder and Managing Director at BRIDGE TO INDIA.
Over the past two years, since we have been working in the Indian solar market, I have had numerous conversations with people who claimed to have access to the Minister of the Ministry of New & Renewable Energy or the Chief Minister of a state and could make “big solar projects work”. I know of none of these conversations that have come to fruition. This is why:
- Solar energy, unlike good hydro-power sites or natural resources, is not under the control of anyone, even the Minister
- Solar power is sold through long-term Power Purchase Agreements (PPAs) – the time period exceeds those of governments
- Barriers to entry in the market are low and PPA allocation processes have so far been quite transparent
- Solar does not provide short-term, windfall profits, but pays over a longer period of time if projects are well managed
To develop a solar power project, you need a site. If that site is not someone’s roof-top, it will be someone’s land. Buying land in India is not easy. Especially, if it needs to have certain characteristics. In the case of solar power, these are: suitable terrain and soil for constructing a plant, high irradiation, road access and proximity to a well functioning substation. While this limits the options, so far, there has been no shortage of suitable land. This is not to say that relationships at various levels of the government are not important to understand and expedite various processes, but involving the Chief Minister is usually not necessary. Other than land, there is no resource that could be acquired in a preferential manner. Sunlight is free.
On the PPA side, also, there is little room for receiving Chief Ministerial favors. Solar power is usually sold through long-term PPAs of 20-25 years. Banks have to judge whether to lend money to a project based to a large extent on the strength of the PPA over at least the loan repayment period. That outlasts most governments.
There have been irregularities (a solar scam, even as the Center for Science and Environment claimed) around allocations of projects to Lanco and around plant commissioning dates in Rajasthan. However, public-PPA allocations and all subsequent project development steps have so far worked in a fairly transparent manner. (The partial exception is Gujarat, where the process of allocating FiTs was not clearly defined and open to the public) Given that barriers to entering the market as a project developer are quite low, this has created a healthy competition with significant international participation.
Perhaps the main reason, why solar has not fallen prey to favoritism is that it simply does not pay enough. Solar is a long-term game. It pays those who are professional and patient and can manage risks over a long period of time. The industry is learning that fast. That makes solar power unattractive for those who have short-term profit motivations.