A three-part approach is sure to develop the solar industry and make it cost competitive

If you look closely at India’s solar sector, you are bound to conclude that the future is bright. For sure, little happened all through 2013, but 2014, promises a lot.

Why?

One can broadly divide the solar power industry (keeping aside, for the time being, the manufacturing side), into three broad categories.

First, the large, MW-scale plants. These produce electricity that is relatively more expensive, but costs are coming down. The primary role of these large plants is to develop the industry, create the eco-system, provide the scale for costs to come down.

Different story

Second, the rooftops, which again may be disaggregated into commercial and industrial rooftop projects, and residential rooftop projects. The power they produce is expensive than what is sold over the grid, but higher costs do not matter in the case of commercial/industrial rooftops, because consumers here often do not get the cheaper grid power, but have to rely on even costlier power from other sources such as diesel. The residential rooftops, though, is a different story.

The third category is the “mini and micro grids”, where solar plants are tiny, but they create the most social impact, by supplying electricity to those who don’t have any. In those places that micro grids have happened, such as in the Meerwada village, where the US-headquartered solar giant, SunEdison, has put up a plant, the social impact is immeasurable.

If you look at the current phase of the Indian solar industry, all the categories mentioned above, with the possible exception of residential rooftops, are buoyant. The immediate future is bright, the long term future is scintillating.

Let us look at each sub-sector one-by-one.

MW-scale projects

The ‘large, MW-scale projects’ will happen this year. Look at what has happened this year. At the end of January, the total solar capacity in the country was 2,206.75 MW. By the end of March, this figure rose to 2,631.9 MW — as much as 425.2 MW were added in February and March. (Incidentally, the story of ‘wind’ is also similar, when the capacity increased by about 800 MW in these two months.) As much as 948 MW were added to the capacity in 2013-14.

This year will see solar power crossing the milestone of 3,000 MW. The large-scale projects fall into one or the other of four buckets.

The first is projects coming up under government schemes, where the tariff is determined by a competitive bidding process and project developer will sell the power to electricity distribution companies.

Under the Phase II of the Jawaharlal Nehru National Solar Mission, 750 MW of projects have just been awarded. Several State governments have come up with their own schemes — Madhya Pradesh 100 MW, Karnataka 50 MW, Andhra Pradesh 60 MW.

Momentum to continue

Then there are projects that come under ‘REC scheme’, where a solar power producer will sell the electricity at the specified ‘average cost’ to the distribution company and will get ‘renewable energy certificates’ which can be sold in the market to those who are obligated to buy either solar power or the certificates.

About 200 MW of projects came under ‘REC scheme’ last year and this momentum is expected to continue.

The third is projects being put up by the public sector companies. A six-PSU joint venture is planning a 4,000 MW project in the Sambhar district of Rajasthan, which will be the world’s largest single location solar plant. Two more such joint ventures have been formed by oil companies — one of the upstream companies (ONGC, OIL and GAIL) and another of the downstream (IOC, HPCL and BPCL).

The recently-formed PSU, Solar Energy Corporation of India (SECI), meant to develop solar power in India is a partner in both these ventures, as is the government-owned funding company, IREDA. Most other PSUs are planning or executing solar projects. Neyveli Lignite Corporation has just given the mandate for putting up a 10 MW project at Neyveli to its fellow public sector company, BHEL.

NLC, incidentally, wants to put up 300 MW, for which it has sufficient lands in its possession. Companies such as SAIL and Nalco are planning solar forays.

Of course, the biggest of them all is NTPC, which already has 50 MW and wants to do more. The fourth bucket is projects being put up by a solar power developer and where the power will be sold to consumers, mostly industrial consumers, at negotiated tariffs — the ‘captive model’. SunEdison is planning a 18 MW project in Tamil Nadu and is building solar plants in a modular fashion. Industrial consumers could buy electricity from SunEdison, or buy chunks of plants, say two 1 MW plants or three 500 kW plants, or, just buy electricity from SunEdision.

So we have four lines of large-scale solar activity running in parallel and by the looks of it, all are likely to succeed.

A strong reason why the long-term future of these large-scale plants is secure is the fact that the cost of generation is expected to come down. SunEdison’s Pashupathy Gopalan, who heads the company’s operations in India, Asia-Pacific, West Asia and Africa, says that cost of modules is coming down and efficiency levels are going up, which, with some policy-driven reduction in capital costs, could see solar projects viable at a tariff of ₹4 a kWhr by 2016.

When prices drop, there is little need for government support. Engineering major L&T, which has built solar projects of over 300 MW for other companies, believes that a solar sector that doesn’t depend on government’s crutches is just around the corner. "With the true cost of solar power accelerating towards grid parity, the open market is going to be the next big revolution where projects would be viable without any financial incentive or subsidies,” says SN Subrahmanyan, Member of the Board and Senior Executive Vice-President and Head, L&T Construction.

Rooftop projects

Solar plants on the rooftops of factories and office complexes and shopping malls are happening briskly. There is practically no day without the announcement of a 100 kW or a 150 kW plant commissioned on the roof of a factory or an office or an educational institution. Businesses are attracted to this because of the ‘accelerated depreciation’ benefit — a tax sop which enables a company to write-off 80 per cent of the cost of the plant as depreciation in the first year while calculating profits for tax purposes. The AD is an attractive benefit because companies put into a solar asset the money they would have otherwise paid to the Income Tax Department. Profit-making companies have been putting up even large-scale plants so as to avail themselves of the AD benefit, but the large plants are being put up mostly by the independent power producers. But commercial rooftops are almost without exception AD-driven.

Unattractive option

Industrial and commercial rooftops are happening, and will happen with even more gusto, even without any further intervention from the government. But when it comes to residential rooftops, the story is not so nice. It is still not attractive for individuals to put up rooftop plants and consume the electricity, though there are arguments in their favour — like ‘do you look for return on investment when you buy a car or an air-conditioner’? The emphasis here is on comfort and assurance of power, rather than returns, but this line of thinking has not found much favour from individuals, because the ‘comfort’ factor is counter-weighted by the fickle nature of electricity generation (unless you have a battery, in which case it becomes very costly), and the hassles of maintenance.

Here is where some intervention from the government is required. While businesses get ‘AD’ benefit for their solar investments, individuals get nothing, which many feel is unfair, because the activity is the same.

Mini and micro grids

This is the true story of solar in the country. Put up a solar plant in a village, develop a local grid that can carry the solar power to the houses in that village, the result is a ‘hey, Presto!’ kind of a thing. The lives of villagers become easy, children study, women work during the pleasant hours of the evenings, and sometimes people get into income-generating activities — the social transformation is huge, as has been seen in the case of Meerwada. The only problem here — the cost of the systems — is getting solved. Now that CSR spending has become mandatory, many companies are looking at solar plant with micro grid as a CSR activity. To sum it up, all the three sub-sector of solar power — large-scale plants, rooftops and micro grids — are poised for major growth.

(This article was published on April 27, 2014)
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