State governments warm up to solar power

Companies that are in the business of putting up solar power plants have for long had a complaint: there is no “pipeline visibility”. By that these ‘developers’ meant that there were no ‘projects’ that they could bid for and win, nor were there policies conducive for them to put up their own projects and sell power directly to consumers.

They can’t complain anymore. The story of solar India used to be all about the ‘National Solar Mission’ and the ‘Gujarat programme’. But now, the State governments are getting into the act.

On October 20, the government of Tamil Nadu announced its ‘solar policy’. A couple of weeks earlier, the Andhra Pradesh government had come up with its own policy. The governments of Karnataka, Madhya Pradesh and Odisha have their own programme, albeit of a small scale. For instance, Karnataka has rolled out for 80 MW policy, while Odisha has for 50 MW. But their programmes, though small, and their statements and pronouncements point to a growing seriousness about getting into solar. The government of Odisha has even set up a company called Odisha Green Power Corporation, with a mandate to engender solar projects too in the State.

Three models

The States are filling in a gap left by the National Solar Mission, which is still working on the contours of its ‘Phase II’ and the government of Gujarat, which again is working on the next bunch of projects, which presumably will not be announced until the State’s assembly elections are over, in December. Rajasthan’s policy, which showed some promise, is in a limbo after the government shelved it.

The policy announcements of Tamil Nadu and Andhra Pradesh have rejuvenated the industry. Many developers feel that the Andhra Pradesh policy is particularly good, as it gives the developers a plethora of benefits — exemptions from various levies and input tax credits on equipment.

Now there are three models available for other States to emulate — Gujarat, AP and TN. Not that they can’t come up with their own model, but these three provide a ready template. Gujarat gave an attractive feed-in tariff which proved to be extremely successful. Today, the State accounts for 70 per cent of the solar capacity installed in the country (1,000 MW). In contrast, the AP policy tells the developers: ‘Don’t expect the State to pay down any money. Do what you please, get your ‘renewable energy certificates’ and make your money trading them. On our part, we will make things simple and inexpensive for you.’

The Tamil Nadu policy is somewhere in-between. Its central message is: ‘We will create a big demand for you, by imposing obligations on consumers to buy your power. From that point, it is all up to you.’ (Tamil Nadu also promises higher tariff if the power is sold to the state-owned distribution utility, but given the terrible track record of the utility in making payments and given its poor financial health, not many developers are likely to be enthused to enter into power purchase agreements with it. The same reasoning holds for the ‘domestic rooftop’ segment, for which the government promises generation-based incentives. Brave is the investor who would put up a plant on the strength of the incentives and braver is the banker who comes forward to fund it.)

Draft policies

Other State governments are keenly watching the developments in AP and Tamil Nadu. Most of the States had only been issuing statements of intent, expressing their desire for solar power. Maharashtra, West Bengal, Uttar Pradesh and Punjab have announced draft policies. West Bengal has not given out any details, while Punjab’s is small, as it aims to have 200 MW by 2020. Maharashtra wants 500 MW in three years and Uttar Pradesh wants 1,000 MW in five.

Now that the States are getting into the act, it would be interesting to see how the next phase of the National Solar Mission shapes up. In Phase II, the Mission aims to bring about 3,000 MW of capacity. Now the developers have other options too, like Andhra Pradesh. The Mission will have to make its policy sweet enough to attract developers.

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