The sunrise sector

Updated on: Jan 19, 2018

More than capital subsidy, solar power needs superior grid infrastructure

As a new year gift to the solar power sector, the Centre decided to ramp up its capital subsidy for rooftop solar plants from ₹600 crore to ₹5,000 crore by 2019-20. This is to increase rooftop solar installations to a peak generation level of 4200 MW in five years, against 500 MW presently. While the move is well intentioned, it is worth asking whether a capital subsidy of 30 per cent for this sector is required at all, when costs of solar photovoltaic panels have fallen sharply over the last seven or eight years. If there has been a sudden flush of interest in this sector, it is not only because of tax breaks and an obligation on the part of the utilities to purchase renewable energy. It is also because it is possible for even a rooftop installation of 50-100 kwH generation capacity to produce at ₹6 per kwH. Hence, there are at least 200 financially rated firms in the rooftop business (many of which have come up without subsidies), which now accounts for 500 MW out of the current solar capacity of 4800 MW. There has also been an explosion of interest in large-scale solar, with the lowest bid, by SunEdison, to set up a 500 MW generation capacity in Andhra Pradesh, at ₹4.63 per kwH. That these bids are being matched with action on the ground suggests that business (including the availability of finance) and environmental interests have converged in this ‘sunrise’ sector. Policies should be in step with these new realities.

The Solar Mission envisages rooftop generation capacity of 40 GW, with another 40 GW expected to come from large-scale solar by 2022. Since investments do not seem like an issue anymore (it is just as well that commercial establishments have been excluded from the latest subsidy bonanza), it is important to focus on other policy instruments that can keep both rooftop installations and solar parks going. While rooftop set-ups have some obvious advantages — broader social participation, savings in T&D losses and no land requirement — the latter offers economies of scale. Most States have rightly shifted to ‘net metering’ as against feed-in tariffs for rooftop projects since the latter gives rise to monitoring issues. However, the rate at which surplus power, if any, will be purchased after a year needs to be worked out.

As in wind power, the biggest challenge in solar power lies in improving grid quality to prepare for stability challenges posed by the sudden spikes and falls. This would require grid operators to improve infrastructure and skills, as in Germany, where weather forecasting has become a key aspect of grid management. The ‘Smart Grid’ Mission launched last year sets aside ₹980 crore for the purpose. This seems inadequate in view of the transformation that lies ahead. The solar subsidy is better spent on stringing together a failsafe grid.

Published on January 12, 2016
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