‘Small-scale solar installations hold huge potential in India'

“While India's strategy to connect large solar farms to the grid is a good idea, the next thing should be small solar installations, besides development of a smart grid,” says Mr Sebastian C. Dürr, Director of iPLON, a German-based technical project management and consulting firm. With over a decade's experience in the renewable energy technology domain, Mr Dürr talks to Business Line about solar energy markets globally and India's potential in this space.

Excerpts form the interview:

Is there any global market that has attained grid parity in solar energy?

I guess it is still too expensive. In Germany, you pay about 25 euro cents per kilowatt hour (kWh) when you buy from the grid, and you get a Feed-in-Tariffs (FIT) of about 30 cents on an average (depending on the size of the system). There would be about 5-10 euro cents gap.

But costs do come down. When I first developed a 1 MW project in Germany in 2004, the price per kWh peak was about €5,500. Today it is about €1900. So, there has been a huge development. And every time the incentives or the FITs dropped, the prices of solar photo voltaics (PV) also went down.

It is also a self-regulating business. No one will give you a very good price on PVs if the incentives are still high. So one of the aims of the FIT law for renewable energy was bring it (FIT) down slowly so that the PV prices follow suit and, sooner or later, grid parity is achieved like what we saw with wind power.

Also, remember, in Europe, energy prices are constantly on the rise. It is not just that the price of renewable energy is going down; the cost of conventional sources of energy is going up. Soon, they will meet somewhere. This could happen in two or 5 years, I don't know. But energy (conventional) price in Europe is about 30 per cent more expensive than it was three years back, and that is a huge number.

Solar module prices fell sharply in 2009 and then stabilised. What factors typically led to the decline?

It would mainly be a cut-back in FIT. Also, more and more companies invest in huge production capacities in PV modules. That will be one factor driving down prices.

By the end of this year, module capacity is expected to be 50GW, whereas the annual installation expected is only about 30 GW. So, there would be an almost 100 per cent over-capacity that could lead to price fall.

China and Taiwan would be producing 60-65 per cent of the capacity. This means that all production is moving from high-cost to low-cost destinations. Whatever happened in the electronics industry 10 year ago is happening now in the PV industry.

Better production technologies have also come into place. Nowadays, the cutting process, for instance, is much more precise and has much less waste in terms of material. So you get more cells out of the same block than may be five year ago. But, what really regulates the price of the PV module market is the FIT.

There is an upsurge in interest in India for participating in solar projects now. How risky would these be compared with what you see in Europe, given that many of the Indian players do not have experience in this field?

I would give you the same answer if you had asked me the same question from Germany's point of view. The installations in Germany were far behind the expected performance because of various misconceptions. Sometimes, there are huge time delays in the European countries because of the policy-making process and adverse weather conditions.

I would not say it is a risky business. I would always look at the company which is doing the EPC for the developer.

Also, does the company in charge have good references, any backlog, and so on?

In Germany, we had a boom and everybody wanted to get in. So, after calculations, they figured out that if they offered a large, say a 5MW solar farm, then their profits would be high. They had never attempted a farm of that scale before. So the fact is if you can control the risks, then it becomes aninteresting investment opportunity.

The most important thing is to understand how vital life-cycle management of these installations would be in future. Because what you install is going to be out there for the next 20-30 years.

In every other industry, people learn this the hard way. There is a gap across the globe right now. If a fuse for $1 blows and nobody detects it, then you could lose a huge amount of money.

What is your assessment of the off-grid market?

What I hear about India right now are large-scale installations. But I would think that the big potential in India is from small-scale installations. And, if someone finds a way to develop a business model for small-scale installations, for financing or for PPP models, it will become ‘The Big Thing'. The National Solar Mission is a great approach, but I see the big potential across the cities here, especially for roof-top installations.

Cost of installation or generation of renewable energy such as wind or solar still remains quite high. Do you see this coming down?

I would say that it can become more interesting but not necessarily less costly. But it could certainly be more efficient. For instance, in Germany, we now talk about smart grid where we integrate different renewable energy sources into the grid. And on the other side, we have a European-wide energy grid where we can buy energy from other countries; especially when we run into a peak load, we buy energy from France or Switzerland.

Now this could be more interesting on a local scale. For instance, you may fire-up the generator from a biogas plant to generate energy directly where you need it than import it from somewhere and have all the losses.

You lose 20 per cent or something in transmission! Or, in summer time when air conditioners suck a lot of energy and there is a base load and peak load price, you could do a peak load clipping with your own PV installations with small applications and, therefore, become cost effective. In Europe, for instance, huge wind farms are installed in the Baltic sea — offshore wind farms — and these are really cost-efficient. So they generate cheap energy 24x 7.

So, for India, the large farms connected to grid are a good step. The next thing should be to have a viable business model for small installations and, finally, a smart grid. India can avoid the mistakes that Europe made.

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