Achieving 2022 Solar Energy Targets: A Reality Check

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Image Courtesy: www.businessinsider.in

 

2016 has been a progressive year for Indian solar industry. The leap from 5 GW in 2015 to around 9 GW grid-connected solar capacity was an incredible growth indeed. Rooftop segment has also flourished with the support of Government and rising awareness in the country, surpassing the 1 GW mark, achieving 113 percent growth rate in the last 12 months. The idea of solar park installations has also seen improvement with the Government approving 34 solar parks in 21 states. Although these indicators are pointing towards progress, it is important that we try to evaluate if the current growth rate can translate into success by reaching the 100 GW mark by 2022.

Current Scenario

To achieve the set targets, India needs to add approximately 15 GW capacity each year for the next 5-6 years, which is more than 3 times the capacity it has added in 2016. So it is time that we evaluate the concern areas that need to be addressed to achieve the 100 GW solar target, and explore avenues to mitigate the same.

Investment or its lack thereof, has presented a problem in developing solar structure in the country. The Indian solar sector is being considered as a $100 billion investment market, and foreign investments are pouring in substantially. However, investment in renewable energy still isn’t matching the requirement. For example, in 2015 India invested approx. $10.2 billion in renewable energy, while the requirement was for $40 billion. And factoring in the $758 million budget required for renewable energy development in 2016-17, it is hard to ascertain whether the required capacity addition will be reached this year as well. But this can be resolved with the support of the Indian Government by creating a bigger investment bank for renewable energy, while becoming a substantial (if not equal) contributor in investing money for development with third party investors. Further, State governments can introduce attractive investment schemes for drawing considerably large/mega projects in their respective states.

Financing Issues may pose a bottleneck in renewable energy development. Commercial banks do come forward to help in financing, but unfortunately their debt rate is higher than available in developed countries. Therefore, innovative financing measures such as generation-based incentive linked loan repayment, clean energy fund, and green bonds can be explored and implemented to change the scenario.

Lack of Focus in Domestic Manufacturing is also another hurdle which has arisen lately. The government has always supported domestic manufacturing by introducing policies, creating demand, offering land banks, and introducing subsidies. However, of late, uncontrolled solar module dumping (India spent $1.3 billion in 2015-16 in imports), reducing rate of incentives and subsidies, lack of R&D improvements and awareness in the country are coming in the way of domestic manufacturing capacity enhancement. We are hopeful that the government will take measures to address this at the earliest and safeguard the growth of domestic manufacturers, which in turn, will establish India’s position in the global solar market.

To support domestic manufacturing, the Government had also offered to introduce a new manufacturing policy for integrated Solar Manufacturing facilities as mentioned by the Hon’ble Minister in April 2016. The new policy could provide a much awaited boost to the Indian solar manufacturing sector so as to reach its targets faster. The policy is being evaluated by the Inter-ministerial committee and we hope for an early release of the same to aid the industry’s cause.

It is unfortunate that delays in awarding contracts has restricted the intended growth of the solar industry. Out of the 2.5 GW DCR category projects (within 12 GW), only 0.850 GW has been awarded till date. Insufficient projects under DCR category are also making it hard for domestic manufacturers to go toe-to-toe with foreign module sellers. Some recent examples include the auction for Solar Energy Corporation of India (SECI) for Coal India- 200 MW (100 mw X 2) capacity project which was completed in the month of March 2016. However, the project LOI is yet to be awarded. Similar fate has befallen the NTPC 750 MW (125 MWx6) phase 2 project in Andhra Pradesh. Delays in awarding projects result in decreasing demand, stretched project timelines and eventually create roadblocks in the path of reaching the set 100 GW target by 2022. Further, with the auctions process working in a previous discovered price model, incomplete auctions are resulting in lower prices for the auctions thereafter, affecting feasibility and sustainability of the projects. This uncertainty on assured returns is leading to a lack in investor interest, and hence, Power Purchase Agreements are not getting realised. So in order to ensure investor confidence and interest, we need to streamline the auction process with stringent timelines for every stage. This will ensure timely allocation of projects, and the consequent execution of the same. I’m optimistic that the government realises the gravity of the issue, and will be taking requisite measures to smoothen the process of auctions.

Discount in tariffs has raised some questions regarding the financial feasibility of the projects, hindrances in financial closure and hence timely completion of the projects. The PPA for bundled scheme under JNNSM poses another payment security concern for lenders. The declining financial condition of State Discoms increases the credit risks for lenders. Further, speculations that Discoms may not honour their obligations under the PPA for 20 years if the costs of solar come down eventually, as they will, hurt investor sentiments. Owing to the fact that payment default by State Discoms is common, the credibility and bankability of the PPAs do not find favour with lenders. Incentives to Discoms based on performance may be an appropriate move from the government to decrease the pessimism in this area. Policies such as the Performance-based Incentive Scheme for DISCOMs for expeditious development of Grid Connected Rooftop Solar Power Plants, may encourage the Discoms to perform and manage their revenues better, negating the chances of payment default, bringing about positive investor sentiment. Hence, more such initiatives from the government are crucial for the industry.

There are also issues concerning – lack of infrastructure to transmit energy, lack of land banks, lack of transportation and roadways, gaps in policy development and implementation, lack of skilled labour, etc. that require constant focus for achieving the 100 GW by 2022 target. The government has been putting in efforts and measures to address these concerns. While there is still a lot to do in this regard, we are sure that the government’s intentions towards achieving the set target are strong, and these issues will be resolved in time for both the government and the Indian Solar industry to emerge as winners.

Awareness among customers can be a major way to push the uptake of solar power in the country. State Nodal Agencies need to be brought in the loop to assist independent consumers in understanding the benefits and the process of selecting solar energy. Schools, colleges, and education institutions can be imparted proper knowledge regarding the benefit of energy transition and role of solar. This will help increase demand for solar, providing impetus to the industry’s growth in turn.

Irrespective of the issues concerning the sector, one must consider the fact that the improvement made by the Indian solar industry without having advanced infrastructure and scale is incredible, inspiring even. Not many countries in the world can boast of having achieved such landmark progress in developing solar capacities, in such a brief period of time. So, with the proper policy push, improving infrastructure, supportive schemes and incentives, and most importantly, with the Government and private players working in a unison through mutual efforts, the targets would be very much achievable. There is still time, and we look forward to utilise this time optimally to put India on the peak of the global solar arena.

Bibliography:
  1. Financial Express: http://www.financialexpress.com/market/commodities/why-india-might-not-achieve-its-2020-renewable-energy-targets/499795/
  2. Elecrama.com: http://elecrama.com/why-indias-solar-sector-has-turned-into-a-100-billion-investment-magnet/
  3. Earthday.org: http://www.earthday.org/2016/06/14/largest-increase-global-co2-emissions-energy-use-2015-came-india/
  4. Cleantechnica.com: https://cleantechnica.com/2015/12/09/india-crosses-5-gw-solar-power-installed-capacity-milestone/
  5. Economic Times: http://economictimes.indiatimes.com/industry/energy/power/why-india-might-not-achieve-its-2020-renewable-energy-targets/articleshow/56389839.cms
  6. Techstory.in: http://techstory.in/indian-solar-industry-problems/
  7. IDFC: https://www.idfc.com/pdf/publications/India-Solar-Policy-Element-Casting-Shadow-on-Harnessing-the-Potential.pdf
  8. PV Magazine: https://www.pv-magazine.com/2016/02/16/india-new-policy-to-support-solar-manufacturing-mooted_100023244/
  9. Sustainability Outlook: http://sustainabilityoutlook.in/news/indian-solar-manufacturing-policy-imminent-756884
  10. PV Tech: http://www.pv-tech.org/guest-blog/new-government-policies-to-support-solar-manufacturing-in-india

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