Energy being a strategic commodity plays a significant role in economic development of a country. Energy systems in India have evolved over last six decades along with country’s economic development, supporting the aspiration of 1.2 billion people, within the framework of democratic polity, globally integrated economy and environmentally sensitive regime. Ever increasing demand of energy has posed tremendous pressure on its limited resources and has necessitated optimum use of its resources. India pursued a reformed development agenda since 1991. Significant effort has gone into improving energy availability, as support to country’s development initiatives.
For proper planning, statistics plays a vital role. The utility electricity sector in India has one National Grid with an installed capacity of 330.86 GW as on 30 November 2017. Renewable power plants constituted 31.7% of total installed capacity. During the fiscal year 2016-17, the gross electricity generated by utilities in India was 1,236.39 TWh and the total electricity generation (utilities and nonutilities) in the country was 1,433.4 TWh. The gross electricity consumption was 1,122 kWh per capita in the year 2016-17. India is the world’s third largest producer and fourth largest consumer of electricity. Electric energy consumption in agriculture was recorded highest (17.89%) in 2015-16 among all countries. The per capita electricity consumption is low compared to many countries despite cheaper electricity tariff in India.
India has surplus power generation capacity but lacks adequate infrastructure for supplying electricity to all needy people. In order to address the lack of adequate electricity supply to all the people in the country by March 2019, the Government of India launched a scheme called ‘Power for All’. This scheme will ensure continuous and uninterrupted electricity supply to all households, industries and commercial establishments by creating and improving necessary infrastructure. It is a joint collaboration of the Government of India with states to share funding and create overall economic growth.
Power is one of the most critical components of infrastructure crucial for the economic growth and welfare of nations. The existence and development of adequate infrastructure is essential for sustained growth of the Indian economy.
India’s power sector is one of the most diversified in the world. Sources of power generation range from conventional sources such as coal, lignite, natural gas, oil, hydro and nuclear power to viable non-conventional sources such as wind, solar, and agricultural and domestic waste. Electricity demand in the country has increased rapidly and is expected to rise further in the years to come. In order to meet the increasing demand for electricity in the country, massive addition to the installed generating capacity is required.
India ranks third among 40 countries in EY’s Renewable Energy Country Attractiveness Index, on back of strong focus by the government on promoting renewable energy and implementation of projects in a time bound manner.
India has moved up 73 spots to rank 26th in the World Bank’s list of electricity accessibility in 2017, according to Piyush Goyal, former Minister of State (Independent Charge) for Power, Coal, Renewable Energy and Mines, Government of India. In September 2017, the Government of India launched the Saubhagya scheme to provide electricity connections to over 40 million families in rural and urban areas by December 2018 at a cost of USD 2.5 billion. As it continues to expand its grid amid growing demand, India is staying true to its ambitious renewable energy targets, with solar playing an increasingly important role in the country’s energy mix.
The latest data provided by the Ministry of New and Renewable Energy (MNRE) and analyzed by Mercom Capital Group, shows a steady growth in renewable energy installations in India, which as of April 2017 accounts for 17.5 % of the total energy source.
The country’s overall installed capacity has reached 329.4 GW, with renewables accounting for 57.472 GW. This constitutes a significant increase on the statistics released by the MNRE back in February, when the figure stood at around 50 GW. In India’s renewables mix, solar took the share of 21.8 % with 12.5 GW as the second largest after dominant wind power, which accounted for 56.2 % with as much as 32.3 GW.
Figure 1
Solar power in India is a fast developing industry. As of October, 2017 the country’s solar grid had a cumulative capacity of 15.60 GW. India quadrupled its solar-generation capacity from 2,650 MW on 26 May 2014 to 12.2 GW on 31 March 2017. The country added 3.01 GW of solar capacity in 2015-2016 and 5.525 GW in 2016-2017, the highest of any year, with the average current price of solar electricity dropping to 18% below the average price of its coal-fired counterpart. This is expected to grow at a CAGR of more than 35% by 2022. Major solar installations so far, was dominated by the Southern region of India and it is predicted by the ongoing developments and projects in pipeline that, while approaching to 2022 Northern region will surpass the Southern region with maximum installed solar PV capacity. The Indian solar sector is witnessing strong growth with cumulative installations reaching approximately 12.8 GW at the end of November 2017. Utility-scale projects account for about 12 GW while rooftop installations accounted for almost 850 MW of the installed capacity. The India Quarterly Market Update forecasts 2017 installations to reach approximately 10 GW, a ~130 percent increase year-over-year as compared to 4.3 GW installed last year as India becomes one of the top solar markets in the world after China and the United States. The pipeline of Indian utility-scale projects is currently ~12.6 GW and there are approximately 6.4 GW of tenders pending auction.
Trends of Indian Solar Power Tariff, 2011-2017
The solar power tariffs in India have fallen in nominal terms from INR 15 /Kwh in 2009 to INR 2.44/ Kwh in 2017, due to decline in module prices and improvements in capacity utilization factor. This recent fall came in during the online bidding for a 750 MW solar power park being set up at Bhadla near Jodhpur with viability gap funding (VGF) from Solar energy corporation of India Limited. This comes after much brouhaha over tariffs falling to ` 3.25/ kWh (levelized) and ` 3.15/ kWh in Rewa, Madhya Pradesh and Kadapa, Andhra Pradesh respectively in the last three months.
However, the ever-declining solar power tariffs has encouraged good investments into the sector but have raised concerns over the long -term sustainability of the projects.
Improving manufacturing technology has led to the reduction in cost of solar panels which has resulted in reduction in cost of solar power generation. The reduction in the cost of solar power coupled with strategic policy of the government has resulted in increase in solar power into the energy mix of the country.
To boost the solar power generation in the country, the Government of India has announced various policies and regulations, such as, accelerated depreciation, capital subsidy, Renewable Energy Certificate (RECs), Net Metering Incentives, Assured Power Purchase agreement etc. The schemes formulated by the government intends to reduce the capital expenditure in building a solar power plant, and subsidize the power generation to make it economically viable for the stakeholders involved in the solar power business. The projected increase in solar capacity can reduce India’s carbon emissions by 2.5%, which is a tenth of the 20-25% reduction India has volunteered at the international summit on climate change in Copenhagen.
Figure 2: Commissioned capacity
Financial Incentives
The Government of India has been offering several financial incentives to promote the solar sector. But as cost of solar power is coming down, these benefits are being slowly phased out.
Viability gap funding (VGF): Solar Energy Corporation of India (SECI) has allocated 4,835 MW of project capacity under the VGF route, whereby a capital subsidy is provided to project developers bidding for projects at a predetermined tariff. As of March 31, 2017, another 785 MW of tenders under SECI VGF scheme are under process.
Accelerated depreciation: All solar projects have been historically eligible to avail depreciation of 80% of asset value but this rate has been reduced to 40% from April 2017 onwards.
Ten-year corporate tax holiday: A 10-year income tax holiday has been offered to solar projects so far, but this benefit has been withdrawn from April 2017 onwards.
Figure 3: Capacity addition in leading states
Investment Scenario in Indian Solar Sector
Driving Growth
Indian solar sector reaching 12 GW milestone recently has made the 175 GW by 2022 goal more tangible than ever. The growth rate is quite commendable, considering India had only 2.6 GW solar capacity in May 2014. Granted that soaring global solar acceptance and support from Indian Government has played a major role in creating this scenario. However, it is investment that gave Indian solar sector a much-required boost to venture ahead into energy transition without having a strong industrial infrastructure.
Government Initiatives to Increase Investment
100% foreign direct investment under the automatic route and 74% foreign equity participation in a joint venture (without any approval) accepted and upheld by Indian Government paved the path to bring investments in the Indian solar sector. Such policy framework has provided the opportunity to generate 13-15% return on equity invested by the utility companies. Initiating ‘Power for all’ program and illuminating 18,452 un-electrified villages (12, 583 villages already electrified), has also brought foreign investment.
Supporting Viability Gap Funding policy for rooftop projects has made Indian rooftop solar market lucrative for investors. And participating in International Solar Alliance (ISA) has also brought India’s growing solar industry exposure and financial support.
Current Scenario of Investment
India has 14 gigawatt of solar projects under development and more than 6 GW capacity projects are about to be auctioned. Investment is obviously needed to support this incredible growth. India’s potential of generating solar energy is expected to attract $100 billion investment eventually. Currently, around 293 global and domestic companies have committed to invest approximately US$ 310–350 billion to set up a cumulative capacity of 266 GW in (solar, wind, mini-hydel and biomass-based power) within 5–10 years. From 2000 to 2016, India has attracted about US$ 10.48 billion in foreign investment. An agreement is signed by State Bank of India (SBI) with The World Bank for INR 4,200 crore credit facility, to present a better financing model for Grid Connected Rooftop Solar Photovoltaic (GRPV) projects in India. US$ 1 billion is also committed by The World Bank Group to support development and future of Indian solar industry. An agreement committing INR 300 crore was also signed by The Ministry of New and Renewable Energy (MNRE) with Germany-based KfW Development Bank to improve floating solar projects in Maharashtra, Kerala and other potential states.
Challenges Exist
Investment is needed to bridge the energy generation deficit (which is suspected to stand at 5.2% during next 10 years), and to reach 100 GW capacity installation target. Although investment is pouring in, continued fall in solar energy tariff can present the project profitability question and drive away the potential investors. Additionally, there are issues like- power evacuation challenges, lack of land availability, confusion in policy, delays in awarding projects, lack of skilled labour, and O&M facilities are making it hard for the investors to put their money in Indian solar sector.
This is indeed the right time for growth, global acceptance towards solar is on the rise. If India starts to focus on fixing the existing issues, the country can ultimately lead the world by example, and claim a pole position as an energy rich country.
Discoms Favoring Solar Energy
• Lower tariff is one of the reasons.
• Solar power helps discoms meet their peak power requirement.
• Solar power helps discoms meet their peak power requirement.
• The generation of solar energy can be forecast better, as compared to wind, which typically blows strongly at night and during the monsoon months, when the demand for power is low.
Problems in Solar Energy Sector
1. Problems associated with high temperature
• The solar panels that are used are not designed for such high temperatures.
• In remote areas with high temperatures, it is being found that we are not getting the required units of power. The panels do not yield their optimal usage.
• Dust is a problem, especially, in Rajasthan, where the dust conditions are really bad and require frequent cleaning around two times a month, which then increases the operational costs.
• There is alluvial dust (present in plains of north India and delta regions of south India). This type turns into mud when water is poured. Then there is sandy dust (present in Rajasthan and Gujarat), which can be washed away easily with water.
2. Cleaning costs
• Apart from the dust, one other main issue is the hardness of the water.
• Hard water is not suitable for cleaning, and companies have to invest in reverse osmosis (RO) and other technology to make it suitable.
• Since many large-scale power plants are located in the interior regions of Rajasthan, Gujarat, Maharashtra, Madhya Pradesh, Chhattisgarh and parts of South India, getting soft water on sites becomes difficult at times. Therefore, reverse osmosis or distillation plants have almost become mandatory for solar plants in order to provide water which can be used for cleaning modules.
• Apart from treating the water, the unavailability of a steady water supply also proves to be a problem for solar plant operators.
3. Rooftop solar
• While the government has sanctioned ` 5,000 crore to provide a 30 per cent capital subsidy for rooftop solar installations, this works out to a one-time fix. Consumers will still be expected to foot the water bill and cleaning bill which means that individual households will also have to bear the operational costs of having solar modules on their roofs.
4. Skill Labor
• Skilled workforce required for cleaning and maintenance is not available in these areas and so companies have to bring them in from other areas and train them.
• All this results into higher operational costs but solar tariffs in India have fallen tremendously which pose a future risk for the industry.
• Thus, companies in India are beginning to employ new technologies to counter the dust problem. For example, anti-soiling technology like dust-free glass with self-cleaning hydrophobic nano-coating, which stops dust from sticking to the glass of the module.
5. Reason for falling solar tariffs
• In the rush to build market share in this exciting sector, some players have become very aggressive in the competitive auction process and are bidding very low tariffs with fairly low returns.
• There is a fear that some of these projects could become unviable because developers will find it difficult to raise funds at attractive interest rates and contain high project costs.
• Low tariffs can also negatively impact the government’s target of achieving 100GW by 2022. We need to attract more.
• Players and many more investors into this nascent sector.
• This will come only if the returns are attractive for investors. Hence, it is important that every project remains viable from both aspects—tariff and profitability.
6. Several impediments
• From land acquisition to problems in grid evacuation, there are many issues that can derail returns on a project.
• Several discoms, the ultimate buyers of power, are in a poor financial condition. Hence, payment delays and rising receivables can upset both financial plans as well as cash flow management.
• Financing a large number of projects that have been awarded will require debt of almost $10 billion every year. India’s banking sector is already facing its own set of challenges and there are only a few banks that finance such long-term projects.
Conclusion
Solar energy production does not emit greenhouse gases and is a climate friendly option. During operation, a solar plant contributes to significant reduction of CO2 emissions without consuming any fuel. In India, a country having practiced decentralized system for so long, a new thrust to grid connected solar electricity has been given and solar rooftop has emerged as an achievable goal for residential, commercial and industrial sectors. The National Solar Mission targets 100 GW of solar electricity capacity by 2022. To fulfill these impressive targets technology and investment have to be in the top gear. A review of global experience in PV installation in top solar countries has been made. Residential and commercial sectors top in numbers in PV installation in most countries. An outlook for linking of solar energy targets with the current missions on ‘Make in India’, ‘Smart city mission’ and ‘Digital India’ as a promise for developing capabilities and transformation of entire power system in the country is recommended.
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