India on 100 GW Solar Target Ramp

Prime Minister Narendra Modi has initiated a mission to increase India’s renewable energy capacities by over five times by 2022. Achieving this goal will ask for finance, technology, industry and people to come together. We have come up with this exclusive article evaluating country’s journey so far and way ahead…

The Ministry of New and Renewable Energy (MNRE) of India has released a year-by-year breakdown of solar capacity targets by states to reach its overall 100 GW solar capacity target by 2022. Country’s Union Cabinet, in a motivated drive for clean energy, ramped up the country’s solar energy generation target five times to 100 GW by 2022, from 20,000 MW under the Jawaharlal Nehru National Solar Mission (JNNUSM) on June 17^th, 2015. The target if met will makes us one of the largest green energy producers in the world. JNNUSM was launched by the United Progressive Alliance in 2009. This will also greatly reduce the country’s reliance on fossil fuels thus reducing our carbon emissions, which is the third largest in the world behind China and United States of America. India already has more than 4 GW of grid-connected solar capacity and plans to add 97 GW by 2021-2022. In 2015-2016, India plans to install 2 GW (200 MW of rooftop and 1,800 MW of ground-mounted capacity). Currently, India has an installed solar photovoltaic capacity of 3,800MW. Along with this decision, the Cabinet Committee on Economic Affairs also approved setting up of over 2,000 MW of grid-connected solar projects on build, own and operate (BOO) basis under JNNUSM Phase-II. As per the Centre’s plan, of the 100 GW, 40 GW would be rooftop solar energy and 60 GW would be through large and medium scale grid connected solar power projects. If the country is able to achieve the 100GW target, it will cut down 170 million tonnes of carbon emissions. But, to give an idea of the gravity of the ambition, the country would have to look no further than China. From less than a third of GW of solar energy capacity, China is currently producing almost 19 GW of solar energy. Despite already producing 19GW of solar energy already, the country’s 2017 target is pegged at 70GW. India has set its renewable energy capacity addition target by 2022 to 175 GW, including 100 GW of solar PV, 60 GW of wind power, 10 GW of biomass-fired power and 5 GW of hydropower.

As of 30 June 2015, the cumulative installed grid-connected solar capacity in India is 4,062MW. The annual targets are as per table. In the first phase of the campagian, the government of India is providing INR150 billion (US$2.4 billion) as capital subsidy to promote solar installations. It will be provided for rooftop solar projects, for Viability Gap Funding (VGF) based projects to be developed through the Solar Energy Corporation of India (SECI) and for decentralised generation through small solar projects. The government of India may also approach bilateral and international donors for achieving this target. The Government listed a number of measures it has been pushing various Ministries to support, including building green energy corridors, using satellite to identify transmission infrastructure, setting up parks for domestic manufacturing of modules, and raising tax-free solar bonds among other schemes.

PM Modi is aimed to electrify almost half a billion homes by 2022 with solar. More than half of India’s 1 billion people have no electricity. When the U.S. brought electric power from sea to shining sea it was with centralized coal power stations on a massive distribution grid crisscrossing the continent with the transmission and railroad system to move that coal power. Bringing electricity to those now without power in India will be quite different. Almost half of India’s 100 GW of solar will be distributed solar on rooftops, bypassing the country’s piecemeal transmission system altogether. This radical change will come to a nation that is now 60% dependent on coal. India’s total installed capacity, serving only half its demand, is around 232 GW. Large hydro plants supply 40 GW – of a 150 GW potential – nuclear supplies 5 GW and 29 GW comes from renewables, mostly wind. Solar will go from the current 1 percent to 20 percent of the new grid. The revolutionary aspect of a $50 billion focus on rooftop PV in a developing nation is historic. Developers will be able to sell directly to private companies; competing with the retail cost of power. Last year Power Minister Piyush Goyal estimated the cost of India’s needed transmission alone at $250 billion. These issues will have to be resolved in the new market, from difficulties in buying land and fixing the considerable transmission problems to the risk of solar panel thefts. Many small state utilities struggle to supply affordable power, so they are reluctant to buy renewables at twice the cost of coal. In part, Modi’s mandates will take care of bringing that cost down, as it has in other markets, by simply getting more renewables online, driving cost reductions by learning-by-doing. And infrastructure investment is an opportunity for clean energy growth. The U.S. did not transition from wood-fired cottages to coal-powered cities without massive investment in transmission and the railroads needed to move all that coal around. Imagine if clean energy was an option when the U.S. was a developing nation. And there are advantages. Construction costs for solar are half those of Japan.

“India has the potential to achieve the government’s ambitious target of 100 GW of solar power generation in the country by 2022 and Bosch is committed to be a part of this success story”, Steffen Berns, President of Bosch Group India and Managing Director Bosch Limited, said.
On August 18, Bosch had commissioned a 12 MW solar power project for Cochin International Airport Limited (CIAL) which was inaugurated by Kerala Chief Minister Oommen Chandy. Commenting on the project, he said the combination of factors, including the company’s pan-India presence and understanding of different regions in India helped them to resolve constraints imposed by on-site conditions. The project is the single largest solar project which has been constructed in an airport in India. It is spread over 50 acres. With this, the airport will have 50,000 to 60,000 units of electricity per day to be consumed for all its operational functions, which technically makes the airport absolutely power neutral, CIAL said, adding, it is the first airport in the world to operate completely on solar power.

 

Coal plants to subsidize solar

The Indian government has ordered state utility giant NTPC to sell more expensive solar generated electricity with cheaper coal power as a single unit in an effort to increase solar uptake. As part of the initiative, the NTPC will build 15 GW of solar plants by 2019. The government of  Indian Prime Minister Narendra Modi  has ordered state utility NTPC to bundle and sell electricity from coal-fired power plants and solar farms to the grid — a move aimed at making PV more competitive. The order, issued on July 17, is expected to reduce the price distribution companies pay for solar power and force them to purchase more renewable energy. The ruling makes it easier for India’s state-run distribution companies, which have had difficulties covering the costs of electricity bought in the market, to acquire solar power and support Modi’s ambitious target of achieving 100 GW of solar capacity by 2022. India’s current solar capacity stands at just over 4 GW. The NTPC is to build 15 GW of solar plants by 2019 as part of the program, according to Bloomberg. The government’s push to increase the use of solar power may meet with opposition, however. Praveer Sinha, CEO and executive director of Tata Power Delhi Distribution, said. He added “Distribution companies may resist purchasing bundled power, pointing out that “the average cost of procurement is already higher than the billing rate” and bundling coal and solar power would increase prices.” Five coal plants in the country with a total capacity of 8,960 MW will take part in the program. The Singrauli plant in northern India will be the first to begin bundling its electricity with solar power. The 1.7 GW plant’s output will be sold along with electricity from 3 GW of solar installations. Currently, the price of solar power in wholesale markets ranges between INR 5 ($0.0748) and INR 6 ($0.0898). Critics of the government plan argue that it makes little sense to extend the lives of ageing coal-fired plants in order to subsidize solar energy when PV is becoming increasingly competitive on a stand-alone basis.

Financing the Drive

The biggest obstacle to reaching the original 20 GW target was financing. The big push for solar would need an investment of Rs 6 lakh crore. In the first phase, the Centre will be providing Rs.15,050 crore as capital subsidy to promote solar capacity addition. Primarily, the capital subsidy would be too promoting Rooftop solar projects. India’s Copenhagen goal had been de-motivated by the country’s extremely conservative financial sector. To achieve 100GW goals, India needs to find, among other important things, a way to source these significant capital needs — to the tune of $200 billion over the duration of the target. By openly calling on international financial interests this year to intervene, Modi is actively seeking outside investors to meet India’s latest ambitious solar goal. Modi asked companies from Germany, China, Japan and the U.S. to lead the needed investment of $100 billion to boost India’s solar energy capacity to 100 GW. Foreign banks responded, tripling that figure. At the RE-Invest 2015 summit in India, almost 300 global companies committed to invest over $300 billion over the next decade – enough to generate nearly 300 GW of solar, wind, biomass and mini-hydro, and more than enough to meet the total renewable target of 175 GW by 2022. One of the most important concerns in financing part is a large scale solar or wind energy project gets a loan from Indian commercial banks with a high floating interest rate at about 12%. At the same time, the tenor of debt from these banks is not so long, it is only about 10-12 years. And when it comes to international financing, the higher costs of hedging can make the effective costs for international borrowing comparable to local sources. As per a report from the Climate Policy Initiative (CPI), these financing barriers can raise the cost of renewable energy in India by 24% to 32% compared with similar projects in the US (with has better access to capital).

The Indian government has attempted to bridge this gap in infrastructure investment through a number of initiatives, such as the creation of Infrastructure Debt Funds and the National Clean Energy Fund. But, these have not been able to mitigate all of the financing woes, and the sector is still looking for solutions. In fact, more than half of large Indian renewable energy projects are internationally funded. International investors have increased their market share in India, with investments in more than 78% of renewable energy capacity under development. The Asian Development Bank (ADB) has plans to increase its sovereign and non-sovereign lending to support India’s new initiatives from the present $7 billion to $9 billion in three years from 2015 to 2017 to $10 billion to $12 billion between 2016 and 2018 using ADB’s expanded lending capacity. Besides international players, domestic companies have also scaled up their footprint in the Indian renewable energy sector, such as Welspun Energy, OGPL, Renew Power In what could become a game changer in years to come, the Reserve Bank of India (RBI) notified Renewable Energy under priority sector lending. By this, banks can now provide loans up to a limit of Rs 150 million to borrowers for renewable energy projects. This will help commercial local banks to raise infrastructure bonds which are exempt from priority sector lending, but still use the money to lend to renewable energy.

To meet the 100 GW target it is important to keep building on what has been done up until now. Especially with both the central and state governments trying to harness the sun and the wind, it is important that the policies are in sync and long-term oriented, to boost the confidence of potential investors. Given the ambitious targets and limited capital resources available, there is a need to explore alternative modes of financing for renewable power projects, by leveraging existing resources effectively. Some time back, India announced that it was busy working on a dollar denominated PPA — this solution can decrease the cost of financing especially for companies who borrow internationally (ie, from multilateral agencies), as they can now avoid hedging risk. In fact, the government is said to be looking at the cash pile in the National Clean Energy Fund to provide guarantees against hedging risk. Another big challenge is virtually insurmountable — getting buyers for solar power would come from hugely indebted state distribution utilities. The accumulated losses of state discoms in the country is over Rs 2 lakh crore forcing many of them to reduce power purchase that has impacted generation in the country. At the current price of solar, it would not find buyers when power is scheduled in the grid as and where cheap power gets consumed first. The outstanding debt of seven discoms – Rajasthan, Uttar Pradesh, Tamil Nadu, Haryana, Jharkhand, Bihar, and Andhra Pradesh – which had their debt restructured, has grown 23.3 per cent to Rs 2,75,400 crore in 2014-15. Global infrastructure investment manager Squared Capital has invested in Amplus Energy Solutions, which owns and operates distributed rooftop solar in India. Amplus is aiming to expand its footprint in rooftop solar in India and Southeast Asia with the new investment. The firm is setting up a centralized monitoring facility in the outskirts of Delhi and growing its project and field teams across India. Gautam Bhandari, partner at I Squared Capital, said: “Meeting such a goal requires substantial investment from both the public and private sectors. We are proud to partner with Amplus to bring this efficient and sustainable technology to more customers in India and beyond. Amplus is setting up an office in Singapore to pursue opportunities there as well as in other Southeast Asian countries.” Sanjeev Aggarwal, chief executive of Amplus, said: “We provide construction capital, guaranteed implementation timelines as well as ongoing operations and maintenance. Our power purchase agreements offer customized tariff options lower than grid tariffs.

Challenges on the high-way …

In the last few years have seen a dramatic decline in solar power costs, from Rs. 20 per unit to nearly Rs. 5.5 per unit. This has made the government perceive solar energy as an economically rationale choice for the country. Thus, it has raised the solar targets to 100 GW out of the proposed 175 GW of renewable energy. If these targets are

met, India will join the ranks of the world’s solar powerhouses in terms of installed capacity. The increased solar targets have positive economic implications for India. They envisage an investment of around $100 billion in the sector over the next seven years. This opens up the space for foreign investments and encourages indigenous manufacturing of solar components. With 100 GW of capacity installed, around nine percent of India’s electricity requirement will be met by solar alone. India would then surpass Germany, where solar energy currently accounts for six percent of total power. This highlights India’s seriousness in reducing its carbon emissions by increasing the share of renewable in its energy mix. The broader benefit of solar energy is its contribution to increasing energy security by reducing reliance on fossil fuel imports. Additionally, off-grid plants under the new solar scheme can help India achieve its goal of universal electrification. But there are several barriers on the way. Major of them are:

Large-scale Plants

Currently, large solar PV plants make up more than 90 percent of the installed capacity in India. This is because established developers get easy access to finance, security of payment and simple operation and maintenance (O&M). Despite these incentives, certain technical and economic barriers still need to be addressed for ramping up large-scale plants. Owing to the intermittent nature of solar energy, large-scale deployment will require the development of grid management and load balancing mechanisms in co-ordination with State Load Dispatch Centers and R&D institutions. Green bonds and public financing need to be promoted to reduce the cost of debt and increase loan tenures. India’s good global credit rating will allow the government to leverage low-cost finance (with lower hedging rates) from developed countries to commission large solar projects. To ensure that state utilities have an incentive to deploy solar energy, Renewable Purchase Obligations (RPOs) need to be stringently enforced.

Rooftop Solar Power

RTPV is a decentralized technology, which is being encouraged due to its low land footprint and ability to reduce transmission and distribution (T&D) losses. Weak local distribution infrastructure, lack of economies of scale and poor social outlook has prevented RTPV systems from penetrating the Indian market. These challenges need to be suitably tackled. R&D institutions need to perform accurate resource assessments using Geographical Information Systems (GIS) to understand which rooftops are best suited for RTPV systems. Researchers at Bengaluru’s Center for Study of Science, Technology and Policy (CSTEP) are in the process of conducting such studies for India. They suggest that an aggregator system can be implemented for consumers with ideal rooftops who cannot afford the initial investments. Under this scheme consumers can either buy electricity or avail long-term low interest loans from the aggregator. The aggregator can take advantage of the enforced RPOs and sell accrued Renewable Energy Certificates (RECs) to ensure profitability.

Off-grid Plants

Major restructuring is required in the off-grid sector. These projects should be linked with value added services such as rural industries, cold storage units and pumping irrigation water. Streamlining the subsidy disbursal mechanism via one ministry and providing incentives such as tax holidays and minimum return guarantees can encourage private investment. To ensure long-term sustainability, rural entrepreneurs and public-private partnerships can be encouraged. Local communities should be trained in system O&M. If these challenges in the three sectors are addressed in a structured and phased manner, then India’s ambitious solar target of 100 GW for 2021-22 is achievable and certainly desirable.

Conclusion

To meet these goals India will need to increase its pace of renewable energy capacity addition seven times, from an average 3GW/year to 20+GW/year. Since 2007, the country has averaged only 15GW of new power capacity each year from all technologies. We believe these targets are very difficult to achieve in the given timeframe and will need serious overhaul of the power infrastructure as well as new incentives to drive investment.