Can India shoot for the sun?

On October 1, India formalised its ambitious plans to increase its renewable energy capacity to 175 gigawatts (GW) by 2022, when it submitted the Intended Nationally Determined Contributions (INDCS) report to the secretariat of the United Nations Framework Convention on Climate Change (UNFCCC). The targets, which are 4.7 times the current capacity, have made the industry both excited and cautious.

Industry players say that they are ready for the targets, but the government has to provide the basic infrastructure to achieve them. Picture this—bids for almost all renewable projects in the recent past have been oversubscribed and the competition is also bringing down the generation cost. Bids for the first set of solar power projects announced by the National Democratic Alliance government in September were oversubscribed by 10 times. More than 30 developers’ submitted bids totaling 5.5 GW for the 500 MW worth of solar PV projects announced under the Jawaharlal Nehru National Solar Mission in Andhra Pradesh. Similarly, in the proposals received for solar projects in Madhya Pradesh and Telangana in July, developers bid as low as Rs 5.05 and Rs 5.17 per unit of power generated. The benchmark of the Central Electricity Regulatory Commission (CERC), the key regulator of India’s power sector, for 2015-16 is Rs 6.86 per unit.

Industry players warn that just higher participation might not be enough to fulfill the targets that are “the most ambitious the world has ever seen”. The current global capacity for solar energy is 177 GW—just 77 GW higher than India’s target for solar power generation. The country plans to achieve the target in just seven years. Germany, which has the most successful model for solar power projects, has installed only 38 GW of solar capacity so far. In order to achieve the targets, the Centre plans to install 17,500 MW each year between 2020 and 2022, which is 17.5 times higher than the maximum it has ever installed in a year (1,000 MW). China holds the distinction of adding the maximum capacity in a year, which is 12,000 MW.

“The plans seem to be high and ambitious, but can be achieved, if policies like buyback rate, power evacuation, speedy approvals and fiscal incentives are given by the Union and state governments,” says O Subrahmanyam, president, technical division of Axis Energy. The company has pledged to install 5.5 GW of solar and 7 GW of wind power in the country by 2020. Solar cells and modules manufacturers say that the government must create a conducive environment to achieve those requisite targets.

Challenges: The development of essential infrastructure such as transmission lines for evacuation of power has not grown uniformly across states to support the growing renewable energy capacity. There is also no clarity over the share of renewable energy in the national grid system. India has an installed electricity generation capacity of around 270 GW, as on June 30, 2015, and there are plans of expansion.

Impact: Developers say there have been instances where projects that were commissioned within six to eight months got delayed because of missing power evacuation architecture. Such delays normally mean revenue losses for the developers. The discoms say that the share of renewable energy in the national grid should be between 20 and 30 per cent of the total capacity and even this would require significant investments. “The estimated investment required for the development of green corridor transmission lines is around Rs 43,000 crore,” says Keshav Prasad, chief operating officer, IL&FS Energy Development Company.

Challenges: The country is currently dependent on ground-mounted solar projects and acquiring land for them will be a difficult task. Several projects in the past have struggled because of delay in the transfer of land ownership rights. For instance, Essel Group had trouble procuring land for the transmission lines to connect the 20 MW solar plant in Osmanabad, Maharashtra, in 2014. It took the company three months to put up five poles over a 500 metre stretch for the transmission lines. They faced similar issues in Punjab for procurement of the land for a project site.

The rooftop solar also has problems. First, rooftop solar policies are very new in India and the method is still expensive for average household. Secondly, discoms are not that amenable to the idea of setting up rooftop solar units on individual houses because it would mean loss of revenue from the residential sector. Then there is the cost involved in installing new meters. During a meeting organised by the World Wide Fund For Nature on rooftop solar development in June 2015, Sujay Saha, Tata Power Delhi Distribution Limited, said, “The meters have to be changed when rooftop solar systems are installed since existing meters are unidirectional. They can be used only to deliver power to homes. But when the system needs to export excess power back to the grid, the meter considers this flow of power as tampering.”

Impact: The delay in the availability and allocation of land to developers can derail the efforts. “More than 1,000 square kilometres of land is required for 100 GW projects. To acquire this land in a short time and then develop it is a challenge,” Ashish Khanna, chief executive and executive director of Tata Power Solar Systems told PV-Tech. Even the estimates of the Central Electricity Regulatory Commission suggest 2.2 ha of land is required for 1 MW of ground-mounted installation of solar PV, which would mean that 30,000 MW would require 66,000 ha of land.

 The government will also face stiff opposition in meeting the 40,000 MW-target it has set for rooftop solar projects. The target looks steep, especially when only 300 MW of the current solar power generation comes from rooftop projects.

Challenges: The sector faces trouble securing finance for these projects. Investment in the renewable power industry is considered a risk by banks and financial institutions and is attached with high-interest rates. “The main concern holding back domestic manufacturers (in the solar energy sector) in the country is that the price of solar panels being produced in India is much higher than the imported panels,” says K N Subramaniam, chief executive officer, Moser Baer Solar. The company has committed to installing 3 GW of renewable energy projects by 2020.

Impact: According to calculations by non-profit Centre for Science and Environment (CSE), investment of Rs 10.54 lakh crore will be required to achieve the 175 GW target. CSE says the cost will increase if the target is achieved through small-scale projects.

Such investment will only be possible if easy funds are available to manufacturers and developers at affordable interest rates. Speaking at 16th Regulators and Policymakers Retreat 2015 by industry body the Independent Power Producers Association of India in Goa, Pashupathy Gopalan of SunEdison said, “We have to ask the Reserve Bank of India to encourage companies like LIC India and the National Pension Scheme to introduce programmes that incentivise homeowners to invest in rooftop solar installation.” There are various international lending agencies that offer financial options for renewable energy installations, but they are usually come with conditions. Money from US banks comes with the condition of buying US-made solar panels which are costly and increases the overall cost of the project. Chinese companies have had a bad experience with Indian developers as bank guarantees and letter of credit were not honoured in the past. Hence, they are wary of giving any credit to Indian developers.

Challenges: State-run discoms have been financially struggling for a long time. In fact, the Union ministry of power in 2012 started a scheme to financially restructure the debt-ridden state discoms. However, the discoms of Rajasthan, Uttar Pradesh, Tamil Nadu, Haryana, Jharkhand, Bihar and Andhra Pradesh still ended up with a debt that grew by 23.3 per cent in 2014-15, compared to 2012-13. The seven discoms had a combined debt of Rs 2,75,400 crore in 2014-15.

Impact: Given the financial health of the discoms, default in payment to developers is seen as a critical risk by financial institutions. The Centre has said that the Electricity (Amendment) Bill, 2014, which was introduced on December 19, 2014, in the Lok Sabha by Piyush Goyal, Minister of State (IC) for Power, Coal and New & Renewable Energy, will improve the state of discoms. The primary focus of the bill is to sever the distribution network business from the electricity supply business. “What we are looking at is allowing competition at last mile delivery so that consumers have a choice of supplier of electricity… it will also help states serve the people better,” said Goyal in December 2014. The bill also talks of making electricity price market-dependent, a move that will bring in more competition and de-politicise the issue of pricing. The renewable energy sector in India has been largely driven by private sector investment and has flourished on imports. But now, India should have an indigenous industry that caters to the country’s demand.