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Unique challenges on the subcontinent

20. March 2012 By:  Sourabh Sen, Astonfield Renewable Resources

Co-Chairman of Astonfield Renewable Resources, Sourabh Sen, looks inside the intriguing and extremely promising Indian market. He says solar development in India is a bit of a paradox. On one hand, it is like the "Wild West" of American folklore, where anything goes. On the other hand, the solar market in India is one of the most rigidly planned markets in the world, and developers must be on top of their game (and financial models) to turn a profit.

It is an understatement to say that solar power producers and developers in India face unique risks. The solar business is akin to advanced calculus—a daunting confluence of so many different factors that are all in motion. In the midst of global volatility in the panel manufacturing supply chain, and government incentive cutbacks virtually everywhere, India is committed to catch up to countries like Germany in terms of installed megawatts (MW) and China in terms of manufacturing capacity. Meanwhile, India still has 400 million people without electricity, a spotty electric grid, and more regulations than anyone would ever want to count. Yet no other place in the world is as exciting a place to build solar plants as India.

Land acquisition issues

There are approximately 19 permits, or "clearances", a solar developer must obtain to build a plant. There has been some effort made toward streamlining regulations to better harmonize with national solar goals. For example, in 2011, the Ministry of Environment and Forests cleared photovoltaic projects from having to obtain an environmental clearance.

In addition, there are some parallel public efforts underway to create a "single window clearance" for enterprises. Similar to efforts in other countries, the idea is to ease the bureaucratic burden on economic development by creating a quick one-stop-shop approach for clearances ranging from planning departments to public health boards to fire service boards.

Such an effort could strengthen the ability of solar companies to thrive in India if it incorporated a revision of the appropriateness of each clearance. The fire clearance is a good example of a hurdle that may be unnecessary for photovoltaic plants. It makes sense for projects that combust fossil fuels, but there is no such process in PV plants. Photovoltaic panels do not even require steam turbines. If India’s central and state governments can eliminate some of these steps, and combine others, it would increase India’s chances of meeting its ambitious solar goal of 22 gigawatt (GW) by 2022.

The central government did reach out to developers (Astonfield included) for input when formulating the initial National Solar Mission (JNNSM). And while we did not get everything we asked for, stakeholder input was a good idea and it is worth soliciting more as the JNNSM is revised. The same goes for all the state-level solar policies that have been or are close to being implemented.

Solar Mission evolution
Stakeholder input is – and will continue to be – vital to the future success of India’s solar policy. We must build on the Solar Mission’s strengths and mitigate its weaker points.  For example, the first batch of approved projects under the JNNSM could be no larger than five MW per developer. For the second batch, the size could be as large as 20 MW. These size restrictions hobble one of photovoltaic’s best advantages: its scalability. Especially given comparatively tight tariffs, developers must be able to employ economies of scale in order to bring best-of-class technology.

Public policy is not the only focal point for solar power producers, of course. Securing financing anywhere these days remains a challenge for solar, and practically every other industry. Only the highest caliber solar companies, with proven track records of completing projects, stand a chance at negotiating decent terms. The credit worthiness of solar companies affects not just their ability to secure financing, though. It affects their ability to attract the highest quality project partners. Bankable companies attract top-notch panel manufacturers as well as EPCs. This is especially critical in India, given the challenges of creating a robust local manufacturing industry—one of the key tenets to the JNNSM.

Government support for solar in India is based on the feed-in-tariff—the most successful model to date for putting megawatts on the grid. However, solar developers do not receive that incentive until kWh start pumping into the grid. Upfront capital is still a huge hurdle no matter where the financing comes from. Low cost capital would help solar development move much faster, because interest rates in India are still incredibly high—last year it was 13 to 15 percent. This has forced some companies to seek funding in U.S. dollar terms, where costs were around seven to nine percent last year. However, even this strategy is perilous. Within a year, the rupee lost 15 to 17 percent of its value compared to the US dollar, making dollar-backed loans more expensive for India-based projects.

Observers of Indian politics know that government-backed loans, like farm loans for example, have a notoriety all their own to live down. The Finance Ministry wrote off INR600 billion, (or roughly USD13.2 billion) in farm loans in 2008, and many now speculate that it has corrupted an industry into expecting another forgiveness ahead of the next election. Low-cost energy loans would be different, however. As long as the government implements some rigorous standards to weed out the fly-by-night renewable energy businesses that have cluttered the bidding rounds of the first phase of the JNNSM, multiple benefits of renewable energy loans could reach deep into the Indian economy.

Solar power is ramping up in India despite financial roadblocks, both global and domestic. While a lot of ink has been spilled on plants that are behind schedule, India has achieved remarkable things in a short period of time. Installed capacity has grown from 9 MW at the end of 2009 to an estimated one GW by the end of 2012. Through the steadfast diligence of quality solar companies as well as policy shapers dedicated to improving the regulatory framework in which those companies operate, no-one should be surprised to see India become the global leader in solar.

For the full version of Sen’s Indian market analysis, check out the forthcoming edition of pv magazine, out 3/4/2012.

Sourabh Sen is co-chairman and co-founder of Astonfield Renewable Resources, a leading multi-modality renewable energy company in South Asia, with a project portfolio of over 1,000MW and growing.