Indian solar strategy on right path, but doubts over NSM's 20 GW targets

As the country enters a defining phase in its progression to the use of solar power with the Jawaharlal Nehru National Solar Mission (NSM), launched in 2010, there are still many issues that need to be addressed to take complete advantage of the situation.

The aim of the NSM is to install 20 GW of grid-connected solar power and two GW of off-grid solar power by 2022. An interim report produced by the Council on Energy, Environment and Water (CEEW) and the Natural Resources Defense Council (NRDC) has assessed the first few years of the project, and offers recommendations on how it can best move forward.

Grid parity

The objectives of the Mission are many: increasing deployed capacity; enforcing regulatory obligations for using renewable energy; creating a manufacturing hub in India; and promoting R&D for new solar technologies. And it has been relatively successful, thus far.

In late 2011, competitive bidding for the Mission’s second batch of projects under Phase 1 drove prices for grid-connected solar energy to as low as US$0.15 per kilowatt-hour, approaching grid parity with fossil fuel-powered electricity. Phase 1 also attracted large conglomerates and new players into the Indian solar market.

During the mission’s first phase, more than 500 bidders competed for 63 projects allocated during two reverse auctions. New solar energy investments in India increased to more than $2.5 billion in 2011. Phase 1 activities have focused largely on achieving one GW of solar energy through an equal split between solar thermal and photovoltaic project technology.

Bid euphoria

"Bid euphoria," however, is wearing off, and serious doubts remain as to whether the Mission’s Phase 1 projects will achieve the 20 GW of installed solar capacity by 2022. "The sophistication of solar energy stakeholders is increasing," the report says. "However, a much greater degree of coordinated stakeholder action is needed to unleash the solar energy market’s potential."

As the Mission heads into Phase 2, certain questions loom large. How the ministries and government agencies, as well as stakeholders – including developers, financial intermediaries, manufacturers and communities – can be more effective in scaling solar energy to power one of the world’s fastest-growing economies.

Jamshyd N. Godrej, co-chairperson of the Council on Energy, Environment and Water, said that installed capacity and prices do not complete the picture. "There is a need to understand challenges in installing projects, so that developers are able to do so on time and feed electricity into the grid at committed capacities," he wrote in his foreword to the report. "Solar projects have to be financially viable to attract the levels of investment necessary to meet the Mission’s targets."

Solar technology

Phase 1 (2010 to 2013)

Phase 2 (2013 to 2017)

Phase 3 (2017 to 2022)

Grid-connected/rooftop

1,000 MW – 2,000 MW

4,000 MW – 10,000 MW

20,000 MW

Off-grid solar applications

200 MW

1,000 MW

2,000 MW

Solar hot water collectors

7 million sq. meters

15 million sq. meters

20 million sq. meters

Rural solar lanterns/lighting

N/A

N/A

20 million systems

National Solar Mission Targets 2010 to 2022. Source: Mission Document.

Financial issues

According to the report, the success of future projects in the program will be contingent on increased transparency, and cooperation between government bodies and financial institutions.

Solar energy is still a relatively a new sector and technology in India, and this has given rise to certain financial issues, which the report explores at length. High up-front costs result in a longer payback period. High domestic interest rates make overseas financing more attractive. Uncertainty about the payment ability of financially distressed Discoms also makes banks reluctant to lend to solar projects.

This is compounded by what the report calls a "lack of awareness and information to address perceived risks."

In 2011, investments in India’s renewable energy markets rose to approximately $10.3 billion, with more than one-third of the investments directed to solar projects. These investments are expected to double for Phase 2.

The banking sector, according to the report, needs to develop a cohesive approach to reduce risk perception in what is still considered a nascent market. The sector should have improved both the bankability of projects and financial sector engagement, if it is to operate under more advantageous circumstances.

Part of this is having significant lead time, such as policy amendments to address high interest rates, while awareness building and information-sharing activities would also improve the understanding of the industry among Indian financiers.

Another aspect of the program that the report mentions is creating an "enabling environment." Greater cooperation and understanding between National and State governments will allow for ease of land acquisition and other elements, which have so far not come as easy as the NSM would have hoped.

Growth opportunities

Through the program’s ongoing remote village electrification program, the NSM aims to provide solar lighting systems to 10,000 villages and hamlets through a 90 percent subsidy. Stand-alone rural solar power plants will also be established.

As of 2010, 40 percent of India’s population lacked grid-connected electricity. The NSM has been identified as a key contributor to developing accessible energy and remote rural villages have an opportunity to receive economical off-grid solar energy, where grid penetration is not feasible or cost-effective.

While Phase 1 has been primarily concerned with grid-connected projects, off-grid solar energy provides an even larger opportunity as the country moves into Phase 2.

Key policy priorities

The report also proposed three key policy priorities that would best help the progress of the Indian solar market. Firstly, a greater flow of information through benchmarks, transparency, and monitoring of the Mission’s progress would inspire "confidence and investment," says the report.

Strategic financing, through the optimization of the roles of financial institutions and a specification of their roles from providing funds for R&D and beyond would help in the further scaling of projects.

Finally, the report suggests legislation to make domestic manufacturing policies technology-neutral and market enabling through uniformity. The hope is that this would avoid being restrictive and remove the threat of international controversies on the domestic Indian market.

The country also sees an opportunity to develop an international trade in solar power of the back of improved domestic productivity. As structures and products improve, being able to sell these offshore becomes an attractive option.

With the population of India expected to reach 1.47 billion by 2030 and demand for energy increasing among the burgeoning Middle Class, taking care of the NSM becomes increasingly important. A need for coordination across the multifarious Indian political and financial landscape will signal greater success moving forward.