India solar still faces multiple challenges, despite reaching 1 GW milestone

In the year to date, 830 MW of solar capacity has been installed in India. Of this, Gujarat accounts for 585 MW. However, while the state’s feed-in tariff program is by far the most lucrative in India, it is struggling to reach its goal of 968 MW – which were originally scheduled to be commissioned by December 31, 2011. After multiple extensions, the remaining 279 MW are expected to be installed by the end of this year.

The Jawaharlal Nehru National Solar Mission (JNNSM) is also finding it difficult to reach its own goal of 1 GW of installed capacity under Phase 1. The main reason for this is the photovoltaic and concentrated solar power (CSP) technology capacity targets, which have been divided equally.

Execution issues

The Ministry of New and Renewable Energy (MNRE), has reported that CSP project developers are now asking for a 6 to 12 month extension to complete their projects, citing non-availability of heat transfer fluid, due to limited suppliers with huge wait times. The extension is unlikely to happen, however.

According to Mercom’s conversations with the joint secretary of MNRE, "The issue is under consideration but an extension is unlikely as they were already given three years to complete the project." These CSP projects, worth a total of 500 MW, range from 10 to 100 MW in size. It remains to be seen just how long these projects will be delayed, or if they will be commissioned at all.

The challenges that CSP pose for India are numerous and, as such, India needs to avoid splitting projects 50:50 in the next phase, which would likely double the size of the market for photovoltaic projects.

Rajasthan, which has one of the best solar resources in India, has decided to postpone its 200 MW solar program, due to funding and execution issues. While payment delays have also been reported, MNRE has assured developers NTPC Vidyut Vyapar Nigam (NVVN) will make these payments and clear the back log as soon as possible.

High inflation

There are also external factors in India challenging its solar industry, namely high inflation and, consequently, high interest rates, slowdown in GDP growth, a severely depreciated rupee and relentless corruption scandals.

Low bids with high interest rates in the range of 13 to 15% make it challenging to borrow in India (most Indian banks look at these projects as risky) and successfully execute a quality project that can last 25 years.

Despite this, India is, and will be, a huge market for solar for a long time to come, if government realizes solar is a long-term strategic investment, and creates policy and financial instruments to help support the industry until it can self-sustain.

Conventional energy sources in India have never been able to deliver as the country continues to suffer from power deficits from shortages of coal – domestic shortages and expensive imports – and hydro generation, which remains dependent on monsoons that continue to weaken year after year.

Watch out for the October edition of pv magazine, which will feature the full article.

Edited by Becky Beetz.

About the author

Raj Prabhu is managing partner of Mercom Capital Group, llc, a clean energy communications and consulting firm with offices in the U.S. and India. Mercom consults with its clients on market entry, strategy, policy, due-diligence and joint-ventures. For more information, visit: http://www.mercomcapital.com. To get a copy of Mercom’s market intelligence reports, visit: http://mercomcapital.com/market_intelligence.php