There has been a lot of optimism about the potential of the solar sector in India. In a recent forward-looking report, KPMG saw some massive opportunities – and a possibility that solar will achieve grid parity in India by 2018. The Indian government’s National Solar Mission does not match the wider ambitions of KPMG, but even the mission faces some major challenges.
Solar energy could provide an alternative power source for a farming sector that consumes close to 60GW of subsidized electricity. It could replace diesel powered irrigation pumps and telecom towers as well as lighting for remote villages. Solar power can save over 30% of India’s coal imports, according to KPMG, saving US $5.5 billion in coal imports per year from 2022 onwards, meeting more than 10% of India’s carbon emission reduction targets.
Rooftop solar installations in India could reach 19 GW by 2022 according to the KPMG team. That would exceed Germany’s performance, the far-and-away leader in solar rooftop installations, where 17 GW have been installed during its recent solar boom.
There is no shortage of demand. An extra 70 GW of power was planned between 2008 and 2012. It is likely that the final installed extra capacity will fall 30% short of that. Over 40% of Indian households do not have access to electricity. With the country in the midst of an economic boom, electricity demand is expected to double by 2020. There is also considerable public backing for solar. In a recent Gallup poll, 45% of the Indian respondents considered environmental protection as more important than economic growth.
KPMG projects that retail costs for conventional generation are likely to increase at 4-5% over the coming years, while solar power costs will continue to decline rapidly (as they have done in recent years). Conventional generation and solar could reach parity some time between 2017 and 2019. At the moment, conventional power retails between INR 5.00 and INR 5.50 per kWh, while solar power costs around INR 11.00 to INR 13 per kWh.
“Solar power can provide a clean, secure and distributed source of energy for our country as a whole. It needs to be supported earnestly in the interim period so that we can get its full benefits by the end of the decade,” says Santosh Kamath, Executive Director, KPMG.
The Indian government has supported the solar sector. They have provided tax breaks and tax incentives for renewable energy sector developers, as well as concessions on customs duties on parts and equipment. There are incentives to encourage foreign direct investment in the Indian renewable energy sector. There are also soft loans available to manufacturers and developers of commercial or near-commercial technologies.
In January 2010 India launched its first nationwide solar energy policy. The Jawaharlal Nehru National Solar Mission (NSM) provides for major investments in solar incentives and subsidies. The goal, to install 22,000 MW of PV and concentrated solar power generation by 2022, falls well short of what KPMG believes is possible. But, it will certainly be a giant leap forward when you consider that India had just 54 MW of PV and 30 MW of CSP in 2010.
The National Solar Mission will be developed in three phases. In Phase 1, up to 2013, the NSM will support the installation of 500 MW of utility scale PV, 500 MW of CSP, 100 MW of grid-connected PV in small rooftop installations, and 200 MW of offgrid PV (a total of 1,300 MW).
Phase 2 will run from 2013 to 2017 when a further 3,700 MW will be installed. And there is a further major scaling up in Phase 3, when 17,000 MW are targeted for installation. By encouraging domestic manufacture as well as installation, operation and maintenance, the Indian government hopes the sector will employ 100,000 people by the end of the mission.
To ensure rapid development during Phase 1, the Indian government is funding a 25-year feed-in tariff. According to a report by Rabobank, published in July this year: “The benchmark tariffs for Phase 1 are relatively high: around € 0.23 per kWh for PV and € 0.24 per kWh for CSP. In comparison PV tariffs for ground-mounted systems in France are only € 0.12 per kWh, while in Germany and Spain they are around € 0.18 per kWh. Given the higher average solar irradiance in India, the tariffs become even more attractive.”
The Phase 1 feed-in tariff aroused considerable interest. There were enough bids to build 12 times the proposed PV and 7 times the proposed CSP generation capacity, according to Rabobank. The Indian government was able to reduce considerably its investment in FiTs. Feed-in tariffs were awarded to competent solar developers offering the greatest discount following a blind auction. According to Rabobank, the successful bidders for PV offered discounts on the benchmark FiT rate ranging from 28% to 39% and for CSP from 20% to 30%.
To maximise returns, much of India’s new solar generation will be concentrated in a single state. Twenty one of the 30 successful PV bidders and 7 of the CSP winners are proposing to build their plants in Rajasthan where solar radiation is high and there is land readily available.
The fact that bidders have involved themselves up to 2013 does not guarantee that they will remain in the industry thereafter, says Professor VVN Kishore, of The Energy Resource Institute University in Delhi, a visiting Fellow at Harvard University and a consultant on renewable energy to the World Bank.
Many of the successful bidders only entered the auction reluctantly, he says. “They wanted to have a foot in this, but if something does not come out that is interesting to them, it will be dropped and that will be a disaster.
The expansion of solar may also be limited by the parlous state of India’s overstretched infrastructure. Most state utilities operate at a loss, dependent on state governments. “The power sector is not able to invest for growth and the cross-subsidies are a big problem,” says Kishore.
There is also a clear skills and knowledge gap. Professor Kishore sat on an evaluation panel for the Gujarat Solar Mission. While all bidders had to show they had the financial might to see the projects through, a number of them were more cashflow than energy-flow focused. “They weren’t technically oriented,” says Professor Kishore. The learning curve for players in this new industry may be steep and bumpy.
Kishore also runs an online distance-learning course in renewable energy technology. It has become clear to the Professor that the majority of his online students are already working in the solar sector. Companies are having to hire people without knowledge or experience, expecting them to learn on the job. Professor Kishore and colleagues offering similar technical courses can take a very limited number of students. As the solar sector scales up, that gap is likely to widen.
Home-grown solar research and development integrating with the new industry would improve its chances of success in a competitive world. But little is being spent on research and there have been no attempts to find synergies. “There is no integrated thinking,” says Professor Kishore. If competitive solar solutions are to be used in irrigation, for instance, a lot of development work needs to be done. Energy storage is another area where research could deliver considerable benefit.
The lessons learnt from solar developments in Germany, the US and Spain are also be kept from Indians behind walls of commercial secrecy. “There needs to be some platform where Indian researchers and companies are allowed to know what has been learned,” says Professor Kishore. “We have very little published information.”
When the challenges to the development of the solar sector are combined, it gives Professor Kishore grounds to doubt claims that in the medium term the PV sector can be economically viable without subsidies. “For them to be really viable, module prices need to come down to a few cents per kilowatt. Right now they are a few dollars per kilowatt.”
For Professor Kishore, the central Indian government tends to give too much attention to solar. Other, perhaps less sexy, renewable energy sources can deliver as much or more.