Mission Solar

India´s approach of focussing largely on utility-scale solar parks and aggressive pricing has attracted a lot of scepticism.

The renewable energy sector has shown tremendous growth over the last two years. With a meagre installed capacity of 23.7 MW in February 2013, the capacity increased to 36.4 GW by June 2015. This is largely attributed to the steady addition of the wind power capacity and the tremendous boost solar has got in recent times from the Indian government.

The government is promoting solar power in a big way. Of the renewable energy (RE) target of 176 GW by 2022, 100 GW has been allotted to solar. The target of generating 20 GW through solar power has been enhanced by five times to 100 GW by 2022. Hitherto, solar power has been mostly policy-driven through national and state missions.

Some policies that made significant contribution are mission programmes like Jawaharlal Nehru National Solar Mission, state RE policies, fiscal incentives like 80 per cent accelerated depreciation, generation-based incentives, excise and custom duty exemptions for most of the equipment and machinery, 10-year tax holiday and capital subsidy that the government provided both for grid-connected and off-grid projects, and most importantly, the feed-in tariff (FIT) mechanisms.

Besides this, amendments have been proposed to the Electricity Act, including open access reforms and enhanced RE purchase obligations (RPO). The solar parks policy removes two key execution bottlenecks – land and power evacuation. Dedicated transmission corridors have been set up; the Renewable Energy Certificate (REC) regime has been rationalised and low-cost financing support from bilateral and multilateral agencies has been made available.

According to a Bridge to India report, India is perhaps the most exciting solar market in the world, helped by rapidly improving commercial viability of solar PV technology, its huge need for power and of course, its social and environmental imperatives. The RE Invest event (held earlier in 2015) witnessed both state and private players committing to 275,000 MW of renewable capacity, around 75 per cent of which is solar. Ashish Agrawal, Head, Solar, Hero Future Energies, says, ¨Investment in manufacturing happens only if investors have long-term demand visibility. After the RE Invest event, a lot has happened on the project development front. Based on the increased demand, it is expected investment in manufacturing will follow the investments in projects.¨

Challenges
RE projects require long-term funding. Most of the projects in India are financed through project finance. There are various options for financing renewable energy projects. Indian banks, NBFCs, development institutes like International Finance Corporation (IFC) and Exim bank of some countries are also very active.

With the increase of installed capacity, the cost of installation has gone down. However, if compared with other sources of power, the cost of installation per MW of solar is still high. The sector is developing and still needs hand-holding by the government to grow.

To ensure the viability of the projects, when the solar FIT has reached grid parity, it is important to bring the capex further down.

Moreover, the existing infrastructure also needs to be able to cope up with the integration of such huge amounts of renewable energy. Setting up of large solar power projects of 1000 MW capacity, like the ones being set up in Rajasthan, Madhya Pradesh, Gujarat and Andhra Pradesh, are fraught with challenges related to evacuation. The management of the grid also becomes a problem due to seasonal variations as the wind and solar capacities fluctuate. In such situations, it is imperative that the infrastructure enhancements are made along with announcements of new policies and targets.

Huge amounts have been pledged, but apart from money, implementation issues are important too. Land acquisition and availability of trained manpower are going to be key challenges. Developers need to manage project execution, ensure quality of projects and timely delivery. The government has its work cut out. There is enough money available for players who can deliver on time and execute quality projects. Implementation track record and quality of projects executed in the first year will determine the subsequent rate of growth.

With many new policies introduced recently, the general feeling is one of hope and potential for Indian solar manufacturing. Truth be told, not much has happened. ¨There are limited investments taking place even though there are plans. The primary reason for this is that there are less expensive, low quality products coming into the country and being a very cost conscious society, this is the one thing that has a significant impact. It has hindered the local manufacturing industries from taking advantage of the potential that exists,¨ says Ashish Khanna, ED & CEO, Tata Power Solar.

Manufacturing industries need a pipeline to be convinced that they will have customers, say analysts. An entire industry can´t just walk away if there are no takers for their products. Unless there is a clear pipeline and guarantee for sale of products, it will hinder competition with imported goods and India will have to bear the tag of being compared with low quality products.

¨Quality and pricing are one factor, and it is not that the current players are not capable, but demand also has a big role to play. The Indian government should, thus, ensure and impose standards in these regards,¨ adds Khanna.

Ajay Prakash Shrivastava, President, Solar Energy Society of India concurs. ¨The main reason for slow pick up in domestic manufacturing is the continued large scale import of solar modules,¨ he says.

He believes that unless imports are restricted, domestic manufacturing will not speed up. Furthermore, while praising the government´s ambitious targets, he says, ¨the government should first have fixed domestic manufacturing targets instead of installation targets, as the current scenario has given the advantage to importers, resulting in outflow of valuable foreign exchange. Manufacturing targets would have benefited the country through increase in GDP and employment on a large scale.¨

Make in India
According to the Ministry of New and Renewable Energy (MNRE), solar PV module manufacturing capacity in India touched 2,000 MW (2 GW) in March 2013.

Anant Geete, Minister of Heavy Industries and Public Enterprises, Government of India, recently said that BHEL plans to set up a renewable manufacturing capacity in Bhandara, Maharashtra. ¨BHEL will diversify its presence in renewable manufacturing, for which we have already taken a major initiative by setting up a solar cell manufacturing unit in Bhandara, Maharashtra, with an investment of `2,700 crore,¨ he added.

The Cabinet has given an in-principle approval for this project, and a proposal for financial approval to the Finance Ministry. Geete is expecting a favourable response in the next two-three months.

¨The aim is to give competition to Chinese importers. Since the market has been captured by Chinese players, our ministry is pushing BHEL to produce these here in India and make the products available for Indian power companies,¨ he said. However, India lacks integrated manufacturing capacities starting right from the polysilicon and wafer to the cell and the module. What the country has right now is only the latter two and in very limited capacities. There is a need to look at large companies in the US or China, particularly, as they have vertically integrated companies (on GW scale), which helps them control the manufacturing quality as well as their costs.

The Chinese have fully integrated production lines all over the country that are highly subsidised, helping them on their way to success. Moreover, there are no large players or big corporate entities in the solar sector. In contrast, India is not backward integrated and is only manufacturing cell, wire can or doing parallel assemblies, leaving no margin for squeezing costs.

However, Hitesh Doshi, Chairman & Managing Director, Waaree Energies, is more upbeat. ¨I do not completely agree that we are not attracting investment although I would agree that the progress has been a bit slow,¨ he says.

While the target of 100 GW would need an investment of over $100 billion over the next eight years, the sector will only attract investors with a long-time horizon for India as an investment destination.

Among the recent announcements, sizeable investments have been committed by international investors. Softbank is considering investing $20 billion in India; Sun Edison has reported investment plans of $15 billion by 2022; and Rosneft is interested in investing for 10 GW of solar projects.

The good news is that the Indian government has shown determined support for solar energy, which will help translate these investment plans to action.

Adds Khanna, ¨I believe that solar solutions will be endorsed by even small individual consumers and it is critical that the government comes up with policies to ensure that they get only quality products. My belief is that it will be good for the country and all the manufacturing industry if rooftop solar and micro-grid solutions for consumers are completely ´Made in India´ products.¨

Reality check
India´s approach of focussing largely on utility scale solar parks and aggressive pricing has brought in a lot of scepticism. For the 25 solar parks that have been signed, the developers have been bidding at substantially lower tariffs. The lowest bid lies with Sun Edison for a 500 MW plant in Andhra Pradesh, whose power NTPC will buy for 25 years at Rs.4.63 per kWh. US-based Sky Power won a bid to sell power at Rs.5.05 in Madhya Pradesh.

Apparently, solar prices seem competitive, lower than coal-based thermal power (Rs.6 per kWh for new plants), even without subsidies. However, a majority of experts and developers opine that it is not sustainable as too much too soon could prematurely burn a rising sector.

The Modi Government´s ´Solar Mission´ is not only offsetting emissions from coal energy, but also addressing energy insecurity. Being dependent on imported coal, oil and gas, India´s energy bill is high. The country still suffers from a dearth of electricity and for sustainable economic growth, alternative sources of clean energy are needed.

The mammoth task of reaching 100 GW from a capacity of a mere 2,900 MW means adding 15 GW of capacity annually for seven years. Policies and infrastructure for transmission and distribution of solar energy are not robust enough. Twenty one of the twenty nine state power distribution companies are debt-ridden and incapable of purchasing power generated in their respective states. Apart from being inefficient, these are also a latent threat for developers.

Need for land to mount solar panels and building expensive, time-consuming infrastructure to connect to the grid are two prominent challenges gripping the solar sector. Bulk transmission of solar, which is an unstable power, requires a strong grid and high-voltage substations, both of which are expensive. Building these transmission lines is a time-consuming affair. The allotment of massive projects has thus preceded the setting up of the requisites.

Major challenges plaguing the Indian manufacturing sector

• Most of the manufacturers lack scale, huge investments and incentives given to counterparts.
• None have integrated ´manufacturing´ capacity and are only involved in import and assembly.
• The technology employed is way behind competitors.