1. Background

    The solar energy potential in India is vast because of its suitable geographic location near the Equator. The country receives almost 3,000 hours of sunshine yearly, which is equivalent to 5,000 trillion kWh of energy, making solar energy the best-suited energy source

    Steady economic growth over the past few years, increasing industrial development, and the growing population have created huge gaps in India's energy scenario. Solar Energy possesses a tremendous potential to bridge India’s energy demand and supply gap in the future
  2. Technology

    Sunlight can be converted into power directly by way of SPV Technology ( Solar Photovoltaic) or indirectly through CSP Technology (Concentrated Solar Power) used to produce electricity and for other heat-based applications
  3. Government Policies

    India has high solar insolation thus leading to a huge potential for solar power generation. The Government has initiated the Jawaharlal Nehru National Solar Mission (JNNSM) as well State Level policies to accelerate the growth of Solar Power in India
    1. Jawaharlal Nehru National Solar Mission (JNNSM): JNNSM is a major initiative of the Government of India with active participation from States to promote ecologically sustainable growth while addressing India’s energy security challenge

      The Mission is being implemented over three phases:
      Phase 1 – 2010 - 2013
      Phase 2 – 2013 – 2017
      Phase 3 – 2017 – 2022

      The Mission Targets include:
      1. 20 GW of grid connected solar power generation capacity by 2022
      2. 2 GW of off-grid solar applications by 2022
      3. 20 million square meters of solar thermal collector area
      4. Creation of favorable conditions for developing solar manufacturing capability in the country
      5. Supporting R&D and capacity building activities to achieve grid parity by 2022

      The following table illustrates the Phase wise progress attained till date under the said mission

       

      Phase I – Batch I

      Phase I – Batch II

      Phase II – Batch I

      Managed By

      NVVN

      NVVN

      SECI

      Capacity Allocation

      PV: 150 MW (PPA signed for 140 MW)
      CSP: 470 MW

      PV: 350 MW (PPA signed for 340 MW)
      CSP: Nil

      PV: 750 MW
      CSP: Nil

      Domestic Content Requirement (DCR)

      PV: For projects based on c-Si technology, the modules must have been manufactured in India
      CSP: 30% domestic content mandatory

      For Projects based on c-Si technology, the modules must have been manufactured in India

      Separate bids for 375 MW capacity under DCR category and remaining 375 MW under open category

      Policy Mechanism

      Preferential feed-in tariff

      Preferential feed-in tariff

      Funding support by the govt. (VGF) to make project viable at Rs 5.45/kWh tariff (Rs 4.75/kWh for projects claiming accelerated depreciation)

      Allocation Method

      Reverse bidding on benchmark tariff (per kWh):
      PV: Rs 17.91/kWh, CSP: Rs 15.31/kWh

      Reverse bidding on benchmark tariff (per kWh): Rs 15.39/kWh

      Bidding for viability gap funding demand. Maximum VGF: Rs 25 million/MW

      Commissioning time period

      PV: 12 months
      CSP: 28 months

      13 months

      13 months

      No of Bids submitted

      PV: 343, CSP: 55

      PV: 183

      PV: 122

      No of Bids selected

      PV: 30, CSP: 8

      PV: 26

      PV:47

      Range of winning bids

      PV: Rs 10.95/kWh - 12.76/kWh
      CSP: Rs 10.49/kWh - 12.24/kWh

      PV: Rs 7.49kWh - 9.44/kWh

      DCR: Rs 13.5 million/MW - Rs 24.56 million/MW. Open: Rs 1.7 million/MW - Rs 13.5 million/MW

      Projects Commissioned

      PV: 140 MW, CSP: 50 MW

      PV: 330 MW

      Yet to be commissioned

      Total investment for the projects

      PV: Rs 15.4 billion (Rs 110 million/MW), CSP: Rs 56.4 billion (Rs 120 million/MW)

      Rs 34 billion (Rs 100 million/MW)

       

    2. State Level Solar Policies: Other than the JNNSMvarious states across the country have announced their state solar policy and have invited bids to set up projects in the respective states

      The following table provides the brief specks of the various state level Solar Policies:

      Gujarat State Solar Policy

      1. Policy introduced in 2009
      2. Commissioning within 12 months from the date of signing PPA
      3. PPA for 25 years
      4. Land acquisition will be the responsibility of the developer

      Rajasthan State Solar Policy

      1. Policy introduced in 2014
      2. Aims to develop a capacity of 25000 MW
      3. Commissioning within 12 months from the date of signing PPA
      4. PPA for 25 years

      Madhya Pradesh State Solar Policy

      1. Policy introduced 2012
      2. PPA for 20 years
      3. PV project – Commissioning within 17 months from date of signing PPA
      4. Thermal Projects -  Commissioning within 24 months from date of signing PPA

      Andhra Pradesh State Solar Policy

      1. Policy introduced in 2012, will remain applicable till 2017
      2. PPA shall remain operational for a period of 25 years
      3. Land acquisition will be the responsibility of the developer
      4. Solar PV projects shall be eligible for incentives for a period of ten years from COD

      Tamil Nadu State Solar Policy

      1. Policy introduced in 2012, will remain applicable till 2017
      2. Target to setup 3000 MW solar capacities by 2015
      3. Commissioning within 8 months from date of signing PPA
      4. PPA for 20 years
      5. Land acquisition will be the responsibility of the developer
  4. Government Incentives

    Other than the above mentioned policies GoI has provides the following incentives to accelerate the Solar Capacity additions:
    1. Solar Generation Based Incentives: In January 2008, Government announced a Generation Based Incentive (GBI) Scheme for setting up of solar energy based demonstration projects. Under the Scheme GBI was provided to support small grid solar power projects connected to the distribution grid (below 33 KV) to the state utilities. Indian Renewable Energy Development Agency (IREDA) had selected 78 projects with a total capacity of about 98 MW for which the Ministry was to provide GBI of Rs. 12.41 per kWh to the State utilities when they directly purchase solar power from the project developers. The scheme was discontinued for a couple of years in between. The government has now decided to allot capacity under JNNSM Phase II Batch 1 specifically availing the benefit of GBI and is in the process of allotting projects for the same
    2. Renewable Energy Certificates (REC): Under Electricity Act (EA) 2003, the State Electricity Regulatory Commissions (SERC) set targets for distribution companies to purchase certain percentage of their total power requirement from renewable energy sources. This target is termed as Renewable Purchase Obligation (RPO). This target was increased to 5% of renewable energy for FY 2009-10 against level of around 3.5% under the National Action Plan for Climate Change (NAPCC) announced on June 30, 2008. However, RE sources are not evenly spread across different parts of the country. It is in this context that the concept of REC assumes significance. REC concept seeks to address the mismatch between availability of RE sources and the requirement of the obligated entities to meet their RPO. The REC framework seeks to create a national level market for generators to recover their cost. The trading of RECs started in March 2011 and as on 1st October 2013, 7,764,410 RECs have been issued and 4,044,046 RECs have been redeemed
  5. Industry Landscape

    The installed solar power capacity in India has shown a phenomenal growth from 22 MW in 2010 to 3700 MW in 2015. The following graph shows the growth in the Solar Power Capacity over the past years. The installed capacity is estimated to reach to 15,990 MW by 2018

    The state wise distribution of the total Installed Solar Capacity has been illustrated in the following table:

    State

    Installed Capacity

    Gujarat

    30%

    Rajasthan

    28%

    Madhya Pradesh

    12%

    Maharashtra

    10%

    Others

    20%

    Total

    100%

    *Others include major states like Andhra Pradesh, Odisha, Tamil Nadu & Karnataka

  6. Key Challenges

    The following section asses the various risks faced while implementation of the Solar Project

    1. Evacuation Infrastructure: States with high potential to generate power do not have adequate intra-state transmission systems toevacuate power. But the successful establishment of a green corridor by PowerGridCorporation of India is expected to provide long-term respite
    2. Technology Challenge: Solar PV is some years away from true cost competitiveness and from being able to compete on the same scale as other energy generation technologies thus feting low IRRs in the market. The government is supporting R&D activities by establishing research centers and funding such initiatives. The government has tied up with world-renowned universities to bring down the installation cost of solar power
    3. Land acquisition: Land acquisition policies differ from state to state, so has deterred some projects. Government has planned to prepare land bank for 20,000 MW of solar projects spread across 25 states in India thus solving the land acquisition problem to a larger extent
    4. Weak financial health of discoms: Weak financial profile of discoms such as in Rajasthan, Tamil Nadu and Madhya Pradeshhave resulted in delayed payments to the IPPs. The health of discoms is expected toimprove after the implementation of their financial restructuring plan
    5. Non Enforcement of RPO: Stricter enforcement of RPOs will provide a leg upto the renewable energy certificate market even as it improves solar powerdemand
    6. Difficulty in Financing: The Solar Power Industry is a high capital intensive industry thus having a lot of fund requirement. Additionally a lot of projects in India has witnessed delays in commissioning due to various reasons. Based on the same the financers have shown little appetite for the industry. To tackle the problem the Government has carved out a fund of Rs 20 bn called National Clean Energy fund used to finance renewable energy projects. SBI has also committedRs 750 bn in debt funding over the next five years to 15 GW of renewable energy projects
  7. Way forward

    Among the renewable energy sources, solar energy is one of the best sources and India has lot of potential for solar power generation. The country is looking to position itself as one of the world’s major solar power producers in the coming years. Consequently, there are large scale deployments of solar projects and products across the country. Additionally, the government is adopting significant measures towards the implementation of large-scale solar power projects. Through various incentive schemes, the government is trying to create demand and boost investments in the sector. The JNNSM program launched by the government has received huge response with about huge number of bids for the upcoming Solar Projects

    The Government in the current budget has approved to allocated 15GW of capacity under NSM Batch II by 2019. Of the 15GW capacity 3GW capacity shall be awarded in the first phase. NVVN shall buy power at fixed levelised tariff and will be bundled in 2:1 ratio while selling to distribution utilities

    Additionally PPA of 1.8 GW of Solar Power has recently been signed under various Solar Policies. The same is expected to get commissioned by 2017.

 

Dwaipayan Ghosh

Deputy Manager with the Business Development team at IL&FS Financial Service (IFIN), based at Mumbai




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Opinions expressed by the Contributors are their own and do not reflect any opinion of IL&FS Financial Services on the said subject

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