Month: June 2014

There is a notable change of atmosphere in India since the elections. Suddenly, business conversations are full of optimism again. There is talk of growth and investment, of a golden future. This is in sharp contrast to the debilitating gloominess that had settled over the country in the final years of the last administration. The great Indian pendulum is swinging back.

India is experiencing an emotional turnaround

This is still based on expectations and announcements, not yet on facts

It will take some time for international opinion to change

As India is again entering into a phase of optimism, let’s look back. Remember the heydays of 2005 to 2010? India was booming, I mean BOOMING. The questions and answers centered around the word “when”, not “whether”. When will India become the world’s biggest economy? When will it be global superpower? India’s IT prowess, the demographic dividend, its world class, internationalizing companies were hailed everywhere. Every international company had to have an “India strategy”. This is how the American author Fareed Zakaria experienced the India hype at Davos in 2006:

“As you got off the plane in Zurich, you saw large billboards extolling ‘Incredible India!’ The town of Davos itself was plastered with signs. ‘World’s Fastest Growing Free Market Democracy’, proclaimed the local busses…. When you entered the meeting rooms, you were likely to an Indian voice, one of dozens of CEOs of world-class Indian companies in attendance… The impeccably dressed chairman of the forum, Klaus Schwab, donned a colorful Indian turban and shawl, nibbled on chicken tikka, and talked up the country’s prospects with Michael Dell. ‘India Everywhere’ said the logo. And it was.”[1]

India seemed to be on an unstoppable path to glory. Then, in 2011-13, it just imploded. Growth slowed from almost 10% to just over 4%. The demographic dividend became a demographic challenge. Stories of corruption and graft took over. First, international companies stopped investing in India. Then Indian companies stopped, too. The mood reached a nadir in early 2014. Now, however, following the elections, the pendulum is swinging back again. This is very good news. But how far does the optimism spread, is it on strong foundations and whom does it reach?

India’s fundamentals have not changed. The challenges and benefits of a large, complex democracy remain. The demographic development is predictable and will make India the world’s most populous country by the late 2020s. The population is young and thirsts for prosperity. If even a moderate measure of prosperity is achieved, it will change not only India, but the world. India can only stop itself. And sometimes, it does.

What has changed is the perception of where India is and can be (the “soft factor”). I see an emotional turnaround in the Indian business community. This is driven by the election victory of Modi’s BJP: by the fact that he is pro market and by the fact that he has an exceptionally strong mandate to effect much needed reforms. The mood is surpassing ground realities, which still have not changed much. Most researchers predict growth to still be much slower than in the heydays at around 6% for the next two years. It is also noticeable that the international community is still less bullish than the Indian one.

In my view, the exuberance of the years described by Zakaria was as exaggerated as was the later gloominess. The current sense of optimism is still well dosed, it is tangible and liberating and it helps the country tackle challenges without falling for the illusion that there are none.

[1] Fareed Zakaria: “The Post-American World”, pp. 130-1

Tobias Engelmeier is the Director and Founder at BRIDGE TO INDIA. Twitter: @TEngelmeier

Indians still only emit less than 40% of the Chinese on a per capita basis and hundreds of millions don’t have access to grid electricity. So the case against emissions targets remains strong, but India needs to avoid being isolated and portrayed as the villain who prevents global consensus and progress. For my previous analysis of the changing international landscape, read part 1.

India is not yet as path dependent as developed economies or China. That is an opportunity

Climate change action can be win-win, e.g. if resources are used more efficiently or if energy security is enhanced

There is intense climate inequality within India: the poor will suffer from climate change, while the urban middle-class leads highly inefficient, carbon intense lifestyles

Photo Credit: Pete Souza

India can avoid China’s mistakes

India needs to industrialize on a large scale to provide opportunities for employment and advancement to its hundreds of millions of young. In order to industrialize, India will require vast amounts of energy, and a large part of this energy will come from fossil fuels. Thus India’s absolute carbon emissions will necessarily rise, in the same way that China’s have done (and continue to do). However, it would be wrong to model India’s future on China’s past. China’s industrialization sped up in the 1990s and experienced its growth hump at around 2007.

India’s hump could be in around 2030. Thus, India would industrialize in an entirely different technological era. Renewables have become much, much cheaper and fossil fuels more expensive. Cars, factories or household appliances have become much more efficient. A lot of progress has been made in managing smart grids and changing consumer behavior and products. In short: the toolkit for sustainable economic development has become very impressive. India should use it to leapfrog. It might thus avoid the enormous, highly disruptive and costly environmental pollution that China experiences.

Carbon emissions are not a zero-sum game

Climate action can promote, rather than prevent prosperity. For one, it costs less than we think. The recent Intergovernmental Panel on Climate Change report has shown that virtually decarbonizing the entire global economy by the end of the century costs a mere 0.06 per cent of global GDP a year (refer), which, as Paul Krugman has noted, is a “rounding error” (refer). More importantly, certain measures will generate significant net economic value. The US Environmental Protection Agency has estimated that the US plan to cut power emissions by 30% could produce net benefits to the US economy of up to $80 billion. A stronger cut would have produced more economic benefits, not less (refer). Most climate actions require initial, up-front investment capital, but many of them have a short payback period. A look at the McKinsey global carbon abatement curve helps (refer, see below): all the measures on the left side have a positive net economic effect. LED lighting and energy efficiency measures are low-hanging fruits. India’s PAT scheme for efficiency in industries is already a significant step in that direction.

Source: McKinsey

Inequalities within India

While it is understandable that India defends the right to emit as a country against other countries, given its very low per capita emissions, this argument has an important caveat: it does account for the vast inequalities within. India has a very heterogeneous economy and society. The hundred million-odd middle class, for example, leads extremely carbon intensive lifestyles, centered around cars (usually stuck in traffic), heavy cooling of inefficient buildings (often with fuming diesel gen-sets) and meat-heavy diets. At the same time, hundreds of millions of villagers’ contribution to climate change is limited to the methane produced by a handful of livestock and burning some kerosene, dung or firewood. While the wasteful-urban middle class reaches emissions levels at par with or greater than those in developed economies, it is the rural poor who suffer most from the effects of a changing climate.

 Accept emissions caps and turn the tables

India should, therefore, not be afraid to accept binding targets on carbon intensity of GDP. The country needs to improve this parameter in any case as energy is simply too expensive and difficult to procure. If the right measures are chosen, India would benefit economically. It could be a counterbalance to wasteful and shortsighted populist demands of everyday democratic politics and help set India on a more efficient and intelligent development path. In addition, it would give India more leverage to force other countries to accept truly painful carbon cuts (the right side of the abatement curve), because limiting global climate change is a matter of survival for millions of Indians. It is time to leave behind the high principles of carbon justice and focus on pragmatic win-win options. This could be part of a larger strategic shift in Indian foreign policy, away from ideals and towards crafting workable strategies that serve India’s interest.

Tobias Engelmeier is the Director and Founder at BRIDGE TO INDIA. Twitter: @TEngelmeier

The IEA estimates that one in five people or 1.3 billion around the world lack access to electricity. There are two ways of changing that: expanding the grid around a classical centralized power generation system or creating distributed solutions around either appliances (e.g. solar lanterns), homes systems (typically also solar) or mini-grids (from different fuel sources, including e.g. solar, biomass, wind, storage and diesel gen-sets). While China has shown how to successfully expand the grid, in India, South-East Asia and Africa, distributed models might be more successful, as a very interesting new report by the Sierra Club on “Clean Energy Services for All” shows. The report can be downloaded here.

Tomorrow will be different than today, because progress in distributed and renewable power generation has been much faster than in centralized power generation and grid infrastructure

Providing energy access to all is much more affordable, if efficiency gains are considered

We are seeing more and more proven, scalable, investable business models

Governments in developing countries have promised grid extensions for decades. Many of them have failed to deliver. And even when a grid reaches a village, it often does not reach each household and often fails to provide electricity. In the past, people simply had to wait in the dark. This is changing now. While grid and centralized power generation technology evolves at the gradual pace of a mature market, there is a rapid development in distributed power supply options. This is driven by the fast reduction in the cost of renewables (mainly solar), by the mobile phone revolution (offering functionalities around payments, monitoring or controls), and by the Chinese manufacturing scale (for applications, modules or batteries). Add to that the sheer need for power, entrepreneurship and a large body of “impact money” and we see a fundamental shift: new, distributed energy access models.

Off-grid energy demand is, of course, a moving target. There is a basic demand for e.g. lighting, mobile phone charging, fans, TVs, irrigation pumps, food storage and processing. This could be fully or partially met by smaller systems ranging from solar lights to solar home systems. However, as people climb the energy ladder, their demands will naturally increase: they might want ACs, mobility solutions or refrigerators. Household electricity demand will grow from around 50 kWh per year (for simple lighting) to almost 2,500 kWh per year (see the model by Sierra Club below). Mini-grids are more suitable to provide these quantities. At a later point, perhaps, the central grid will also be extended to reach such mini-grid areas, in which case the distributed generation will help to stabilize the grid. In the end, there might well be a highly asymmetric energy landscape, where household systems, bottom-up utilities and traditional utilities will interact.

Source: Sierra Club – Clean Energy Services for All

The IEA estimated in 2011 that providing energy access to all would cost $640 bn over the next 20 years.[1] This is 300-500% above the current investment trajectory and around 30% of all current development aid, of which 1-2% goes into energy access.[2] The Sierra Club has now presented an analysis with a much lower, more achievable figure of $200 bn. The game-changer is an assumption that energy efficiency technologies (such as LEDs), will make much less generation capacity necessary to provide the same amounts of energy-related solutions (e.g. light).

Today, the Sierra Club estimates the distributed energy access market at $200-250m. It will grow by 26% per year until in 2030, it will be a $12bn market. Solar lanterns will be a small chunk of that – while home systems and mini-grids make up the major part.

Source: Source: Sierra Club – Clean Energy Services for All

In order to kick-start the market, Sierra Club estimates that around $500m is needed – $400m of which is for the energy solutions providers. Over the past five years, the industry has prepared itself well for take off: there are hundreds of entrepreneurial companies offering different variations of technology use as well as ownership, payment and maintenance models. Bangladesh today, adds around 80,000 solar home systems every month with Grameen Shakti being a leader. In India, Gram Power, Mere Gaon Power and Selco are well known. A look at the Ashden website gives an inspirational selection.

[1] IEA: Energy for all (http://goo.gl/6lNVvO)

[2] Sierra Club: Clean energy services for all (http://goo.gl/0hiyBk)

Tobias Engelmeier is the Director and Founder at BRIDGE TO INDIA. Twitter: @TEngelmeier

In the past week, India (the world’s third largest emitter of carbon) has been bolted to attention by two announcements. First, president Barack Obama of the US (the world’s second largest emitter) vowed to reduce carbon pollution from power plants by 30% by 2030. The very next day, China (the world’s largest emitter), announced its willingness to set absolute carbon targets from 2016 onwards. For India, this is worrying. It wants to avoid strict targets. In the past, its interests were aligned with those of the US and China. Now India fears it might be left alone out in the rain (or whatever else a changing climate might bring) when it comes to the Paris round of negotiations next year. This is part 1 looking at the changing international landscape. Part 2 will look at India’s options.

The US and Chinese climate moves are pragmatic, not principled

India loses two key allies in resisting binding carbon emissions limits

India wants unlimited carbon room for itself (to grow out of poverty), but strict climate action from others (India is extremely vulnerable to climate change). It is unlikely that it will get both

How India views climate change negotiations

In climate negotiations, India’s stance has been clear: Firstly, India does not accept any binding, external (internationally agreed) emissions caps. This could imperil the more important goal of development and ending poverty though industrialization. Secondly, India has very little responsibility for global climate change. Its per capita emissions are tiny compared with those of the developed world or even China. If you add a historical share (looking at a “carbon budget”) the historical responsibility is clearly with Europe, Japan and North America.

These are good arguments, no doubt. The only problem is this: If the rest of the world does not accept India’s arguments of fair carbon budgets and fails to reduce emissions significantly, Indians will suffer disproportionately. At Copenhagen, India therefore offered a more pro-active negotiating stance, based on the premise that India will never emit more on a per capita basis than developed nations. India also made a voluntary pledge to reduce its carbon intensity of GDP by 20-25% (based on 2005 levels). However, in coalition with China (and, more tacitly, the US and Japan), it prevented a binding, global emissions deal.

India’s alignment with China, Japan and the US at Copenhagen could only be a temporary one (refer). The countries’ interests are fundamentally out of sync: Their position in the economic development cycle and need for carbon emissions are different. Their vulnerability to climate change is different and their ability to deal with the effects of climate change is different. Actually, I would argue that India had more to gain than to lose from a global climate pact: placing limits on everybody’s freedom to emit might be more important than keeping one’s own unlimited freedom to emit. India is just too vulnerable to climate change (see picture).

The US and China are selling themselves well

The US and China now seem to have changed their minds with respect to emissions. Their announcements, however, are not principled, but pragmatic. Partially, they just follow, rather than drive, developments on the ground. And partially, they aim at other benefits such as cost savings through efficiency, energy security or less local pollution that happen to align with lower carbon emissions and are hence conveniently re-minted in the diplomatic coin of “climate change action”.

Look at the US: instead of triggering climate action, the targets are barely stating the obvious. Driven by the shale gas findings and the subsequent coal-to-gas-shift, emissions have already fallen by 12% since 2005. Extrapolating this trend to 2030 yields much more than a 30% reduction in carbon emissions. (The question is: what happens, if the shale boom is smaller than expected?)

And now, look at China: He Jiankun, Chairman of China’s Advisory Committee on Climate Change, has said, “The government will use two ways to control CO2 (carbon dioxide) emissions in the next five-year plan, by intensity and an absolute cap.” China’s next five-year plan starts in 2016. China’s energy economy is built on coal. But that is changing. Air pollution and water scarcity make coal less attractive, while renewables are getting more cost competitive and are being deployed at a vast scale. The Chinese energy market is changing for political and economic reasons. Luckily, this change also means a lower emissions intensity of GDP. Hence, accepting targets will come at no cost to China or the US. But it gives them leverage on other countries in international negotiations.

India needs to act

Given that the US and China have broken rank and might now pile onto India to accept legally binding emissions targets, India’s newly elected government needs to think of a new strategy soon. On the 23rd of September, there is an international climate summit in New York, hosted by the UN. This is the first time that heads of government will meet again since Copenhagen in 2009. In early 2015, national voluntary guidelines are to be announced. These national plans will determine the global climate course. So the next months are crucial for the next 10 years or more.

Tobias Engelmeier is the Director and Founder at BRIDGE TO INDIA. Twitter: @TEngelmeier

The Indian stock market as a whole has been on a bull run ever since the new government has come into power. However, one group that has done exceptionally well is the solar cell manufacturers, whose valuations had been very low before. The stock price of the three independently listed cell manufacturers has risen sharply: Websol Energy Systems rose a staggering 168%, Moser Baer by 130% and Indosolar by 254% in the past three months.

The stock price boom has been triggered by favorable regulatory measures, recommendation of anti-dumping duties on import of solar cells and rise in exports to Europe

Indian manufacturers still remain far from recovering from the global oversupply from foreign manufacturers

What will drive successful solar manufacturing in India above all else, is a stable and strong, long-term demand for solar modules based on transparent and predictable regulations and a supportive financing environment

The stock price boom has been triggered by favourable regulatory measures and international market developments. The expanded domestic content requirement (DCR) under the National Solar Mission (NSM) gave the first positive impulse to the Indian cell manufacturers. Despite delays from developers in placing orders, it was clear that Indian cell manufacturing units could be up and running near capacity limits soon to meet the demand created by the NSM.

The second trigger is the recommendation for anti-dumping duties on import of solar cells and modules by the Ministry of Commerce. Actual imposition of such duties could be a booster for Indian cell manufacturers in the short term, if they can deliver sufficient quality cells for modules in the short term over and above the NSM domestic content tranche (which is doubtful). However, most other stakeholders in the industry, including the power consumers, the developers, EPC companies, BOS suppliers and even most of the domestic module manufacturers that do not have cell manufacturing capabilities would suffer and oppose the duties.

Finally, the Indian module manufacturers have been boosted by the rise in exports to Europe as a result of European protectionist measures against Chinese solar manufacturers. Last year, the European Union entered into an agreement with several Chinese companies (which together had over 60 per cent of the EU market) to commit them to a minimum selling price and maximum sales volume (refer). Indian suppliers have been able to fill in some of the gap left behind by the Chinese suppliers. This is especially beneficial for integrated cell and module manufacturers like Tata Power Solar and Indian module manufacturers who use cells from China to Taiwan. Overall, Indian solar companies’ exports to Europe have risen from $106m in FY 2012-13 to $270m in FY 2013-14 (making up around 80% of their exports) (refer).

However, from a longer-term perspective, Indian manufacturers are still far from recovering from the hard-hitting global oversupply conditions in 2012 and 2013 that led to a strong consolidation in the manufacturing sector. Their valuations on the stock market, even after this rally, are still just about 1/5th of their all-time highs. The Indian manufacturers face larger issues around their competitiveness, which none of these short term measures can resolve. These include a comparatively small scale of operations, high interest rates, limited vertical integration and a high cost of power.

What will drive successful solar manufacturing in India above all else, is a stable and strong, long-term demand for solar modules based on transparent and predictable regulations and a more supportive financing environment. As there are hopes that the new government might focus on that (rather than getting side-tracked by short-term measures), many Indian and international investors are talking about investing into solar manufacturing in India again, with the aim of going larger or deeper or integrating Indian manufacturing better into global operations.

Jasmeet Khurana is a consultant at BRIDGE TO INDIA.

This summer has been particularly harsh in North India – both in terms of record temperatures and lack of power. Delhi has seen power cuts ranging from one to five hours daily. During the peak summer season, this is close to living hell. It is therefore no surprise that people are protesting at the situation. The irony however is that the sun shines mercilessly and is largely untapped.

Delhi’s power shortage is not due to inadequate generation capacity. It is simply because power tariffs are so low that DISCOMs cannot afford to buy expensive peak power in the market

Power prices are intentionally being kept low to cater to vote bank politics. People do not realize that if they want quality power, they must pay for it

Delhi and its politicians must adopt a long-term view – which means higher prices in the short-term but a much healthier grid and lower energy costs in the long-term. Rooftop solar can play a vital role

It’s not as if there is a deficit in power generation capacity in the country. India has a total generation capacity of 245 GW and actual peak demand in the summer months does not exceed 150 GW. In the month of April 2014, the peak summer demand stood at 141 GW (Central Electricity Authority, Executive Summary Power Sector April 2014). Why are over 100 GW generation capacities lying idle? The answer is simple: The politics of power pricing and lack of coal supply. A lot has been talked about on India’s inability to meet coal demand, so I limit my discussion to the former – power pricing. Politicians influence the Electricity Regulatory Commissions (ERC) and artificially keep power prices subdued to cater to vote banks. In Delhi, the former Chief Minister Arvind Kejriwal did this during his now famous AK-49 government (it lasted 49 days). During his short tenure in office, Kejriwal slashed power prices without taking into account the consequences, namely that cheaper power means less power. It isn’t just Mr. Kejriwal. Governments across India lower tariffs, typically before elections, to raise them again after elections. Below market rate power prices means that DISCOMs cannot maintain the existing T&D and generation infrastructure and invest in new infrastructure. Nor do DISCOMs want to buy expensive short-term power to make up the deficit, if they can only sell it at a loss. They’d rather sit back and do nothing.

Politicians do not seem to understand that low power prices and 24×7 power supply simply cannot go hand in hand. Quality power has a price. The government cannot endlessly subsidize power. We need a change in mindset. If voters understand that politicians promising cheap power in effect promise them less power, this vicious cycle might be disrupted. Increasingly, it seems, they do. Any change must be systemic and long-term. Yes, in the short-term people will feel the pinch and prices will go up, but in the long-term, this will ensure that the DISCOMs can supply quality power. In the long term, power will get cheaper, if it is supplied through a functioning infrastructure rather than through ad hoc and back-up measures.

There is hope that the new government under Prime Minister Narendra Modi will go in the right direction. He has already demonstrated in the state of Gujarat that if people are given a choice between poor-quality cheap power and more expensive uninterrupted power, they will shift to the latter (see my earlier post here). The challenge for Mr. Modi would be to get the state governments on board – bear the short-term consequences and reap the long-term dividends. Whether long-term solutions will really prevail over election tactics and cheap promises will be demonstrated soon, when Delhi votes for a new government.

If power prices have to be raised, this represents a wonderful opportunity to introduce a significant amount of solar into Delhi’s energy mix. BRIDGE TO INDIA and GREENPEACE have already estimated Delhi’s rooftop potential as more than 2 GW (read the report here) (The current shortfall in Delhi is 400 MW). Solar would be immune to storms (like the one we saw on 30th May 2014) that might destroy crucial transmission lines bringing power into the state. Also, the hotter and brighter the day, greater would be the solar power produced which would keep millions of ACs, coolers and fans running. Yes, rooftop solar power is expensive, but the gap between conventional power and solar power is fast closing. These systems last for 20-25 years with little maintenance and no exposure to fuel price volatility (unlike coal or gas). To give credit where it is due, Delhi has already announced a rooftop solar policy. But political uncertainty (both at the national and state level) has meant that the policy hasn’t gone ahead. This must be fixed immediately so that next summer the sun can be welcomed, not cursed.

Akhilesh Magal is Senior Manager- Consulting at BRIDGE TO INDIA.

Solar photovoltaic installations in India have crossed 2.5 GW in May 2014. Government incentives have been the main driver in the past and are still the main determinant of the market. In future, parity – driven projects will take hold. For an overview, download our latest India Solar Handbook [download here].

The first phase of the National Solar Mission (NSM) and the Gujarat solar policy were the main drivers

Most projects under batch one of phase two in the NSM will be installed in Rajasthan and Madhya Pradesh

Rajasthan could overtake current leader, Gujarat in terms of total installed capacity within the year 2015

As of May 2014, India had an installed capacity of over 2.5 GW.[1] 70% of it is found in the deserts of the western states of Gujarat and Rajasthan and almost all of it is incentive-driven, utility-scale and grid connected. With around 900 MW installations, Gujarat claims a lion’s share with over 36% of total installed capacity of India. It is a healthy distance ahead of Rajasthan, the second-best state. However, with most new projects under the NSM planned in Rajasthan, Rajasthan will likely overtake Gujarat in terms of total installed capacity within the year 2015. Madhya Pradesh will bridge the distance with Gujarat in terms of installed capacity by end of year 2015. A significant number of projects are planned under NSM in Madhya Pradesh. Additionally, the state has recently allocated 100 MW projects under round two of state policy.

Apart from Gujarat and Rajasthan, only Madhya Pradesh, Maharashtra and Andhra Pradesh have crossed the 100 MW mark. Several other states such as Punjab, Andhra Pradesh, Uttar Pradesh and Karnataka could join the 100 MW club soon, based on PPAs already signed. However, the commissioning of new projects is under threat from the proposed imposition of anti-dumping duties.

[1] BRIDGE TO INDIA project database; BRIDGE TO INDIA data is bottom up, based on individual commissioned project

Mudit Jain is a consultant at BRIDGE TO INDIA.

In a recent statement, Ministry of New and Renewable Energy (MNRE), has said that it proposes to allow tax incentives for households who wish to set up rooftop solar plants and the proposal is to be discussed with the Ministry of Finance (refer).

As of now, individuals and or households do not get any tax benefits for going solar

The proposed tax incentive is expected to promote distributed solar generation

Like the accelerated depreciation benefit the proposed income tax incentive is not output-related and is based only on the investment made

Currently, accelerated depreciation benefit (80% in the first year) is available only to companies. It allows them to reduce their taxable profit in a given year if they invest in a solar plant and hold it on their balance sheet. As of now, individuals or households do not get any such benefit (refer to BRIDGE TO INDIA’s blog on how this is hurting the solar sector).

The new proposal is encouraging. The shape and form of the proposed tax incentive is not known, but broadly, it is expected to promote distributed solar generation for households and small commercial and industrial establishments by allowing individuals to offset their investment in solar rooftop plants against their taxable income. The idea is much more preferable to MNRE capital subsidies (30% subsidy provided by MNRE in principle to rooftop projects less than 100 kW) because subsidy disbursement process is marred by funding delays and bureaucratic procedures. However, the idea of tax incentives has room for improvement and needs to be thought through in more detail.

Like the accelerated depreciation benefit, the proposed income tax incentive is not output-related and is based only on the investment made i.e., it does not encourage quality in solar installations. Such tax incentives tend to incentivise short term decisions rather than the longer term investment approach befitting a long-lasting renewable energy installation. The Indian wind sector has grappled with this challenge. The second is that such tax benefits depend on the investor’s ability to absorb tax benefits and are not available to all investors thereby distorting the market. Why not decouple the tax benefit from the investment in the same way that, say a carbon credit or a renewable energy certificate can be traded independently of the power output? That would attract professional, financial investors who want to develop solar projects in special purpose vehicles which cannot utilise income tax or accelerated depreciation incentives. They are expected to be better at developing, financing and operating solar power plants because of their ability to bundle projects and their greater focus on quality and experience. This would drive down the cost of solar and create a level playing field.

Jasmeet Khurana is a consultant at BRIDGE TO INDIA.

The Indian solar market has taken a significant leap in 2012, but the market has slowed down in 2013. This article lists measures that could rekindle fast growth in the Indian solar industry. For an overview, download our latest India Solar Handbook [download here].

Growth in the Indian solar sector has slowed down in 2013

The main reason for the slowdown is uncertainties and delays around policies. The new government wants to now push the solar market

Conducive regulatory mechanism for decentralized generation, stricter Renewable Purchase Obligation (RPO) enforcement, re-adjustment of the Renewable Energy Certificate (REC) mechanism, easier access to finance and non-imposition of anti-dumping duties (ADD) are key steps for accelerated market growth

Annual solar capacity additions in India (2011 to 2013; MW)[1]

The Indian solar market has ignited the imagination of the industry. There is vast energy demand, sufficient space, over 300 days of sunshine and one of the highest irradiation levels in the world. New capacity addition has taken a huge leap in 2012 with 420% growth. However, the market has witnessed a slump of 7% in 2013. With uncertainties surrounding RPO, REC and ADD, a further slowdown is possible. On the other hand, the new Bharatiya Janata Party (BJP) government under Narendra Modi has signaled that solar is high on its agenda. The following steps could accelerate growth.

Conducive regulatory mechanism for decentralized generation

Various grid related charges for small solar plants, that do not use the medium grid, should be reduced. Reduction in open access charges, cross-subsidy surcharge, transmission charges, transmission losses, wheeling charges and wheeling losses will encourage small entrepreneurs to set up micro grids. This will enable energy access for people based in areas not connected to the grid or with an unreliable grid.

Stricter RPO enforcement

States have to put in place a stringent penalty structure for not meeting RPO targets, wherein the penalty is higher than the forbearance price of solar RECs. Additionally, incentives can be provided directly to obligated entities to help them meet their RPOs (as practiced in the UK or Australia).

Re-adjustment of the REC mechanism

The primary reason for the slump in REC-based projects is the lack of RPO enforcement and the uncertainty surrounding the price of the RECs beyond 2017. Various proposals have been floated for reviving the mechanism. They include letting the price range freely or creating “vintage” RECs to account for the fact that the falling cost of renewables are under consideration.

Provision of better performance data

Arranging low cost financing is a challenge for solar projects due to a lack of detailed performance information. Though the situation is improving, a validation from a reputed source will increase the chances of obtaining non-recourse infrastructure finance or easy consumer finance options.

Non-imposition of ADD recommendation

The antidumping duties proposed by the Ministry of Commerce must not be imposed on the nascent Indian market. If imposed, they will increase the solar module prices to levels of 2011. Several projects for which PPAs have been signed will become unviable. For sustained growth of the market, the levelized cost of solar energy must be reduced, not increased.

[1] BRIDGE TO INDIA project database

Mudit Jain is a consultant at BRIDGE TO INDIA.

The heavy reliance on diesel has made the telecom segment a front-runner among diesel parity driven solar markets in India. Installation of solar on telecom towers is rapidly increasing. For an overview, download our latest India Solar Handbook [download here].

Consumption of diesel in telecom towers is over 3 billion liters annually

The Department of Telecom (DoT) has mandated the usage of renewable energy in 50% of the telecom towers in the rural areas and 20% in urban areas by 2015

Solar installation on telecom towers has reached 30 MW with average project size of 5-6 kW

Telecom towers are second only to Indian railways in terms of diesel consumption in India. Currently, 40% of installed towers are situated in regions with less than 12 hours of grid supply on average.[1] Annual consumption of diesel in telecom towers is over 3 billion liters.[2] The DoT has set renewable energy technology targets for telecom towers. Operators are obligated to switch 50% of the telecom sites in the rural areas and 20% of telecom sites in urban areas to a renewable technology by 2015.

Power and fuel costs account for 30-40% of the operator network cost.[3] With pilferage, the cost is even higher. Enforcement of the regulation will lead to a reduction of 540 million liters of diesel consumption annually.[4] At current diesel prices of INR 56/liter, this regulation will theoretically result in annual saving of over INR 8 billion at current levels.[5] Upfront cost, maintenance challenges, security of installations and the high requirements for reliability of power have been the key constraints, hampering the growth of this segment.

Solar is the most fitting renewable energy technology for telecom towers. Cumulative solar installation on telecom towers was 30 MW by 2013. Over 5,000 telecom towers have installed solar systems with an average project size of 5-6 kW.[6] Cumulative installed capacity is expected to grow at a CAGR of 78% till 2016. The addressable market is also rising fast: India is expected to have one million telecom towers by 2017. The diesel prices are set to rise further as the new government has already voiced its concern over the current subsidy scheme and import bills.

Projected cumulative solar projects in telecom sector (MW)[7]

[1] Tata Strategic Management Group, Green Telecom Towers – An Attractive Option for a Sustainable Tomorrow; bit.ly/1jkYrIR

[2] Greenpeace: Enabling Clean Talking; bit.ly/1lSXTps

[3] ATKearney: The Rise of the Tower Business; bit.ly/PcvnX7

[4] Greenpeace: Enabling Clean Talking; bit.ly/1lSXTps

[5] A diesel generator typically generates 3-4 kWh/liter and usage of solar system will likely result in savings on INR 4-5/kWh.

[6] BRIDGE TO INDIA market analysis

[7] BRIDGE TO INDIA market analysis

Mudit Jain is a consultant at BRIDGE TO INDIA.

In an interesting paper called “India Unleashed”, Gregor Macdonald from Terrajoule.us looks at India’s energy options. He compares a “coal heavy” scenario and a “wind and solar heavy” scenario. India can still choose its trajectory and its choice will have repercussions in the global energy markets.

Terrajoule expects India’s energy demand to grow by 7.5% p.a. until 2025 to reach 1,428 Mtoe. This is a 2.5-fold increase from today

A wind and solar scenario would be “revolutionary” but “not outlandish”. Under this, India would produce 400 TWh from solar in 2025 and rely heavily on gas

The projections are similar to our own, however, we believe that neither coal nor gas will be available in sufficient quantities for India. A renewables-led energy system with storage and grid management needs to be created

India’s energy consumption is far below the global average. The country has 90% of China’s population, but consumes only 20% of the energy. In the last 10 years, energy demand grew by just under 6% p.a. In future, Terrajoule expects it to be higher at 7.5%. This would not imply a radical change in India’s economic pattern, but would rather be a step towards normalization, including some degree of industrialization. It would leave India with an annual energy requirement of 1,428 Mtoe in 2025; up from 565 Mtoe in 2012. India would then account for just over 8% of global energy consumption. With 17% of the global population, it would still be below par. The assumption is quite reasonable. Especially in light of the fact that India’s government will push for accelerated industrialization as the only way to provide sufficient jobs for the millions entering the workforce every year. In a blog post, we have shown that to reach the global average, India would require 2,176 Mtoe (refer).

However, such demand growth will be very challenging to match on the supply side. India is already suffering from undersupply of energy. While it has much (low quality) coal, there are very few conventional or non-conventional gas or oil reserves. It competes with an energy hungry China in global markets and has to work with less-than-friendly neighboring countries on pipeline projects to get access to international fossil fuel reserves.

In the likely scenario, according to Terrajoule, India will become the global driver for coal demand, almost single-handedly prolonging the Second Age of Coal. BP in their World Energy Outlook assumes a somewhat similar scenario, wherein coal does the heavy lifting even as solar grows rapidly (refer). This might look feasible at first: there is no shortage of coal in India or globally. Yet, a closer look reveals the challenges: India’s coal sector is in deep crisis. Coal India, a government monopoly on mining and delivering coal is unable to meet demand. Railway, port and grid infrastructures are insufficient. Rising import coal prices have made new projects unviable. Acquiring land and permits for new power plants is very difficult. All this has led to an underinvestment in coal plants and underutilization of existing plants in recent years.

Under the second scenario, Terrajoule assumes India will become a wind and solar powerhouse, accompanied by a large buildup of gas-fired balancing plants. In 2025, India would consume 15% of global wind and solar power (roughly equivalent to its population share, but about double its share of global energy consumption). In 2025, India would generate 400 TWh of solar power. This is four times the current global generation. However, it is not impossible. We have previously given an idea on how even 1,500 TWh could work (refer) and suggested a game changing shift to solar (refer).

The trouble with this scenario, according to Terrajoule, is the vast requirement for gas as gas-fired plants will have to provide the balancing loads. India imports a vast majority of its gas in the form of LPG. However, the port infrastructure as well as the national pipeline network is still very limited. Achieving this scenario would be “heroic”. To my mind, frankly, there is no alternative. Not achieving this revolutionary change in energy supply will likely condemn the country to continuing shortages in energy supply, slower growth and retarded development. Terrajoule is confident that the rate at which the cost of solar comes down actually accelerates, making solar a very competitive energy source much earlier than 2025. If this is the case, then all efforts should be spent on intelligent grid management, storage technologies and perhaps even reviving the Indian CSP story.

You can download the full report from the Terrajoule.us website for $ 6.99.

Tobias Engelmeier is the Director and Founder at BRIDGE TO INDIA.

India’s solar sector has been grossly underperforming vis-à-vis other countries as well as the potential for the energy source in the country. The wish list for the sector broadly comprises the following – strengthening of RPO mechanism, regulations to facilitate distributed generation, promotion of domestic manufacturing, rural electrification and availability of cheaper finance. It is very encouraging to note various positive signals coming out of the new government on all these fronts and some of the thematic messages coming out about future role of solar power in the country.

In the President’s address it was announced that the National Solar Mission will be expanded

Narendra Taneja stated that India will closely look at the ‘Chinese model’ when devising its renewable energy policy

The only dampener in the solar sector in India today is the possible imposition of the anti-dumping duties

Indeed, the new Prime Minister, Narendra Modi, speaking at an event on Sunday (8th June 2014) has highlighted the need to bring about a ‘saffron revolution’ focused on solar energy (refer). According to him, the focus needs to be on skill, scale and speed to revive India’s growth story. In the President’s address yesterday (9thJune 2014), that highlighted the new government’s roadmap, it was announced that the National Solar Mission will be expanded.

Last Friday (6th June 2014), the new Power Minister, Piyush Goyal, touched upon two key aspects – he said that the new government might amend and expand the scope of the Electricity Act to push for higher utilization of renewable energy by changing the scope of RPO obligations and also use relevant amendments to fast-track rural electrification projects using solar (refer). Over the past month, BJP’s energy convener, Narendra Taneja, has repeatedly been saying on various platforms that solar power can play a ‘transformational role’ in rural electrification efforts under the new government (refer). He recently also said that India will be looking closely at the ‘Chinese model’ when devising our renewable energy policy covering both equipment manufacturing and power generation (refer).

Solar is a capital intensive sector and the cost of finance has major impact on the project feasibility. In that context, the sector has been demanding access to cheaper and preferential finance. A favorable government move on this front can go a long way in improving competitiveness of the Indian solar industry in relation to conventional power as well as to foreign competition.

BRIDGE TO INDIA views all these comments as being extremely positive for the sector and we can already see a noticeable improvement in sector sentiment as compared to just a month ago.

The only dampener in the solar sector in India today is the possible imposition of anti-dumping duties. BRIDGE TO INDIA has consistently maintained that the new government needs to do away with these duties and instead provide a comprehensive, long-term plan to promote competitive domestic manufacturing. If anti-dumping duties are revoked and some of the positive sound bites get converted into actions, we can almost guarantee that ‘acche din aane waale hain’ (good days are about to come) for the solar sector in India.

Jasmeet Khurana is a consultant at BRIDGE TO INDIA.

Until now, the Indian solar market has been driven by incentive based utility scale projects. The contribution from the rooftop segment has been minimal. However, rising grid tariffs and frequent load shedding are now encouraging consumers to install solar in commercial, industrial and residential segments. For an overview, download our latest India Solar Handbook [download here].

Parity has reached first in commercial segment, where tariffs are highest

The industrial segment offers good prospects for larger projects

The residential segment has the largest overall potential, but parity will be reached later

The adoption rate for solar is increasing in all three rooftop segments (commercial, industrial and residential). We expect the cumulative installed capacity to be 0.5 GW by 2016, growing at 33% every year.

Projected cumulative rooftop solar capacity (MW)[1]

The commercial consumers such as malls, office spaces and retail outlets pay as much as INR 11/kWh in certain locations. These are the highest tariffs in India. Rising energy prices has been the main driver for adoption. Solar power is already cheaper than grid power for commercial consumers in Maharashtra, Delhi, Andhra Pradesh, Kerala, Tamil Nadu, Karnataka and Odisha. Electricity consumption in this segment was over 65 TWh in 2011-12[2].

The tariffs for industrial users are generally 10-15% lower than commercial tariffs and reach INR 8/kWh in certain locations. The industrial segment is likely to scale up later than the commercial segment. However, the high load requirement and larger available rooftop space in the industrial segment is conducive to solar projects. Additionally, the share of electricity consumption in this segment of 45% (352 TWh in 2011-12) is highest in the country[3]. Maharashtra, Odisha, Punjab and West Bengal are fairly close to parity.

Residential power consumers are usually charged less than industrial and commercial consumers. The highest tariffs are around INR 7/kWh. Overall, this segment has the highest consumer base in India. In terms of electricity consumption, this segment is second only to industrial segment. In 2011-12, the electricity consumption was over 171 TWh[4]. The main driver for adoption of solar is a desire in many parts of the country to become less dependent on unreliable grid power. Incentives such as net metering and capital subsidy will likely give the segment a boost. However the major acceleration will come only after grid parity is widely reached.

The Ministry of New and Renewable Energy (MNRE) offers a 30% subsidy on rooftop systems. However, the subsidy was in the past year not disbursed in a timely and reliable manner. A large pipeline of projects is still awaiting approval for subsidy. Thus, subsidies currently do not drive the market. In future, however, the scheme might get revived and promote accelerated growth of the rooftop segment.

[1] BRIDGE TO INDIA market analysis

[2] Central Electricity Authority: Growth of Electricity Sector in India from 1947-2013; bit.ly/1kkRmZn

[3] Central Electricity Authority: Growth of Electricity Sector in India from 1947-2013; bit.ly/1kkRmZn

[4] Central Electricity Authority: Growth of Electricity Sector in India from 1947-2013; bit.ly/1kkRmZn

Mudit Jain is a Consultant at BRIDGE TO INDIA.

Asia has registered unprecedented growth in 2013. China and Japan have become the largest solar markets in the world. With an over 200% increase in new solar installation in 2013, both China and Japan more than doubled their cumulative capacities. European countries such as Germany and Italy will likely lose their leading positions. For an overview, download our latest India Solar Handbook [download here].

Asia has toppled Europe as the leading solar market with over 56% of the total solar capacity added in 2013

China (11.3 GW) has added more capacities than the entire European market in 2013 (10.8 GW)

India has only grown by around 1 GW but remains the country with the highest long term potential for solar

Europe has dominated the solar energy for over a decade. Germany, Italy or Greece can already meet over 5% of their annual electricity demand from solar. Lucrative feed in tariffs (FiTs) have attracted much investment. However, most European countries continue to reduce FiTs and growth slows. The markets seem to have peaked for now. Asian countries, on the other hand, drive growth in the industry.

In total, 36.9 GW of solar capacity has been added in 2013. China was the biggest solar market with record new installations of 11.3 GW. It contributed 31% of the total capacity added in 2013 – more than all of Europe put together (with 10.8 GW or 29%). China surpassed Italy to become the second largest market in cumulative terms with 18.3 GW of installed capacity by 2013. Japan has been the second largest market after China and installed 6.9 GW in 2013.[1] Other Asian countries such as India, Korea and Thailand are growing.

1818

Figure 1: PV Markets growth in 2013[2]

Figure 2: Share of major PV markets for new solar installations in 2013[3]

The energy hungry Chinese solar market has been driven by a nation-wide FiT, subsidies at the provincial level and large-scale pilot projects under the “Golden Sun” program. The Chinese government has announced ambitious plans of adding 14 GW of solar installations in 2014.[4] Although, there are uncertainties surrounding the 8 GW rooftop solar projects due to implementation challenges, China will certainly achieve or possibly surpass their 6 GW utility scale project target.

After the Fukushima nuclear disaster in 2011, Japan has shifted focus towards the development of solar projects. To that end, the country has introduced one of the highest FiT in the world. As a result, the market has seen a surge. IHS expects that Japan will add 9 GW of solar installations in 2014.[5] Going by the forecast, Japan will likely become third largest market in cumulative terms by the end of 2014.

And waiting in the background are still larger market opportunities, especially in India, which has the largest potential for solar globally. In 2013 it only added 1 GW to come to a cumulative total of 2.5 GW. Growth will be comparatively slow as long as it is subsidy dependent. However, as solar reaches parity with diesel costs and grid tariffs, the market will experience rapid and sustained growth.

European markets, on the other hand, have registered significant slowdown in terms of solar installations in 2013. Additions were only 10.8 GW, a reduction of over 50% as compared to the 2011 level. The German government has set a targeted corridor of installations of 2.5 GW to 3.5 GW per year to reduce the subsidy burden. In future, the government plans to introduce self-consumption fees, FiT cuts and limits on new capacity expansion. This puts a firm lid on growth. The market in Italy came to an abrupt slowdown in 2013, when FiTs were discontinued. Spain, also, has retracted its support for solar by way of FiTs in 2012. Additionally, the European Union, in a move to counter cheap imports from China, has fixed the minimum net import price for modules at EUR 0.56/ Watt in 2013. This increased the cost for solar.

[1] IEA PVPS, Snapshot of Global PV (1992-2013; bit.ly/1fwoM3s

[2] IEA PVPS, Snapshot of Global PV (1992-2013), IEA PVPS, Snapshot of Global PV (1992-2013); bit.ly/1fwoM3s

[3] IEA PVPS, Snapshot of Global PV (1992-2013); bit.ly/1fwoM3s

Note : The contribution from Rest of World is very small to feature in the graph

[4] National Energy Board, China; bit.ly/1gJnFjZ

[5] IHS pressroom; bit.ly/1mQQcEf

Mudit Jain is a Consultant at BRIDGE TO INDIA.

The answer is yes. India is a very good market for solar. In fact, going by its vast population, high irradiation, the growing energy demand and power deficit, limited access to fossil fuels and the large number of un-electrified villages, it should be one of the best markets. However, it is also a difficult market. For an overview, download our latest India Solar Handbook (download here).

Look to the solar market beyond government policies

The IEA predicts India to be a largest solar market in the long term

But even today, there is growth and a professional eco-system

This is the bad news: Regulations and policies are often confusing, non-transparent or unreliable. Competition is fierce and sometimes irrational. Most customers are highly price sensitive – often at the expense of a minimum of quality. Financing solar plants is challenging, as banks are still reluctant to provide non-recourse or consumer loans. Legal risks around PPAs are difficult to manage in a country where court cases drag on for years. In addition, many international investors have been unsettled by the fluctuations of the Indian Rupee.

In 2010 and 2011, when the National Solar Mission was announced and the European markets dipped, India was viewed with great enthusiasm by the Indian and international solar community. This enthusiasm has waned over the following years, often leading to disappointment. Other markets, such
 as Japan, Chile, the US or China have taken the limelight. In the meantime, however, India has built its case: it has achieved a base of 2.5 GW of solar PV, evolved its policies and created a solar ecosystem of installers, manufacturers, developers, financiers and researchers. Yet, for a country of India’s size and promise, this can only be a first step.

And this is the good news: India is a “new” solar market. One, where the certainties of government support are exchanged for a fundamentally sound, but more complex commercial proposition. This new market place is in flux and not yet fully developed. There are still government incentives, such as capital subsidies or renewable purchase obligations. And they sway the market in their direction. At the same time, solar is beginning to play a role independently from them, by replacing expensive diesel or grid power. The task for all market participants is to focus on the end consumers and to develop business models that create value for them. This will unlock a vast long-term opportunity.

Projected year-on-year solar PV capacity additions in India, China and the US till 2035 (GW)[1]

We have made this point many times before: India is a strategic market. The question is: when will the bright solar future arrive in the present? Our view is that it might still take another two years or so, before we will see a hockey stick uptake in solar demand. Until then, there will still be steady growth of around 1 GW per year. The result of the elections that were just held, will certainly help. The new Prime Minster Narendra Modi has a very robust mandate and the political will to reform the Indian power sector, to bring more solar power to the people and make the country less dependent on fossil fuel imports. This is a good time to engage with the Indian market.

[1] IEA Energy Outlook; bit.ly/1g2oAch

Tobias Engelmeier is the Director and Founder at BRIDGE TO INDIA.

The global markets are gung-ho on solar PV. The US aims to bring the cost of distributed solar power down to USD 0.06/kWh (INR 3.5/kWh) in the next six years under its SunShot program (refer). China wants to increase its installed capacity to 70 GW in the next four years (refer). Most large module manufacturers are turning a corner and coming back into profitability.

India to be a key solar market in future

Currently, Indian lags behind due to policy uncertainty, regulatory confusion and lack of synergy between state programs and the national mission

Now, the proposed imposition of anti-dumping duties provides a crucial testing period for the sector

Expectations in India too have been high as the new government was sworn in last month (refer). No one disputes the fact that India is going to be a key solar market of the future. The International Energy Agency (IEA) even predicts that in terms of yearly installations, India will overtake the US by 2023 and China by 2029. However, as of today, India is underperforming. Policy uncertainty, regulatory confusion and lack of synergy between state programs and the national mission has led to dampening of enthusiasm. The international interest that had come to India around the time projects were being installed in Gujarat is fading. Several large equipment suppliers and even some Indian and international project developers are trying to diversify their focus away from India. Now, the proposed imposition of anti-dumping duties provides a crucial testing period for the sector (refer).

With firm opposition to the duties from the project developers as well as from MNRE, there is still hope for a turnaround in sentiment. The Indian market has always needed to be approached with grit and patience. This is true for all sectors, not just solar. The fundamentals for mass adoption of solar in India are still in place and becoming even more pronounced by the day. The current Prime Minister, Narendra Modi, and the new government have sent out several signals that solar is going to play a crucial role in India’s energy security. If Modi’s track record on solar in Gujarat is anything to go by, the government will soon take the market out of its current policy limbo.

Jasmeet Khurana is the Sr. Manager- Consulting at BRIDGE TO INDIA.