Month: September 2014

Following the U.N. climate week, India’s Prime Minister, Narendra Modi, is meeting US President Barack Obama on the 29th and 30th September 2014. According to reports (refer), one of the items on the agenda is to form a ‘working group’ that would plan the roll out of 100 GW of solar in India over the next ten years. Two key items on the agenda of this working group are likely to be: i) engagement with US institutions and companies to set up manufacturing capacities in India that will help meet India’s future demand domestically; and ii) financing India’s ambitious solar plans.

“Make in India” campaign, launched last week, can be a win-win for both the countries

Financing support from the US could lead to more rapid solar growth in India

An adequate policy framework in India can support solar and make it more price competitive on a large scale

 Encouraging US companies to set up solar manufacturing in India is in line with Modi’s “make in India” campaign, launched last week. This initiative can be a win-win for both the countries. India has recently declined to impose anti-dumping duties on the rationale that import restrictions at this point would hamper the ambitious solar plans of the government. At the same time, the Indian government has made clear that it wishes to see a strong domestic solar industry and is willing to support its growth through measures such as domestic content requirements. The US, in the past, has been one of the most vociferous critics of Indian domestic content requirements at the World Trade Organisation (WTO). Encouraging US companies to manufacture in India is a smart way to now align the interests of all parties.

 Of course, a predictable and strong Indian demand for solar has to be the cornerstone of any such agreement. Financing is one of the main hurdles to more rapid solar growth in India and, therefore, financing support from the US could be a key further piece of the puzzle. This could be backed by some sort of a sovereign guarantee from India. For India, it would lead to access to domestic manufacturing at scale and a transfer of technology – both much cherished goals for the new government. In addition, it could contribute to making Indian solar manufacturing cost competitive, so that solar growth can be achieved without paying a premium for domestic content.

 While this all looks good on paper, it is important to understand that, in the end, both governments can only provide a framework to convince private US solar companies that this is a profitable opportunity. Also, India should ensure that there is fair competition amongst potential international solar investors and partners. A US deal should be a blueprint for similar agreements with manufacturers from around the world. The end goal should be to have the best solar manufacturing in India – regardless of whether the company is owned by an Indian a Chinese or an American.

 However, there is a larger question hovering over all the grand statements. Announcing a solar target is easy, but investment into manufacturing as well as projects will only flow, if there is a credible answer to the question: “Who will buy the solar power and why?”. Clearly, India needs to add power capacity in the several 100s of GW in the next decades and solar is an attractive option.

The residential rooftop solar market in India has a huge potential customer base. The levelized cost of energy (LCOE) is currently in the range of INR 10/kWh to 13/kWh. This is still much higher than the (subsidized) tariffs paid by households. But the two figures are rapidly moving towards convergence. For further details, please refer to ‘India Solar Decision Brief’ titled- “India’s Solar Transformation: Beehives vs Elephants” (online downloadable version available here).

LCOE will likely decline at around 4% per year

In 2015 average LCOE will be INR 11.5/kWh; in 2024, it will be INR 8.3/kWh

By 2023 it will be cheaper to generate solar power on site than to generate and deliver power from new coal plants

The LCOE for residential rooftop solar systems is calculated after considering the capacity utilization factor (CUF), the capital cost and the cost of capital. Over time, it will decline as system costs will likely fall. For a landed cost of power (LCOP) calculation, technical losses of 2% are additionally considered.

Table 1: Factors considered for LCOE and LCOP calculation

Parameter

Small rooftop
CUF
17% in 2015 increasing to 17.5% by 2024
Additional grid infrastructure for net-metering
INR 5,000 per system
Capital cost
INR 100,000/kW
Annual decline in system costs
5% – 7%
Effect of net metering
2016 onward
Technical loses
2%
Maintenance cost
1.5%
Annual increase in maintenance cost
5.72%
Interest rate
11.5%
Loan tenure
10 years
Debt ratio
70%
IRR
12%
Grid availability
96%

The LCOE and LCOP has been calculated using BRIDGE TO INDIA’s financial model. For the year 2015, the LCOE is estimated at INR 11.5/kWh, which reduces to INR 8.3/kWh by 2024. LCOP declines from INR 11.7/kWh in 2015 to INR 8.4/kWh by 2024. Residential rooftop is expected to reach parity with imported coal by 2016. Given the strategic nature of the power market and the long-term path-dependency associated with choices such as building new coal-fired plants, it makes much sense for the government to already support distributed solar in its initial stages.

 Figure 1: LCOE and LCOP of residential rooftop solar

Is distributed solar a good investment case? India is a diverse country with varying geographical conditions. Additionally, different people have different expectations from their investments. In the sensitivity analysis, three cases have been envisaged – a median, conservative and an aggressive case. Based on these cases, the LCOEs vary for projects across India. We have considered a variation of CUF from 16% to 18% in 2015 going to 16.5% to 18.5% by 2024, interest rates range from 11% to 12% (no prediction of future rates) and return expectations from 10% to 14% (assumed stable over time). For the analysis in the report we have taken the median case as reference.

Figure 2: Sensitivity graph for LCOE

 Mudit Jain is a Consultant at BRIDGE TO INDIA

The current regulations for distributed solar PV generation in India are issued by the Central Electricity Authority (CEA). Currently, the regulations do not allow intentional islanding of inverters. Islanding is a mode of the inverter that allows it to operate independently of the grid. This is frequently used when the grid goes down and one requires the solar system to cater to the local loads. As of the now, the CEA mandates anti-islanding, which means that the inverter must automatically switch off, when the grid goes down.

Anti-islanding is an important safety feature, especially for the Indian grid, which experiences frequent down-times. This feature shuts off the inverter to prevent the solar system from energizing the grid.

Given India’s grid reliability, it would make sense for most owners of solar plants to run their systems as a back-up source of energy. Under current CEA regulations, this is not allowed

Intentional islanding allows the inverter to safely operate independent of the grid, during times of a blackout. This provides energy to consumers during a power cut and also ensures that safety is not compromised

 A recently concluded collaborative research project by BRIDGE TO INDIA, the National Center for Photovoltaic Research and Education (NCPRE) based in I.I.T. Bombay, Prayas Energy Group and the University of California, Berkeley has recommended that the intentional islanding feature be allowed under the current regulations (download the report here). The aim of this research project was to understand if the Indian grid is prepared for the impending distributed energy boom and make specific recommendations on the current regulations on distributed generation by comparing them with similar international standards.

 The study showed that the CEA could allow intentional islanding of PV inverters when there is a power failure. It makes sense to have the anti-islanding feature in countries with stable grids (USA, Germany). When the grid goes down in these countries, it is generally because of a fault. In such an event, you would want the inverter to be disconnected from the grid to allow safe repair works. However, the context in India is very different. Grid outages called “load shedding” (due to unavailability to adequate power to cater to the demand) are very common – especially during summer months. Almost all establishments use some form of back up (usually polluting diesel generator sets). As the prices of diesel rise and solar components fall, there suddenly is a business case for consumers to add solar PV into their energy mix. Such a system is known as a hybrid system and is used primarily as a source of backup when the grid fails.

Image source: sma-sunny.com

When the grid does fail due to “load shedding”, consumers want their hybrid systems to be running. Under the current regulations, the inverters must shutdown. This is unproductive and defeats the purpose of these hybrid systems. Therefore the study recommends that the systems stay connected in an ‘intentional islanding’ mode. In this mode, the inverters continue to form an island and cater to the local loads only. Under no circumstance is power fed back into the grid. Such a mode ensures safety for any personnel who might be working on the grid at the time of “load shedding”.

 Allowing intentional islanding will further open up the market for solar hybrid systems, reduce the levelized cost of electricity for consumers and significantly reduce carbon emissions from diesel generators. That is a win-win for everybody.

Akhilesh Magal is a Consultant at BRIDGE TO INDIA

Around this time last year, after a lot of mid-course process changes, quick fixes and haggling, Tamil Nadu’s power generation company TANGEDCO (acting as a process manager) signed power purchase agreements for 708 MW. They had a “workable” tariff of INR 6.48/kWh and a 5% escalation (equivalent to around INR 8.3/kWh on a levelized basis). However, this tariff was rejected by the state electricity regulator (TNERC) on the grounds that it was not pre-approved by the them and all the projects stalled. Next, the electricity regulator published a consultative paper, proposing a lower tariff of INR 5.78/kWh without escalation, dashing all hopes for a quick resolution  Now, a year later, the same regulator has published a final order that offers a fixed solar tariff of INR 7.01/kWh (without depreciation benefits) and INR 6.28/kWh (with depreciation benefits) (refer).

 BRIDGE TO INDIA still believes that Tamil Nadu should have a strong solar market. It just makes a lot of sense for the state

Today India’s pipeline for state and central solar allocations is at an all-time high

Tamil Nadu should push more aggressively into the distributed solar market

Since the regulator’s suggested tariff is not in sync with the tariffs on the signed PPAs, the allocated projects continue to be stuck. One way out could be to renegotiate the tariffs to a range close to the values suggested by TNERC. However, this would open the government up to claims from earlier, unsuccessful bidders as well as from the PPA counter-parties. Another option for the government is to appeal against the TNERC order. In either case the government and the developers will have lost a lot of time, money and enthusiasm.

 With so many flip-flops, Tamil Nadu is a perfect example of how not to manage solar project allocations. To begin with, the the regulator should have decided a benchmark tariff before – not after – the allocation process. Then, despite one quick fix after another, the situation is still unresolved and projects are in limbo. And along the way, the state has lost a huge amount of credibility in the eyes of the investor community, which will be difficult to regain. (Refer to our Policy Brief on the Tamil Nadu policy from December 2012 for an early analysis of the flaws in the policy.)

 BRIDGE TO INDIA still believes that Tamil Nadu should have a strong solar market. It just makes a lot of sense for the state. Also, the policy included good, new ideas, such as the Solar Purchase Obligation (SPO) mechanism. If only the state had done all the homework before implementing it, it might by now be India’s leading solar market. Now, it is anyone guess, when the solar in Tamil Nadu might emerge.

 Today, India’s pipeline for state and central solar allocations is at an all-time high. At the state level, over 1.5 GW of allocations are planned over the next one year (refer). A revamped National Solar Mission (NSM) might allocate over 2 GW by itself over the same timeframe (refer). With such large capacities to go around, any new allocation by Tamil Nadu might not find takers for a bidding-based allocation process starting at the low benchmark tariff fixed by the regulator.

 Now, it might be best if the state cancels the existing PPAs and just calls for all interested investors to set up projects at a fixed tariff, approved by the regulator, on a first come first served basis (perhaps giving those who had earlier signed PPAs a preference). Also, Tamil Nadu should push more aggressively into the distributed solar market. We hope that the state will be able to make up for the lost opportunity and investor confidence.

India is on the verge of a distributed solar PV boom. The total distributed solar capacity in India today stands at only 160 MW. However, BRIDGE TO INDIA predicts that this could reach 2.9 GW by 2018. That’s an 18-fold increase! Is the distribution grid prepared for such a rapid increase?

 The current distribution grid was planned for the one-way flow of power i.e. from source to the consumer. Distributed solar PV (often of rooftops) changes this by generating power at the point of consumption and feeding back into the grid

Solar PV is inherently intermittent and only partially predictable. In such a case, there is a risk that the tail end of the grid might experience wide fluctuations that can adversely impact the grid

Our research shows that this risk is manageable. The Indian grid can easily accommodate up to 30% of distributed solar PV without any major changes to the distribution grid infrastructure

 The solar boom in many countries, like Germany, Japan or the US, was led by distributed solar PV installations. In India though, the focus has been on utility-scale solar. The National Solar Mission (NSM) and various state solar policies first emphasized utility scale projects. Only now are states and the center promoting distributed (rooftop) solar PV generation. While larger plants can quickly help bridge India’s energy deficit, distributed solar add a sustainable and potentially large solar market. India can leapfrog and learn about how to implement distributed PV on the grid from the pioneer countries.

 BRIDGE TO INDIA carried out a collaborative research project with the National Center for Photovoltaic Research and Education (NCPRE) based in I.I.T. Bombay, Prayas Energy Group and the University of California, Berkeley (download the report here). The aim of this research project was to understand, if the Indian grid is prepared for the impending distributed energy boom. If yes, then what are the ‘safe’ levels of PV that might be injected into the grid making necessary major upgrades in the grid (such as balancing or spinning reserves, or the technical parameters of the lines, transformers or substations). If no, then what are the specific grid upgrades that might be required. The study also looked at safety procedures in installing and operating these distributed solar systems and examined current regulations on distributed generation by the Central Electricity Authority (CEA) and compared them with international standards.

The study found that the Indian distribution grid can easily accommodate 30% solar PV without requiring major changes to the distribution grid infrastructure. We recommended that regulators and utility companies adopt a “learn-as-you-go” approach by first fixing a ‘safe’ limit of 15-30% and then incrementally increasing the amount of distributed PV. This approach will help utilities and regulators find out, by practical experience, what is best suited for the Indian grid.

Cumulative installed capacity projections

 Distributed PV can also bring specific benefits to the grid.

1)     Because of the presence of high quality inverters on the tail-end of the distribution grid, studies indicate that the electrical parameters (frequency, voltage, harmonic, etc.) can actually be improved.

2)     Line losses can be decreased, because the point of generation is located close to the point of consumption

3)     The inverters available in the market also have in-built advanced control functions, which helps stabilize the grid in the event of a fault

 All in all, utilities need not be overly concerned about distributed solar PV. India has the right technology available, a fairly good policy and a decent grid that can accommodate distributed solar PV.

 Akhilesh Mangal is a Consultant at BRIDGE TO INDIA

Utility scale projects have dominated the solar landscape in India until now. Distributed generation has remained in the backstage. But with net metering guidelines in several states, demand for distributed solar systems will increase. A recent BRIDGE TO INDIA analysis suggests that job creation will be highest in the case of installation of small rooftops. For further details, please refer to ‘India Solar Decision Brief’ titled- “India’s Solar Transformation: Beehives vs Elephants” (online downloadable version available here).

Jobs in manufacturing, business development, project development, administration, and design & drawing will be “sticky” – i.e. will not correlate directly with new capacity

Jobs in supply chain, logistics and installation & commissioning will correlate with Y-o-Y growth of installations whereas operation & maintenance jobs are directly proportional to the cumulative solar capacity

The total job creation potential is highest for small rooftops (“bees”) and lowest for GW-scale plants (“elephants”)

Our analysis is based on the assumption that the creation of jobs in the supply chain, logistics and installation and commissioning correlate with Y-o-Y growth of installations. Jobs in manufacturing, business development, project development, administration, accounts, administration and design and drawing on the other hand, would only be 50% correlated with Y-o-Y growth of installations, i.e. they are more “sticky”. In case of negative growth in new installations, only half of the people will be affected. Jobs related to operation and maintenance are directly proportional to the cumulative solar capacity as plants will need these services throughout their lifetimes. They are the most “sticky”.

For small rooftop systems, our assumption was, a team of five people (some part time roles are cumulated) will be able execute around 50 installations of average 3 kW system in a year. This timeframe includes business development, creation of pipeline, procurement and execution. For large rooftop systems, we assumed that a team of 20 people (some part time roles are cumulated) will be able to execute around four installations of average 250 kW in a year. For utility scale projects, we assumed that a team of 250 people (some part time roles are cumulated) will be able to execute two installations of average 20 MW in a year. For ultra-mega scale projects, we assumed that a team of 2,000 people (some part time roles are cumulated) can build 2 GW in three years . It should be noted that these installations will not be completed in a single year.

In the figure below, we have compared the job creation for 1 GW installation at around 40,000 for small rooftops (“bees”), 27,000 for commercial rooftops (“pigeons”), 10,000 for utility scale (“horses”) and 6,000 for GW scale (“elephants”). The graphic displays that “bees” would create 4 times the jobs of “horses” and 7 times the amount of “elephants”.

The new government in India is considering revamping the country’s flagship National Solar Mission (NSM) and making it considerably more ambitious. The recently announced draft scheme for solar parks (refer) is only a part of this development. Next, we can expect an announcement to cancel the planned allocation of 1,500 MW. In its place, we expect a new, higher target and a more streamlined and predictable process. The plot is thickening. The government is starting to deliver on the hopes it raised.

The original plan under phase two of the NSM was to add 9 GW between 2013 and 2017

The 15 GW target might be spread across three phases of allocations. The allocation process for the first solar park could begin as early as next month

There is a high probability that the NSM bids will be moved online to reduce the allocation timeframe and improve process efficiency and transparency

Central government initiatives, led by MNRE, SECI, NTPC and NVVN, are now expected to account for as much as 15 GW of new capacity until 2019. The original plan under phase two of the NSM was to add 9 GW between 2013 and 2017, with central government initiatives accounting for 3.6 GW until 2017 (refer) and the remaining 5.4 GW were to come from state government initiatives. If the state governments add capacity as per original plan, i.e., 5.4 GW until 2017, India could easily exceed the 20 GW target well ahead of time. With around 2.5 GW of project execution and allocation already planned at the state level, the scenario seems fairly plausible. This is also in line with the new minister Piyush Goyal’s plans to make India a 5-7 GW per year solar market over the next few years.

The new allocation process might draw inspiration from Gujarat’s Charanka Solar Park. The government works on the premise that it can better aggregate land than the private sector. The idea is for the government to set up large solar parks across the country and to then call for project bids inside these, thus accelerating the deployment of solar.

Based on unconfirmed information, the 15 GW target might be spread across three phases of allocations. The first phase (2014-15), could be for three solar parks of 1 GW each. The allocation process for the first solar park could begin as early as next month. In this phase, power from these projects will be bundled with thermal power and supplied to the national grid, with a large part being consumed by the state where the park is located. With Rajasthan and Gujarat not being very keen on more solar power, Andhra Pradesh, Telangana and Madhya Pradesh might be the first three states to build these solar parks.

In the second phase (2016-17), the NSM is expected to move away from bundling of power and towards incentives in the form of interest rate subsidy, through e.g. the ministry of finance and/or an international funding agency. The government believes that, by then, an interest rate subsidy will be enough to make solar power competitive with other sources of power. The government might allocate 5 GW of capacity under this phase.

The third phase (2018-19) envisions an additional 7 GW to be installed. The government believes that at that point, no more incentives might be required, if developers are provided with aggregated land and transmission infrastructure.

While many have been talking about a possible fixed FiT structure for the NSM (refer), BRIDGE TO INDIA believes that that might not happen. However, there is a high probability that the NSM bids will be moved online to reduce the allocation timeframe and improve process efficiency and transparency.

While this revamp is yet to be confirmed, it is clear that the consequences would be significant. With more capacity up for grabs at both the central and state level, project viability is likely to improve. The average project size will likely increase. This could professionalise the entire value chain. At the same time, we would expect new entrants in the market. These could be large, established Indian power sector players as well as international project developers, amongst others. With an increase in the share of more bankable central government backed projects, India is also likely to attract more institutional and cheaper finance from within as well as from outside the country.

As the NSM moves towards ever larger goals, issues related to evacuation infrastructure and balancing of power (and the associated costs and grid economics) will start taking center stage. BRIDGE TO INDIA recently carried out a study to assess different approaches to expanding solar power in India. We found that while cost of generation for such large projects is the lowest, its advantage in terms of cost of delivery of power to the end customer fades away over time (to read more, download our report, ‘How should India drive its solar transformation? Beehives or Elephants’). In a second study, just launched, we looked at the grid capacity limits of solar (to read more, download our report, ‘Grid Integration of distributed solar PV in India’).

The encouraging signs on utility-scale projects are not yet matched by new initiatives to promote urban or rural distributed solar, something that we have heard the Prime Minister and Minister for New and Renewable Energy talk about on several occasions. Since a successful implementation of policies for distributed solar requires a lot of new and on-ground efforts from the government ,meeting large targets would take more time as they still carry little favour in the bureaucracy. However, distributed solar can be a very stable market that, once established, will need much less government attention than the larger infrastructure projects.

Overall, the new government has been able to turn around the outlook for the sector in India from “monsoon rains” to “sunny with a few clouds”. This is the perhaps the right time for companies to review their plans and strategy. After all, the case for solar in India remains utterly compelling.

 Jasmeet Khurana, Senior Manager- Consulting , BRIDGE TO INDIA

Today, the contribution of solar to India’s power generation is less than 0.5%. This needs to grow significantly to help meet India’s growing power requirements. A recent BRIDGE TO INDIA analysis suggests that India’s realizable solar potential is 110 GW to 144 GW by 2024. For further details, please refer to ‘India Solar Decision Brief’ titled- “India’s Solar Transformation: Beehives vs Elephants” (online downloadable version available here).

The realizable potential in India is 110 GW to 144 GW by 2024

Solar could contribute 10%-13% to India’s grid power supply by 2024 without destabilizing the grid

26-35 GW is the potential for small rooftops (“bees”), 31-41 GW for commercial rooftops (“pigeons”), 32-42 GW for utility scale plants (“horses”) and 21-27 GW for GW-scale plants (“elephants”)

India’s power requirement has been growing at a CAGR of 5.2% for past seven years. [1] Applying the past growth rate to the future, BRIDGE TO INDIA estimates the power requirement in India in 2024 at 1,748 TWh. In Germany, solar and wind contributed 17% of total generation in 2013[2]. Considering continuous improvements in grid management in India, we estimate that solar could contribute to the tune of 10%-13% of total power generation by 2024, without destabilizing the grid. Based on this measure, the realizable solar potential in India as being in the range of 110 GW to 144 GW by 2024.[3] (For a detailed analysis of the ability of India’s grid to incorporate solar power, see the report [Grid Integration of distributed solar PV in India: A review of technical aspects, best practices and the way forward].)

We can also look at the grid-ceiling factor from the point of view of capacity rather than generation. What matters is the installed peak generation capacity of infirm power sources like solar as that will determine the scope of variation in the grid. As of 2012, in California wind and solar contributed more than 30% of the total installed capacity.[4] In Germany, wind and solar constituted 45% of total installed capacity in 2013.[5]The IEA, in a recent study[6], assumes that 30% grid penetration of solar (on a capacity basis) is technically possible with only minor adjustments and few additional infrastructure costs. India’s installed capacity in 2013 was 230 GW. As per IEA’s predictions, India’s installed capacity will grow at a CAGR of 6.4%.[7] By this measure, it will reach 455 GW by 2024. If Indian can accommodate 25% to 30% of solar in terms of installed capacity by 2024, then we arrive at a figure of 113-137 GW – so the range is the about the same.

For our estimation of the realizable potential, we took to generation rather than the capacity data, because otherwise we would have to make a number of assumptions on the composition of India’s power mix in 2014 (and the related CUF). I.e., the IEA projection for installed capacity is based on power mix assumptions (and a related average CUF of India’s power plants to meet the power requirements). If we assume a significantly higher share of solar with a lower than average CUF, the total installed capacity would have to be much higher to meet the same power demand.

This realizable potential has been split into four distinct grid-connected solar plant types (non grid connected solar has not been considered here and is not limited by any grid ceiling factor). We have considered five exclusive parameters for understanding how much solar capacity each type of plant could provide until 2024. A rating has been given to each factor on a scale of 10. A rating of 10 implies that the parameter is most favorable for that particular scenario.

Table 1: Expected share of realizable potential by 2024 for each scenario

ParameterSmall rooftopLarge rooftopUtility scaleUltra-mega scaleTimeframe of parity1865Execution challenges (individual system/plant level)10762Ease of policy implementation35107Ease of raising debt financing5898Transmission and grid stability constraints10641Total rating points29343523Market share24.0%28.1%28.9%19.0%

 We weighted every factor equally (1/5th). The numbers and the weightage can, of course, be debated. So far, only the utility scale projects are a proven business model in India with some level of predictability. The other three are still being developed. We are only too aware of the difficulties of making predictions in solar in India. However, the main point is that the four segments are roughly equal in potential and importance and that building 25 GW of each in ten years is quite feasible.

We estimate the realizable potential at 26-35 GW, 31-41 GW, 32-42 GW and 21-27 GW for small rooftop systems, large rooftop systems, utility scale projects and ultra-mega scale projects, respectively.

Authored by Tobias Engelmeier, Founder & Director and Jasmeet Khurana, Senior Manager Consulting at BRIDGE TO INDIA

INDEX

1.CEA LGBR report from 2008-09 to 2014-15

2.Fraunhofer Institute, Electricity production from solar and wind in Germany in 2013, http://bit.ly/1ktSgCk

3.Average Capacity Utilization Factor (CUF) for solar plants in India is assumed to be 18.2% (mix of small and large plants)

4.American Council On Renewable Energy 2013, http://bit.ly/1e46BOv

5.Fraunhofer Institute, Electricity production from solar and wind in Germany in 2013, http://bit.ly/1ktSgCk

6.“The power of transformation”, by the International Energy Agency, published in 2014buff.ly/1hSGKA4

7..“Understanding energy challenges in India”, International Energy Agency, published 2012, http://bit.ly/1hVXxCs

After nearly two years of waiting, Delhi’s net-metering policy is finally in place. Delhiites with solar rooftop systems, will be able to supply excess solar energy to the grid. This will earn them energy credits, which can be adjusted against their electricity bills. On September 2, 2014 the Delhi Electricity Regulatory Commission (DERC) announced the “Net Metering for Renewable Energy Regulations” (the document can be accessed here). It is expected to be enforced within a week of announcement.

The distribution licensee shall connect renewable energy systems with a minimum capacity of 1 kWp

Energy supplied to the grid will be adjusted in the monthly bill. Any remaining net energy credits at the end of financial year will be adjusted at DERC decided tariffs (to be specified)

The net metering policy has a contradiction with the Renewable Energy Certificate (REC) regulations that needs to be resolved immediately

General conditions: Connectivity of the distribution network to renewable energy systems will be provided on a first come first serve basis and will be subject to several constraints including available capacity at a particular distribution transformer and the sanctioned load of the consumer of the premises. In case the capacity of renewable energy system is greater than the sanctioned load for the premises, the consumer of the premises will have to expand their sanctioned load by paying extra “service line cum development” (SLD) charges. The minimum capacity of the renewable energy system is 1 kWp.

Metering arrangement: Two distinct meters will have to be installed at the premises. The renewable energy meter for accounting the energy produced and the net meter for accounting the net import/export of energy by the consumer. The cost for procuring, testing and installing the net meters will be borne by the consumer of the premises whereas that of the renewable energy meter will be borne by the distribution licensee.

Billing and energy accounting: The energy exported to the grid by the consumers during a billing cycle will be adjusted in the consumer’s bill for that billing cycle. In case the energy exported is more than that consumed, the surplus units will be carried forward to the next billing period. At the end of each financial year, any net energy credits that remain will be adjusted to the consumer as per the rates decided by DERC. This is a first of its kind measure amongst the states with a net metering policy in India. RE systems under net metering have been exempted from various charges like wheeling, banking and cross subsidy charges for a five year period.

REC and RPO’s: According to the Renewable Energy Certificate (REC) regulation, REC’s can’t be issued to a generator if the generated power fulfils the Renewable Purchase Obligation (RPO) of an obligated entity. However, in DERC’s net metering regulation, the power supplied to the grid will fulfil the RPO of the distribution licensee and the consumers have been allowed to apply for RECs. On this point further deliberation and clarity is required from DERC.

With around 250-300 sunny days and an average insolation of 5.31 kWh/day/m2 rooftop solar was a logical and inevitable choice for the city.

Shikhin Mehrotra is a Research Analyst at BRIDGE TO INDIA.

According to BRIDGE TO INDIA’s latest publication, the India Solar Map 2014 (download here), only about 4% of the capacity installed in 2014 (until August 2014) in India has used thin-film modules. This accounts for 18 MW of the 446 MW installed until now (depicted in the figure below).

During 2011-13, the market share of thin film modules in India was significantly higher than the global average. This trend has completely reversed in 2014: 18 MW is extremely weak

However, First Solar is expected to supply modules to more than 100 MW of solar projects in the succeeding months

Very large individual projects or customers, such as the National Thermal Power Corporation of India (NTPC), which wants to build 3,000 MW of solar in the next five years, will have a huge effect on future market shares

When compared globally, the thin film market share in India during 2011-13 has been significantly higher than the global average (which is about 10%), with First Solar leading as the leading module suppliers in the country. However, First Solar seems to have lost considerable ground in the last three quarters, with only 12 MW installed in India.

Share of Thin Film and Crystalline Modules, (%)

Source: Bridge To India analysis

The high initial market share captured by thin-film modules in India can partially be attributed to policy distortions in favour of non-crystalline module imports and competitive financing solutions available for imports from the US (read: thin-film). This advantage seems to have weaned off.

In contrast to thin films 18 MW, crystalline modules added about 428 MW in 2014, of which more than 45% came from Chinese module suppliers and 35% from Indian suppliers. The share of Indian manufacturers has increased significantly compared to preceding years, mainly because of the demand from state-run companies such as NTPC or Karnataka Power Corporation Ltd., which often choose domestic modules for their projects. NTPC alone is expected to build 3,000 MW of solar in the next five years in India. The company plans to announce an auction for the first 250 MW by next month. Amongst the crystalline module suppliers, Trina Solar, Canadian Solar and Tata Power Solar have sold most in the last year.

However, this trend could change again, as First Solar is expected to supply modules to more than 100 MW of solar projects in the coming months. This is largely driven by supplies to batch I of phase II of the NSM. First Solar might have played the ambiguity around anti-dumping duties to its advantage by being aggressive and offering to deliver modules at competitive prices ahead of a decision on duties (22nd August 2014 – the duties were not imposed). Some projects for which First Solar might have won contracts are those by Azure Power, Focal Solar and Finnsurya.

Jyoti Gulia, Senior Manager, Market Intelligence, BRIDGE TO INDIA

On August 25th, India’s supreme court judged all coal block allocations to private parties after 14th July 1993 to be illegal due to “arbitrariness and legal flaws” (see ruling here). While it is not clear what will follow next – i.e. how these transaction will be either untangled or made legal in some manner, the ruling itself gives a rare insight into the Indian coal and power industry. It will have an impact on the investment climate and it will be very beneficial for solar (and other renewables).

 The ruling creates more uncertainty in the coal industry in India, further diminishing its ability to deliver power to India in time

The coal setback further highlights the central role solar can play in India’s future energy supply

India’s liberalization was only half way: from a state-run economy to one run by a group of insiders. It needs to now broaden and embrace competition and entrepreneurship to flourish

 The Supreme Court judgment is instructive in at least two ways: it shows the flaws in the coal industry in India as well as some larger flaws in India’s business environment. The Supreme Court, in essence, noted that India gave preferential access to a public resource (coal) to a group of private companies. This benefitted a few players while India as a whole lost out. Think of this in the context of earlier allegations and scams around coal allocations, coal mining and coal transportation and the consistent under-delivery of coal fired power plants.

The allocation process of private coal blocks was highly unprofessional. There was no verification of an applicant’s experience in the end-use project for which the coal allocation was sought, there were no advertisements of the allocation opportunity and thus no competition, and coal blocks allocated exceeded the requirements of the companies. The judgment said: “The rules of the game were changed to adjust… applicants.”

 This is bad news for India, whose growth and development is hampered by a shortage of energy and by crony capitalism. A large portion of the economic growth experienced by the country since the early 1990’s was driven by the preferential access to and exploitation of public, national resources such as land and raw materials (and I would add pollution, waste, water and air quality to that) by a number of industrial companies. Value creation and innovation played a much smaller role. India’s IT and outsourcing miracle is an exception, not the rule.

The liberalization of the Indian economy was only half done: large companies with access to political decision-making were able to grow revenues and profits, while smaller companies and entrepreneurs were left to languish. Money was made in real estate or coal, not in manufacturing or services. And money was made by large Indian companies, rather than by small or medium sized companies or professional investors. India now needs a second liberalization to become a real market place for entrepreneurs, for small and medium sized businesses and for professional Indian and international investors. A key requirement for this to happen is to reduce bureaucracy and increase transparency to allow for more competition. The Supreme Court ruling is a step in the right direction. The new government with its “make in India” mantra can use the momentum to effect this change.

 For the Indian solar market, the ruling is good news. The more uncertainties and difficulties there are in the coal sector, the more the government, investors and consumers will look at alternatives. Solar is perhaps the most attractive alternative because it has the theoretical potential to supply India with the power it needs in the next decades. The ruling might, in the short term, have a negative impact on overall investment sentiment in India by increasing perceived risks especially of government contracts. In the longer term, however, it will hopefully contribute to a more competitive, investor- and entrepreneur-friendly energy market. Solar as a technology is much better suited to this than coal: The solar resource is unlimited, project complexity is far lower and project sizes can start from very small, making it inherently democratic and in the context of the current energy industry – revolutionary.

  (Picture credit: www.sify.com)

Tobias Engelmeier, Founder and Director, BRIDGE TO INDIA, Twitter: @TEngelmeier

Today, India’s power mix is still dominated by coal, which makes up around 60% of installed capacity. Solar stands at just around 1%. With the National Solar Mission, launched in 2010, India defined an ambitious national goal of installing 20 GW of grid connected solar power by 2022. Since 2010, however, the fundamentals of energy supply in India have changed significantly. Solar was around seven times as expensive as coal to produce per kWh in 2010. This has changed to a factor of less than two.

India’s power mix is still dominated by coal but solar is ready to go mainstream

If India truly wants to step change and go big on solar, what would be the optimal way to achieve it?

Initially, ultra-mega power projects will help to bring down the cost at a faster rate; but greater emphasis needs to be on distributed solar

While many coal projects are mired in planning, supply and infrastructure bottlenecks, solar can be deployed in a fast and modular manner, with little complexity. Globally, solar PV has been incredibly successful. Installed capacity has increased by 51% p.a. from 2010 to 134 GW at the end of 2013. China has proclaimed a goal of installing as much as 70 GW as soon as 2017. The US aspires to reduce the cost of solar to only M3.6 ($0.06)/kWh by 2020, making it a very competitive choice for consumers and utilities. There is a shift in the way solar is perceived globally and in India: it is no longer a niche technology in need of immense government support. Rather it is a very attractive energy choice for consumers worldwide. The new government in India is aware of that and is willing to target much larger goals than those of the current National Solar Mission.

Space is no constraint to making solar a key building block of India’s energy future. In a thought experiment, we estimate that 0.5% of India’s land mass would be enough to build as much as 1,000 GW of solar, from which India could meet its entire current electricity demand9.

In reality, of course, the picture is much more complex. Solar comes in many different shapes and sizes. Currently, grid connected projects are typically in the range of 10-50 MW. In addition, there are GW scale projects in the pipeline. At the same time, solar is deployed at thousands of sites, near consumers, across the country in kW sizes (typically on rooftops).

We asked ourselves a simple question: if India truly wants to step change and go big on solar, what would be the best way to achieve it? Should it be through a handful of ultra-mega plants, through thousands of MW sized plants or through millions of distributed plants?

In our recent report titled, “How should India drive its solar transformation? Beehives or Elephants”  which is a joint effort  by BRIDGE TO INDIA and Tata Power Solar [Download Here], we compared four scenarios, each for 25 GW – small rooftop systems, large rooftop systems, utility scale projects and ultra-mega scale projects. We first examined if there is enough potential (especially on the distributed, rooftop side), and then compared them according to the landed cost of power (LCOP). This is the cost of generating the power plus the cost of delivering it to the point of consumption. This measure allows us to compare large but remote plants with on-site and rooftop installations. While the larger plants benefit from economies of scale, they need huge additional investment in transmission and distribution. In India, transmission and distribution losses can be more than 30%.

For each scenario we looked at the infrastructure challenges (especially for the GW scale plants), execution timelines and the net effect on job creation. Job creation by installing 100 GW through the four scenarios put together would be over 675,000. Most importantly, we found that solar can easily contribute 100 GW in the next ten years.

Our analysis shows that the LCOP of small rooftop systems is the highest. LCOPs for large rooftop systems, utility scale projects and ultra-mega scale projects are very close together and they are already competitive with coal- fired power plants using imported coal. By 2021, they will also be competitive with domestic coal. The job creation potential is highest in the small-scale rooftop segment, driven by thousands of local installers. This contrasts with the handful of large infrastructure companies’ ability to deliver utility or even ultra-mega scale projects. In terms of timing, ultra-mega scale plants require years of planning and development. For other scenarios, in comparison, execution can begin immediately.

As the Indian political and bureaucratic decision-makers set out to plan India’s next big solar leap, they will have an array of objectives to keep in mind. The lowest landed cost of power (in 2024) would be achieved by large rooftop systems. Job creation would be highest (and most dispersed) in the small rooftop segment. Implementation challenges are lowest in the established utility scale market, while new infrastructure requirements are least for the small rooftop scenario.

This report finds that India needs both “beehives” and “elephants”. The government should continue to encourage utility scale and targets for these can be increased substantially. Along with that, however, a much larger emphasis should be given to the rooftop solar market, as it will provide long-term, organic growth drivers. Especially the small rooftop market holds significant potential for creating new businesses and jobs across the country.

Initially, ultra-mega power projects will help quickly bring down the cost of solar power and create large jumps in additional capacity. However, in the medium term, as solar will become cheaper, rooftop generation is expected to take over and create an organic, stable, consumer-driven (rather than policy- driven) market. India would by then have one of the largest solar markets in the world. This market would not rely on subsidies anymore and will have the potential to entirely change the game for power generation in India.

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

The newly created south Indian state of Telangana, which was carved out of the state of Andhra Pradesh, has announced a 500 MW solar PV tender (refer). This comes within a month of the now smaller, remaining part of Andhra Pradesh announcing its own 500 MW tender (refer). While the Andhra Pradesh tender is based on the district wise L1 method of bidding, where all the perspective bidders need to match the lowest bid tariff for that particular district, the tender in Telangana is based on a regular tariff based bidding mechanism, as has been used in most other state and national bids. Due to the complicated bidding mechanism in Andhra Pradesh, it can be expected that Telangana receives a higher interest from developers.

New tenders are indicators that both the states are ambitious about solar

The developments in Andhra Pradesh and Telegana are part of a larger upswing in the market

With the rejection of anti-dumping duties , projects under batch one of phase two of the National Solar Mission (NSM) will gain momentum

Unlike the Andhra Pradesh tender that places a limit of 100 MW per bidder, the Telangana tender puts no such limit. However, the deadline for commissioning in Telangana is 10 months from the signing of the PPA as compared to 12 months in Andhra Pradesh. A shorter timeline means that developers might prefer to opt for smaller projects.

Given that the erstwhile combined state had also signed PPAs for around 600 MW, these new tenders just go to show that both the states are still ambitious about solar and are looking at it not just from a renewable purchase obligation (RPO) perspective but also as an attractive option for augmenting power generation.

The developments in Telangana and Andhra Pradesh are part of a larger upswing in the market. With the rejection of anti-dumping duties on a pan-India level, projects under batch one of phase two of the National Solar Mission (NSM) and projects in states such as Karnataka, Punjab, Uttar Pradesh, Andhra Pradesh, Madhya Pradesh and Chhattisgarh will pick up pace. Over 1,900 MW of capacity is in the pipeline (PPAs already signed). Over and above this, the ongoing and upcoming allocations such as batch two of phase two of the NSM (750 MW), Andhra Pradesh (500 MW), Telangana (500 MW), Haryana (50 MW), Uttarakhand (50 MW) and Maharashtra (75 MW) will add more solar opportunities.

This growing project pipeline, combined with the rejection of anti-dumping duties and the new government’s yet to be detailed ambitious plans for solar, the future looks much better than what it did this time last month. If the new government can now just ensure that these ebbs and flows in the solar investment climate are moderated, its job will be half done.

Jasmeet Khurana is a Consultant at BRIDGE TO INDIA