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BRIDGE TO INDIA solar awards – best of 2014

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The Indian solar market went through its share of ups and downs in 2014. Last week, we tried to summarize key events of the year and their impact on the market (refer). In this newsletter, we applaud key stakeholders and initiatives that, in our opinion, were standout contributors to the growth of the Indian solar market in 2014.

 BRIDGE TO INDIA’s choice for ‘Policy decision of the year – 2014’: revocation of anti-dumping duties

Our choice for ‘Best performing state of the year – 2014’: Andhra Pradesh

Our choice for ‘Person of the year – 2014’: Piyush Goyal, Minister for New and Renewable Energy

Policy decision of the year

In 2014, two key policy decisions stood out: revocation of anti-dumping duties and the solar parks policy. We have not considered the 100 GW target as a policy decision yet, as it is still in the pipeline. Last week, we discussed how revocation of anti-dumping duties was a turning point in the Indian solar market that helped define its future course (refer). The solar parks policy has been another game-changer. It will help remove the bottlenecks of land acquisition and power evacuation for the developers and help attract new and most competitive capital.

BRIDGE TO INDIA’s choice for ‘Policy decision of the year – 2014’: revocation of anti-dumping duties.

Person of the year

As the policy news has dominated the market in 2014, key government officials are in the running for this category. The new minister, Piyush Goyal, has been instrumental in all key new announcements from revocation of the anti-dumping duties to the new proposed 100 GW target. Tarun Kapoor, Joint Secretary, MNRE, has played a crucial connecting link not only between industry and the ministry but also between announcements and the intended implementation.

BRIDGE TO INDIA’s choice for ‘Person of the year – 2014’: Shri Piyush Goyal, Minister for New and Renewable Energy.

Best performing state of the year

Karnataka, Chhattisgarh, Uttar Pradesh, Telangana, Andhra Pradesh and Uttarakhand have carried out new project allocations in 2014. New solar policies have been passed in Uttarakhand, Uttar Pradesh (rooftop policy), Rajasthan and Karnataka. New net-metering policies have been announced in Haryana, Uttar Pradesh, Delhi, Odisha and Punjab. Twelve states have signed up for the solar parks policy with Jammu & Kashmir having the largest proposed land allocation for 7.5 GW, Rajasthan with 3.7 GW and Andhra Pradesh with 2.5 GW.

In our opinion, in terms of actual action on the ground, Andhra Pradesh has taken the lead. The state has been able to move fast to attract the first round of NSM allocations (1,000 MW), it has attracted the NTPC project (1,000 MW) and it has allocated projects under its own solar policy (500 MW). On net-metering, Andhra Pradesh is perhaps the only state in the country that is being proactive by freely accepting applications and going ahead with the execution of net-metered projects.

BRIDGE TO INDIA’s choice for ‘Best performing state of the year – 2014’: Andhra Pradesh

Developer of the year

Prominent developers such as SunEdison, Acme, Azure, ReNew and Welspun have all been allocated significant capacities across central and state policies in 2014. Backed by funding from EDF, Acme has played catch up in 2014. It has also been fairly aggressive since the inflow of funds. SunEdison, Acme and Azure each have a development pipeline of over 300 MW. First Solar has been a key new and aggressive entrant in India’s project development landscape. It has re-defined the benchmark for the lowest tariff in their Andhra Pradesh bid. We can expect First Solar to gain more ground in 2015 and beyond.

BRIDGE TO INDIA’s choice for ‘Developer of the year – 2014’: Acme Solar

Utility solar EPC of the year

With the growing project development pipelines, there has also been a jump in new EPC contracts in the second half of 2014. Third-party EPC companies such as Mahindra EPC, L&T, Sterling & Wilson, Rays Power Infra and Juwi have all contracted significant capacities until now. With some large projects in their order book, Mahindra EPC is our choice for Utility solar EPC contractor of the year.

BRIDGE TO INDIA’s choice for ‘Utility solar EPC of the year – 2014’: Mahindra EPC

Rooftop solar EPC of the year

Tata Power Solar, L&T, Bosch, Thermax, Hero Future Energies, Rays Power, Premier Solar, Ujaas and Jakson are some of the larger companies active in rooftop EPC in India. While L&T successfully executed a ground-breaking 7.5 MW rooftop project in 2014, its presence in this segment has otherwise been relatively limited. Tata Power Solar has historically been the largest player in the rooftop solar segment and continued to be the most active company in 2014. Their current rooftop project pipeline is several multiples larger than the nearest competitor.

BRIDGE TO INDIA’s choice for ‘Rooftop solar EPC of the year – 2014’: Tata Power Solar

Module supplier of the year

Module supply trends in 2014 have been fairly similar to the past trends. Key players such as First Solar, Trina Solar and Canadian Solar have largely been maintaining their market share. Riding on the domestic content requirement (DCR) under the NSM, Tata Power Solar has made considerable gains in new orders in the second half of 2014. Given the DCR requirements, Tata Power Solar has emerged as the best performing domestic module supplier in the country in 2014. Amongst international suppliers, both Trina Solar and First Solar might be planning module manufacturing in the country.

BRIDGE TO INDIA’s choice for ‘Module supplier of the year – 2014’: Trina Solar

Inverter supplier of the year

ABB, Bonfiglioli, SMA, Schneider and Hitachi have emerged as key inverter suppliers in the country. While Hitachi has done well for a new entrant, Schneider has played catch up to the other top players in the market. ABB continues to be aggressive and has been securing key contracts in the market.

BRIDGE TO INDIA’s choice for ‘Inverter supplier of the year – 2014’: ABB

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Things have come a long way for solar in India in 2014

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As 2014 draws to a close, it is useful to look back and summarize how the Indian solar market as shaped up over the past one year. The mood of the Indian solar market in 2014 can broadly be divided into two distinct halves; pre 22nd August and post 22nd August. No, 22nd August was not the day when the new Modi government was sworn in. It was the day when the new government decided not to act on the anti-dumping duty (ADD) recommendations of the previous government. It was on this day that the new government acted decisively to show its commitment and vision for the solar sector in India (read here).

Prior to 22nd August, except for some cell manufacturers, it was mostly gloom and doom in the Indian solar industry

The new government forcefully rejecting ADD and drawing up an enhanced plan for 100 GW by 2022

A concrete proof of the changing times is the interest being shown by international module manufacturers and project developers in India

Prior to 22nd August, except for some cell manufacturers, it was mostly gloom and doom in the Indian solar industry. The previous government had recommended imposition of very high levels of ADD on imports of cells and modules (refer) affecting the economic viability of ongoing projects. States were struggling to keep their policy programmes on track and the developers were just standing still, waiting for more clarity (refer). The market had ground to a halt in the middle of the year. Due to this, 2014 is still expected to be the slowest year since 2011 for new project capacity addition with only 775 MW expected to be commissioned.

However, the narrative completely changed with the new government forcefully rejecting ADD and drawing up an enhanced plan for 100 GW by 2022 (refer). Electricity Act 2003 is being amended to increase the share of renewables (refer) and a new Renewable Energy Act 2015 is in the pipeline (refer). Commitments for credit lines adding up to USD 6 billion are being sought from multilateral agencies such as US-EXIM, KfW, ADB and World Bank (refer). These may all be just announcements but even on ground there has been material progress – funds have been allocated for 22 GW solar parks policy and public sector companies have been provided viability gap funding approval for their first 1 GW project (refer). Karnataka, Andhra Pradesh and Telangana have successfully completed allocation of 1,500 MW projects. In total, over 4 GW of projects are in a post-PPA development stage, an allocation or 3 GW capacity is planned for early next year and a 750 MW project in Madhya Pradesh is being developed with debt from World Bank. In times when many government programs are struggling to get funds, for the solar sector, even canal-top solar has received funding support.

A concrete proof of the changing times is the interest being shown by international module manufacturers and project developers in India. As predicted by BRIDGE TO INDIA, the ‘Make in India’ will succeed by reforming and growing the market and not by implementing protectionist barriers such as ADD.

The year 2015 promises to be much more exciting and we expect more favourable policy and funding announcements as part of the budget in February 2015. Happy new year to all our readers!

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India needs a global solution as hundreds of millions of Indians are vulnerable to the effects of climate change

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In the past, China and the US, who together accounted for over 40% of global carbon emissions, rejected any official targets with respect to reductions. The recent development has been indicative, for the first time ever, they have committed to carbon targets. India is in a delicate position. On the one hand, it is already the world’s fourth largest emitter. On the other, its per capita emissions are still amongst the lowest in the world. (China’s, by comparison, have already caught up with Europe’s.)

 India is planning to invest into climate friendly technologies such as renewables and energy efficiency in any case

Coal power in India needs to be ramped up, then phased out

India can now push the narrative and force more cuts on other emitters

Image source: Straight.com

There is, unfortunately, still a strong correlation between emissions, energy use and economic development. Hence, India will emit much more, as its people become better off, contributing significantly to global climate change. At the same time, India, with it’s high population density and widespread subsistence farming, is intensely vulnerable to climate change. It needs both: room to emit more and a climate deal that can credibly limit climate change, which means asking China, the US and the EU to do more and exerting strong pressure on developed countries, such as Australia, Canada and Japan, that stall completely.

 India, with its anticipated, massive push for renewables could easily advocate for ‘investment into climate-friendly technologies’ as a global parameter – in absolute or relative terms. India still has the opportunity to leapfrog towards a more climate-friendly energy economy and infrastructure. It will be cheaper for India to invest into new, climate friendly technologies than it will be for developed countries with existing infrastructures and path dependencies to do so.

 Within India itself, more measures can be taken to poster the Indian climate contribution without slowing down growth. India could set up an internal carbon cap-and-trade market, much like China is planning to do. If the overall cap is set at a business as usual scenario, then the economic effect should be zero. However, within India, resource smart companies would be rewarded and resource inefficient ones would be penalized. This would help reduce overall resource consumption (and thus emissions) and speed up a transfer of knowledge within the country. Additionally, local environmental pollution should be priced. This will avoid some of the worst excesses and will be much cheaper than remedying landscapes and livelihoods at a later stage. Again China, which failed to do this, is an instructive example. Lastly, why not host a climate summit in India soon? What better way of showing that India means climate business.

 In addition to building up solar, India also plans a major push on coal. It is difficult to see an alternative to much more coal usage in the medium term. However, as the Chinese example shows, the local environmental pollution (including air quality) effects and the social disruption associated with the mining, transport and usage of coal are so significant that it will soon be economically and politically prudent to start reducing significantly the share of coal in the energy mix.

 In light of the above, India needs to change track in its climate policy. Its stance has been far too reactive and inflexible. India needs to become a driving force in making a substantial global deal happen. Here are a couple of ideas as starting points for such a policy:

 India needs to forge the right alliances with those countries that have a serious commitment to the climate change goals. These are the most vulnerable states on the one hand (island and developing states) and the EU on the other. The ‘right to emit’ and the ‘vulnerability’ have to be de-coupled. India can fight for its right to emit while all the same pushing for a deal. In the past, India has lined up with China, which was a mistake. Far from being a natural ally, China emits at India’s expense.

 India could push for a metric that not only considers where pollution is generated, but also where the products and services are consumed. A key reason for China’s massive growth in emissions was an ‘export’ of emissions. Take the following case, for example: The US company Apple sells an iPhone to a customer in the US that was manufactured in China. The emissions accrue to China, but perhaps not in the same way as the associated profits or benefits do. Associating emissions with consumption goes into the direction of a carbon tax. Such a tax on carbon could give India more room to pursue Modi’s ‘Make in India’ industrialization strategy while passing a share of the carbon bill to global consumers. The crux, of course, is in the question where the taxes are levied and what they are used for. If they are levied at the consumer, then the proceeds to go into the global climate fund.

 Tobias Engelmeier is the Founder and Director of BRIDGE TO INDIA

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The Budget 2015-16: Our solar wish-list for India’s 100 GW target

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Last week, we discussed the proposed changes in the Electricity Act 2003 and, in particular, the proposed 10.5% solar RPO target (refer link 1 and link 2). To give the market further impetus, in the past few days, the government has announced fund allocation for solar parks infrastructure, viability gap funding for public sector led projects and new funds for canal-top solar (refer). However, growing the market from 1 GW a year to 15 GW a year requires a deeper, sustained, market-level effort making the economic fundamentals irresistible.

 If solar is cheaper than other sources of new power generation capacities, the difference will induce discoms and consumers to switch

BRIDGE TO INDIA estimates that if cost of debt financing can be reduced to 8%, tariffs can come down to INR 5.4/kWh with an annual escalation of 2% per annum

We suggest to decouple the tax benefits from the solar investment and instead make it a tradable benefit

India cannot afford the luxury of a publicly funded energy transition like in Germany, where consumers spend upwards of € 20 bn a year to subsidize renewables through higher power prices. The good news is that with the solar technology becoming increasingly efficient, subsidies are no longer required and the government can tinker with other parameters to make solar competitive with conventional power.  BRIDGE TO INDIA estimates that if cost of debt financing can be reduced to 8%, tariffs can come down to INR 5.4/kWh with an annual escalation of 2% per annum. Solar Energy Corporation of India (SECI) is already planning a 750MW project in Madhya Pradesh along similar lines in collaboration with the World Bank.

 To make the 100 GW target realistic, the government needs to improve access to and reduce cost of international debt. One way of doing so may be to provide comfort to the international lending community on currency and discom insolvency risks. In addition to this, there are other complementary measures that would support the desired uptake of solar. If solar is cheaper than other sources of new power generation capacities, the difference will induce discoms and consumers to switch.

 There are other tools in the government kitty to make solar more attractive. India currently allows an accelerated depreciation benefit (the value ranging between INR 0.5-1/ kWh) for profitable corporate entities to invest into solar. In addition, the finance ministry already has a proposal on its desk to allow similar income tax benefits to tax-paying individuals. However, both these provisions are restrictive in that they address only companies or individuals who have a tax burden and also want to invest into solar. There is no reason, however, why these elements should be bound together. It also discourages professional, project-based equity investment in the sector, which is much needed for achieving the ambitious new targets. We suggest to decouple the tax benefits from the solar investment and instead make it a tradable benefit. This has been done in the US, where the tradable tax credits attract large amounts of institutional and international capital to the sector.

 A third potential measure could be a waiver of the Minimum Alternate Tax (MAT) of 19.8% for solar projects. Here, a case can be made that new (and clean) energy infrastructure would create much more additional tax revenues through growth in production, employment and consumption, than the loss of MAT revenues from solar projects.

If these structural changes can be incorporated in the upcoming budget, along with procedural changes such as ensuring intended use of the clean energy fund and more allocations to the MNRE, we see India on track to achieve its ambitious solar goal of 100 GW by 2022. An important further point of consideration is political: The center needs a buy-in from the states for a 10.5% solar RPO target. This buy-in should be much easier, if solar is a winner and not a cost of financially weak state discoms. The above measures could ensure that.

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The recent announcement by energy giant, E.On: What are the three key lessons for the Indian utilities?

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E.ON is among the top multi-utility player of Germany with diversified business in power generation, natural gas, energy trading, retail and distribution operations. It has decided to spin off the fossil fuel business (together with some other businesses, such as energy trading and exploration) and focus on renewables, on grid management and on “customer services”. This is a drastic step as it would lead to shrinking the company to half its size. Indian utilities should take note: there are important lessons for them. 

E.On, like the other large German utilities, fatally slept through Germany’s tectonic energy changes

It is the first large utility anywhere to completely transition its business model to renewables

E.On’s move is at once a validation and a critique of Germany’s energy politics

Image source: Greenpeaceblogs.org

The announcement shocked the market: At the end of another loss making year, Germany’s largest utility has decided that the old game is up and has flung itself headlong into a new game. For a typically risk-averse utility this is the final card to play. The term that comes to mind is “creative destruction”. The economist Schumpeter applied it to the market’s capacity to overturn the status quo and thereby produce innovation.

 What used to be a straightforward, often monopolistic, very stable industry is now challenged by rapid technological progress and new regulations, massively lowering barriers to entry and creating a plethora of new players. Many of these have skill-sets that traditional utilities lack: flexibility, speed, customer orientation. In all developed countries, where new power sources tend to replace old ones, this has put utilities under huge pressure. Their reaction in Japan, the US, Germany, or elsewhere, has been to fight back. This was usually done through the policy process (access to grids, treatment of renewables, etc.). E.On’s case is so interesting, because it is the first large utility that has given up the struggle to protect its old business model and instead now wants to jump to the other side and become a “new” player. It is a rare case of corporate “creative self-destruction”.

 Energy giant, E.On has decided to divest of all fossil and nuclear assets and focus on renewables. The reason, according to E.On’s CEO Johannes Teyssen, is that the renewables and the conventional power business are “completely different”. He says, “The future is in renewables”. (A second reason, observers suspect, might be that E.On wants to extract itself from the costs and risks associated with shutting down its nuclear plants.) It is a big gamble. Whether or not the new E.On will succeed will, in my view, depend ultimately on whether it can change its corporate culture towards a much more innovative, fast-paced and customer oriented entity.

 Whether or not the old energy business can be spun off successfully will depend on whether conventional power plants in Germany can still earn money. They have been in trouble, because renewables have preferential access to the grid and have taken up a large share of the generation capacity. As a result, there was oversupply and the trading prices for power dropped (even as the consumer prices rose). It became increasingly difficult to earn money with conventional plants and investments into new conventional plants came to a standstill. Now the utilities are lobbying the government for so-called “capacity markets” that pay conventional plants to be on stand-by as spinning reserves whenever demand peaks or renewable generation is low.

 Germany has three more large utilities. Of these, the second largest, RWE, plans to stay on its traditional course. Its CEO, Peter Terium, seems to still be at an earlier stage of thought development, recognizing “the situation is serious”. The other two, EnWB and Vattenfall, are now making serious efforts to grow their renewables portfolios and reduce their fleet of conventional plants. Yet, E.On has conducted the most substantial strategy change by far. According to Mr Teyssen, “we live in an age when energy utilities need to reinvent themselves”, but he admits that he has “no blueprint of what E.On will look like in ten years”.

 Amongst large, industrialized countries, Germany has paced ahead with what it calls the “energy transition”. Through large-scale subsidies for solar, wind and biomass (amounting to more than EUR 20 bn per year), it has changed its energy mix. In 2013, renewables contributed 23% to Germany’s power generation. On peak days this number rises to well over 60%. The goal is to achieve an annual average of 80% from renewables by 2050. In addition, after the Fukushima catastrophe (2009), Germany decided to exit nuclear power, which until then contributed about 20% of its power, much more rapidly.

 The way, in which the energy transition in Germany is handled, is closely watched, sometimes praised, sometimes criticized and often observed with puzzlement across the world. Currently the country is half way through the transition, neither here, nor there, incurring all the pains of transition without yet getting many of the benefits: Power prices are amongst the highest in the world, carbon emissions of the power sector are not falling as much as desired, and there are big, unanswered questions around how to create supply security in the future and integrate Germany’s plans into the wider European context. The German energy minister Sigmar Gabriel recently said: “It is an open heart surgery”. And added: “the fact that we are broadly alright has more to do with the good constitution of the patient than with the skill of the doctors”.

 The context in India differs from the German one in crucial ways. First of all, India needs much more power and hence will grow all power sources rather than replace one with the other. Secondly, India is not willing to pay more for power just because it is green. It simply needs all the power it can get, as cheaply and as quickly as possible. Thirdly, India’s grids are less reliable and capable. Also, they don’t supply power to everyone yet (a third of the population is un- or undersupplied). However, despite these differences, Indian utilities should take note and read the writing on the wall.

 The technological change, lowering the barriers of entry in the industry is global. Renewables are becoming ever more competitive. Soon, local and centralized storage will become widely economically viable. Digitization (metering, internet, software) makes energy management very simple and available to local providers and end consumers. The result is a much more flexible, diverse and crowded marketplace. Utilities anywhere, including in India, cannot afford to sleep through this monumental shift.

I believe there are three key lessons the E.On case holds for Indian utilities. Firstly, there is no time to lose. Utilities need to prepare for a different future now, while their traditional businesses are still intact. Secondly, what is required is not only a strategy shift, but also a cultural shift: to be successful in energy in the future, utilities will need people that can develop a customer focus (rather than the prevailing infrastructure focus). A third is that utilities quickly need to stop being part of the problem (seeking to stall change) and instead become part of the solution (working with all stakeholders to best manage the energy transition).

 Tobias Engelmeier is the Founder and Director of BRIDGE TO INDIA

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Weekly update : India to amend its “Electricity Act” – what does that mean for solar?

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The Indian government is planning to amend the Electricity Act 2003 in a fundamental power sector reform. The goal is to break the monopoly of power distribution companies on the end consumer and allow for more effective competition in the last-mile delivery and sale of power (refer).

The proposed amendment of the Electricity Act would have an impact on the viability of solar

BRIDGE TO INDIA believes that fundamental power sector reforms would be very beneficial for the solar power business

These measures will also change the landscape for solar project development in the country

Image source: livemint.com

Currently, the company that owns the last-mile distribution network (usually a state discom), is also responsible for the sale of power to the end customer. The amendment is likely to ‘unbundle’ these two activities. This move could revolutionise the highly politicised and deeply troubled Indian power market, with potentially incisive implications on power pricing (and cross-subsidies) and power quality. It could ultimately move power pricing out of the orbit of political populism and towards a more healthy economy. This in itself would be great news.

 Within the context of solar, any changes in the tariff structure would impact first the attractiveness of solar as an alternative power source for end consumers (socket parity) and later the attractiveness of solar to discoms. It will also impact regulatory provisions on grid-connectivity and net-metering. It might still be too early to analyse these impacts in detail without having more clarity on the nature of the proposed changes. However, in the long run, BRIDGE TO INDIA believes that such a fundamental power sector reform would be very beneficial for the solar power business. Based on our conversations with regulators and political decision makers, we get the impression that the different policy and reform initiatives, including the proposed reform of the Electricity Act, are for once synced and part of a larger game plan to create a functioning power market with a significant share of renewables.

 However, reforming the Indian power sector will not be easy. There are many and complex existing interests in the power sector that will get hurt by these changes. The industry is also notoriously slow and risk averse. India’s complex federal structure, wherein states will have a say in many electricity related matters will make reforms difficult, especially since the current government does not have a majority in the upper house of parliament, the Rajya Sabha. Protests against the proposed amendments are already planned for today (December 8th 2014) (refer link 1 and link 2).

While the proposed amendment of the Electricity Act would have an impact on the viability of solar, the government is simultaneously planning directly targeted measures to quickly grow solar. These include increasing renewable purchase obligations (RPOs) for solar from 3% to 10.5% of India’s electricity mix. This will be coupled with a more robust implementation mechanism and stricter penalties for non-compliance (refer). Apart from RPOs, the government will also mandate a 10% renewable generation obligation (RGOs) for new conventional power projects.

 Apart from the significant rise in the amount of solar power required to meet these new obligations, the measures will also change the landscape for solar project development in the country. Larger power sector companies such as NTPC, Reliance Power, Tata Power, Adani Power, GVK, Essar Energy and Jindal Steel and Power will be drawn into solar project development and their portfolios will not necessarily be limited to their own RGO requirements. Alternatively, existing, smaller renewable IPPs have new opportunities to offer their products (solar power) and services (project development) to the large power players. International companies and investors with larger power sector ambitions and a solar expertise might finally be induced to enter the Indian market. Given the expected growth in the market, all players will need to quickly evolve fund-raising capabilities to gain from this transition.

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Is raising the solar RPO target to 10.5% a good idea?

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India’s new government has been very bullish on growing solar. Plans are underway to revise the National Solar Mission (NSM) target to 100 GW by 2022. There is a lively debate in the industry about the achievability of the targets and about the best ways to reach them. Now, it transpired that the Ministry of New and Renewable Energy (MNRE) wants to increase solar Renewable Purchase Obligation (RPO) targets for obligated entities (including distribution companies) could be raised to 10.5% from the current 3%.[1]Is that a good idea?

An RPO target of 10.5% would be in tune with the government’s goal ofhaving 100 GW of solar by 2022.

Cash strapped distribution companies (discoms) might not be able to bear the burden of purchasing so much solar power

The government is planning to reduce the cost of solar power to discoms through a bundling mechanism and low cost financing

India’s power requirement[2]has grown over the last years by 5.2% p.a.[3] and reached 1,002[4]TWh in financial year 2013-14. BRIDGE TO INDIA estimates that this power requirement will reach 1,580[5]TWh by 2022.

A target of 100 GW of solar by 2022 would mean a generation of 160 TWh/year[6].Solar could then contribute just over 10% to India’s total power requirement. This is very near to the 10.5% solar RPO target. Considering the fact that Germany is already generating 17%[7] from intermittent sources (solar and wind), 100 GW of solar in India will (if managed well) not destabilize the grid.

The biggest impediment to reaching the target will be the resistance or inability of cash strapped discoms to buy (still more expensive) solar power. Currently, only Gujarathas more than 1% solar power.[TE1] This would have to increase in these states and ramp up very quickly in other states.

Figure 1: Expected solar capacity installations for states to meet RPO requirement of 10.5% in 2022[8]

The central government will have to ensure that the cost of solar power should not create an unaffordable burden the discoms. Many of them aremaking losses already. In the draft guidelines launched by the Ministry of New and Renewable Energy (MNRE), 3GW of solar plants are to be promoted through a bundling mechanism with 1.5 GW of unallocated coal power.[9]The MNRE is actively trying to arrange for low cost financing for solar projects to bring the cost down.[10]These efforts make sense but they will have to be vastly expanded in scale. Only setting RPO targets will not achieve the 100 GW of solar capacity by 2022.

If the government is serious about RPOs, it will need to enforce their observance and make this demand-side tool the primary driver for the market. As long as it is still more expensive than non-solar options supply side measures, such as cheap finance, can help lighten the burden to discoms. Once solar achieves significant parity with alternatives, then the supply side measure will presumably no longer be needed. By then, however, having RPO targets is somewhat gratuitous. It will simply make sense for consumers and discoms to by solar power.

In that sense, the RPO targets are a vision statement for what role in the power mix the government envisions for solar. And the vision clearly states that solar will become a mainstream power source, perhaps able to contribute more to India’s power supply than gas, nuclear, or biomass power. It also seems to indicate that the government favors solar over wind, because having an additional 10% of infirm power from wind in the grid might be too ambitious by 2022.

[1] Business Standard article, “MNRE plans raising RPO requirement to 10.5%”, http://bit.ly/1I7gigo

[2]Power requirement is a measure of power consumption plus power deficit

[3]CEA LGBR report from 2008-09 to 2014-15

[4]CEA LGBR report 2014-15, http://bit.ly/1evyRKI

[5] Refer to our report, “How should India drive its solar transformation? Beehives or Elephants”, http://bit.ly/Vq9pmR

[6] Assumption: Average CUF of 18.2%

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

[8] BRIDGE TO INDIA analysis

[9] Refer to our blog, “MNRE releases draft guidelines for 3,000 MW solar under NSM”, http://bit.ly/12EFOtw

[10] Refer to our weekly update, “India looking at all options for low cost financing of solar projects in the country”, http://bit.ly/1CLcFN8

Mudit Jain is a Consultant at BRIDGE TO INDIA

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What makes Tamil Nadu a leader in the Indian rooftop solar market?

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BRIDGE TO INDIA recently carried out a first of its kind analysis on India’s rooftop solar market in India (refer here). It is based on extensive interviews the team has conducted with almost all stakeholders in the market over the last few months. With about one-fifth of all rooftop solar installations concentrated in Tamil Nadu, the state has emerged as the largest rooftop solar market in the country.

Adoption rates seem to be driven by growing consumer awareness, leading to less business development effort by the installers and EPC companies

Long and frequent power cuts and high usage of expensive backup sources of power have made solar attractive.

However, Tamil Nadu has currently achieved a much more stable power supply, leading to a reduction in solar demand. We believe that this is a short term effect.

Awareness and dissemination of knowledge is crucial if the rooftop solar market is to grow

The primary reason why Tamil Nadu has been a good market for rooftop solar has been the high awareness of consumers towards intermittent sources of energy in the state. The state is one of the early movers in wind technology and has the highest installed wind capacity (about 7 GW) in India. Several large, industrial consumers have already opted for wind based power to save on energy costs. Due to wider awareness, the effort on customer education and business development is comparatively lower than in other Indian states. On an average, in India, the business development efforts to convince clients to go solar is still upwards of six months. This comes at a significant cost to service providers. By saving on this effort, system costs can be reduced and turnaround time improved.

Another reason for the higher adoption of rooftop solar has been the long duration of power cuts faced by industrial customers who have to resort to costly power backup options like diesel gen-sets.

Source: Bridge to India analysis

In the past year, the grid power supply situation in Tamil Nadu has improved, leading to a market downturn in demand for solar rooftop systems. We believe, however, that this is a short term effect and that energy economics will make solar an attractive choice in Tamil Nadu again, soon.

Jyoti Gulia is Senior Manager – Market Intelligence at BRIDGE TO INDIA.

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How India can install 30 GW distributed solar projects by 2022

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India’s new government is revamping the National Solar Mission (NSM). The target has been revised to 100 GW by 2022 from the originally envisaged 20 GW. Based on unconfirmed information, 30 GW has been earmarked to come from distributed generation. This target is very ambitious, considering the fact that India’s current distributed solar capacity is only 285 MW, which is less than 1% of the target (refer to our recent India Solar Rooftop map).

Space will not be a constraint for installation of 30 GW as the theoretical potential of rooftop solar in India is over 132 GW by 2022 (refer to our recent report)

Not the entire 30 GW can be built on government subsidy – nor is it necessary. But government support can help kick the market off

Cost effective storage solutions will be the game-changer for the distributed solar market

Until now, the Indian solar market has been dominated by utility scale projects. They make up over 90% of the current 3 GW (as per the BRIDGE TO INDIA project database). We believe that a healthy distributed solar market will lead to a sustainable growth of the entire sector. However, first reaching scale in distributed generation is significantly more challenging than in utility scale projects.[1]

The definition of distributed systems will be crucial in achieving this target. Apart from rooftop projects, the government might include small ground mounted projects and micro grids under the distributed system category.

The potential for solar on India’s rooftops is huge. We estimate the realizable potential in the industrial and commercial segment at 62 GW and in the residential segment at 70 GW.[2] From this perspective India’s plan to install 30 GW is feasible.

Without government support, however, the growth in the Indian solar rooftop market will not be sufficient to reach the target. BRIDGE TO INDIA estimates that India could add only 1.5 GW of rooftop solar by 2018 without any government support, just based on commercial parity.[3] To accelerate adoption, the government needs to make solar more attractive.

Though the Ministry of New and Renewable Energy (MNRE) has in the past already offered subsidies for rooftop projects, only 36 MW out of the 285 MW (13%) of current projects have actually received it. Since the subsidy has not been available as widely and as quickly as needed, it has had an adverse effect and stalled the market development. Recent statements by Power Minister Piyush Goyal, clearly suggest that the ministry understands the shortcomings of the old system and is ready to provide a more supportive framework.

In addition, the government has to create a market for rooftop solar. The first step in this direction is consumer awareness. While the idea of generating power from solar is intuitively appealing in a country that suffers from heat and power cuts, very few consumers are actually knowledgeable enough about the pros and cons of solar to take a purchase decision. Especially residential consumers are largely unaware of the mechanism and uses of solar power. The government should support channels for consumer education.

A third aspect is clear and transparent grid rules: net-metering should be implemented across all states. Additionally, accelerated a depreciation benefit or tax credit could be made available to retail consumers for enhancing the viability of residential solar systems. The biggest impediment for adoption of solar power is the high up front cost. The government should extend priority sector status to solar installations to ensure easier access to consumer finance.

In most parts on India, the grid is unreliable. Only some urban, semi-urban and industrial areas enjoy continuous power supply. Grid-connected solar systems will not be able to penetrate into areas of lower power security unless they can provide a solid back-up solution. This could be achieved first in conjunction with diesel gensets. Later it would be achieved through cost-effective storage. This would be the real game-changer for the distributed solar market.

[1] Refer to our blog, “Utility scale projects are easiest to implement in India due to an existing track record”, http://bit.ly/1rSvVni

[2] Refer our report, “How should India drive its solar transformation? Beehives or Elephants”, http://bit.ly/Vq9pmR

[3] Refer our India Solar Rooftop Map 2015, http://bit.ly/1sUbqUK

Mudit Jain is a Consultant at BRIDGE TO INDIA

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Weekly update: Can India achieve 100 GW solar in 8 years?

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Last week, speaking at a UNEP and FICCI conference on ‘Designing a sustainable financial system for India’, the Minister for Coal, Power and Renewable Energy, Shri. Piyush Goyal reiterated the government’s plan to achieve 100 GW of solar by 2022. This is a very ambitious goal – to say the least. Is it feasible? The short answer is: it depends on political will. And it will require a huge amount of political will. Initial demand creation through an enhanced obligations mechanism, an increased role for distributed generation, an escalation based tariff structure and non-subsidized growth of the sector are some of the highlights of how the government is thinking of going about it.

The government is planning to give a new impetus to the solar sector

The ministry clearly understands that the solar sector at this scale cannot be driven by subsidies and steps need to be taken for it to become commercially viable and sustainable

BRIDGE TO INDIA believes that achieving the distributed generation target will be most challenging but perhaps also most rewarding for a sustainable market growth

Indian workers walk past solar panels at the Gujarat Solar Park at Charanka in Patan district, about 250 kilometers (155 miles) from Ahmadabad, India, Saturday, April 14, 2012. Gujarat state Chief Minister Narendra Modi will dedicate the 200 megawatt solar power park, along with other solar projects totaling 600 megawatts of power on April 19. (AP Photo/Ajit Solanki)

Image source: blog.comparemysolar.co.uk

To drive the initial demand, the government is working on amending the Electricity Act 2003 to increase the Renewable Purchase Obligation (RPO) targets, introduce Renewable Generation Obligation (RGO) targets and bring in an enforceable penalty structure for non-compliance. Since a significant part of the power generation capacity in the country is owned by central government and private power generators, implementing RGOs might be easier. For RPO-driven renewables demand to work, India’s many states will need to come on board to accept the amendments. The government will also need to ensure that buying solar power is viable for state distribution companies. Unless larger power sector reforms improve their profitability, this is a tough proposition.

 Larger scale, streamlined development through solar parks, lower interest rates and staggered payments through an escalated tariff are some of the ideas the new government is already working on to ensure that buying solar power is an attractive option for power distribution companies. Based on unconfirmed information, the government plans to achieve 60-70 GW through large-scale projects and the remaining through distributed generation (up from a current total of only 300 MW distributed solar).

BRIDGE TO INDIA believes that achieving the distributed generation target will be most challenging but perhaps also most rewarding for a sustainable market growth. How the government defines distributed generation will also be crucial. China currently classifies anything below 20 MW (!) as distributed generation. (It was just a last-minute reclassification to help achieve previously defined targets, read more).

At the conference, the Minister also discussed the idea of leasing small parcels of not-so-fertile land from farmers for setting up small-scale projects that can freely feed the power back into the grid. Whether this will become a more substantiated plan and whether such projects would be considered as distributed generation is yet to be seen.

It is clear that the ministry understands that the solar sector at this scale cannot be driven by subsidies and steps need to be taken for it to become commercially viable and sustainable. This is an encouraging sign and the expectations are only building up. We hope that a suitable action plan is announced soon. This 100 GW plan will be India’s showcase at the climate conference in Lima starting today and will determine how India is seen as a global investment destination.

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