Month: January 2015

In a US-India joint statement released yesterday (26th January 2015), the US reiterated its intent to support India’s proposed targets on clean energy and climate change. The statement includes seven measures: expanding Partnership to Advance Clean Energy Research (PACE-R), expanding Partnership to Advance Clean Energy Deployment (PACE-D), accelerating clean energy finance, launching air quality cooperation, initiating climate resilience tool development, demonstrating clean energy and climate Initiatives on the ground and concluding MOU on energy security, clean energy and climate change (refer).

 Based on the recent announcements, projections for overseas funding commitments for Indian solar projects and green energy corridors has gone above USD 8 billion

The Indian government expects significant international support, especially from the US, in meeting the 100 GW of solar by 2022

The Indian government’s emphasis on simplifying rules and making it easier to conduct business in India is the correct policy path to pursue

On clean energy finance, the US President Barack Obama provided an additional investment commitment of USD 2 billion for renewable energy in India by US Trade and Development Agency (USTDA). This is over and above the USD 1 billion commitment made by US-Exim supporting made-in-US equipment supply to India. A MoU for the import credit commitment has already been signed between US-Exim and Indian Renewable Energy Development Agency (IREDA). It is not clear if the USTDA commitment involves a compulsory or preferential US import requirement. Financing by Overseas Private Investment Corporation (OPIC), US government’s developmental bank, did not give any special preference to US equipment while financing Indian solar projects by Azure and SunEdison in the early days of the market.

These new announcements take the proposed overseas funding commitments for Indian solar projects and green energy corridors to above USD 8 billion (refer) including other similar (mostly in-principle) commitments made by World Bank, IFC, kfW, ADB and US-Exim. To put this in perspective, India needs investments to the tune of USD 100 billion until 2022 for the ambitious 100 GW target.

India has been using the target of 100 GW solar by 2022 as a key bargaining chip in climate change negotiations. The Indian government expects significant international support, especially from the US, in meeting these commitments. The support pledged by the US falls way short of those expectations. But it needs to be appreciated that unlike countries like China and Russia where it is a centrally driven command economy, investments from USA are driven by the private sector. Rather than expecting the US government to make significant commitments, India needs to provide an attractive investment environment for the privately owned US companies and financial institutions (and from other countries).

The Indian government’s emphasis on simplifying rules and making it easier to conduct business in India is the correct policy path to pursue. Together with a stable regulatory regime and clean governance, that will drive investments not only in renewables but also in the wider economy.

In 2011, the per capita electricity consumption of Patna, the capital city of Bihar, was only 601 kWh[1] and even though it is a capital of one of India’s largest states, this is 23% lower than the national average of 780 kWh[2] and significantly lower than the global average of 3,044 kWh[3]. This shows that the city is still very far from providing enough power to its population.

BRIDGE TO INDIA’s modelling revealed that Patna has a geographical potential to install around 759 MW of rooftop solar

Analysts at BRIDGE TO INDIA have envisaged a road map for Patna to help meet its energy demands by adopting solar in a phased manner

The city could add 277 MW by 2025 without significant technical challenges, storage requirements or dedicated grid investments. Thus, solar could meet about 20% of the city’s power requirement

Bihar relies on power generated outside the state for about 70%[4] of its requirements. In addition, the state has a power deficit of 29%[5] and suffers from very high transmission and distribution (T&D) losses of around 38%[6]. This leads to frequent power outages. In the state capital, Patna, they range between two and nine hours a day. The power deficit is a key bottleneck for industrial and commercial growth as well as higher standards of living.

The key challenges faced by Bihar state power holding company ltd. (BSPHCL) include an ageing infrastructure, pilferage of power, a high cost of power generation, rapidly rising demand and ineffective energy accounting. All of these lead to a financial losses and curtail the SEB’s abilities to improve the situation.

Patna is the key driver of Bihar’s economy. An improved power situation in the city can help bring much needed investments into the state. For this to happen, Patna needs to de-couple itself from the overall power situation in the state and the region.

Patna should become a leader among cities and consider transformational changes in its power supply that will not only solve the city’s problems but also change the way it is perceived economically and politically.

Currently, the Bihar government plans to set up several coal-based power plants to meet the state’s power requirements internally. However, there is a nation-wide shortage of coal. Cost of imported coal is rising. The utilization factor of coal plants is falling. Even if the supply of coal is secured, pollution would increase substantially. Relying on coal alone is a risky proposition. Solar power, an energy source that is both easily and quickly installed and can be deployed in a distributed manner across Patna’s million rooftops, should be a key building block of Patna’s energy future.

If the power is generated at the point of consumption, the huge T&D losses can be avoided. Moreover, solar can help reduce the dependence on coal deliveries and on power producers from other states. In the beginning, solar power could help meet day time power requirements and conventional power could continue to meet peak demand for the evening and night time. Gradually, solar can start playing a more active role in eradicating the power deficit of the city.

This can be a financially sound investment. In Bihar, the Average Power Purchase Cost (APPC) for utilities has increased by 190% since 2005, but the tariffs have increased by only 30% in the same period. As a result, the erstwhile Bihar State Electricity Board (BSEB) incurs significant losses amounting to INR 16,180 m (USD 270 m) or INR 1.01/kWh (USD 0.017/kWh) for the power sold in 2011-12.[7] A higher adoption of distributed solar will lead to private sector investments and help reduce the burden on the state.

Based on the rooftop space availability for optimum solar power generation, we estimate that Patna has a geographical potential to install 759 MW of rooftop solar. This is significantly greater than the anticipated peak summer power demand of around 600 MW in 2014. It might not make sense to realize the entire solar potential and thereby generate excess power in the city. This excess power would need to be transmitted to other consumers in the state outside the city limits through investment in the grid. Also, such a high share of solar power would likely lead to issues related to balancing of loads and the local grids. Therefore, for the purpose of this study, we propose that 20% of the city’s power requirements comes from solar. This will not pose technical challenges or require costly investments into the grid infrastructure. It would still allow for a solar capacity addition of 277 MW by 2025.

The question then is: how can Patna go solar? Solar without storage is already very close to matching the cost of power from new coal plants. However, while storage can make solar a back-up power supply, it is still expensive and can distort the dynamics against adoption of solar. The challenge is to ensure a stable power supply before asking a customer to adopt commercially attractive solar (without storage). To solve this conundrum, we propose a phase-wise adoption of solar without storage. Adoption of solar can start in the areas with the fewest power cuts. The industrial areas in Patna and some of the residential areas in the city, for example, already receive a fairly reliable power supply. Mass adoption of solar power in these areas will allow for greater supply of power for other areas. This excess power can then create another area of reliable power. Subsequently, adoption of solar in this new area of reliable power can again have the similar impact and the process can be replicated through the city.

In the beginning, the government will need to invest into making the proposition viable for private investors. This can be done in the form of tax incentives, generation based incentives (GBI) and/or upfront capital subsidies. Distributed solar power is expected to reach parity with landed cost of conventional power for the government by 2019 and with the tariff for the consumer by 2021. Based on the roadmap provided in this report, if the government invests INR 1,496 m (USD 25 m) for a GBI, it will save INR 5,892 m (USD 98 m) in the next ten years.

Over time, as solar power becomes more competitive, policy makers can focus more on facilitating rather than incentivizing solar power for the end consumers. In the long term, solar power will make Patna more resilient and independent.

CEED and BRIDGE TO INDIA analysis

Combined Business Plan for North Bihar Power Distribution Company and South Bihar Power Distribution Company, by BSPHCL, in 2012 http://bit.ly/1icUnqz

World development indicators, by World Bank, http://bit.ly/1pSBvSq

“Combined Business Plan for North Bihar Power Distribution Company and South Bihar Power Distribution Company”, by BSPHCL, published in 2012, http://bit.ly/1icUnqz

“Load generation balance report”, by Central Electricity Authority, published in 2013, http://bit.ly/1evyRKI

Tariff order, Bihar Electricity Regulatory Commission, published in 2013, bit.ly/1oN4iZO

Combined Business Plan for North Bihar Power Distribution Company and South Bihar Power Distribution Company”, by BSPHCL, published in 2012, http://bit.ly/1icUnqzTobias Engelmeier is the Founder and Director of BRIDGE TO INDIA

Ever since the new government was sworn in, India has been making all the right noises about its ambitions for solar power. Both Prime Minister Modi, and the Minister for New and Renewable Energy, Mr. Goyal, seem determined to achieve an ambitious target of 100 GW by 2020. After the headline items have been absorbed and expectations have risen, it is now time for delivery. They have their work cut out for them. It cannot be a straightforward process as the goal is so ambitious, the market environment complex and the technologies changing. However, it needs to be much more thought through than it is at present.

 The Indian government’s roadmap to achieving 100 GW in 5 years shows quick initial ramp up

Plans to add 20 GW by 2018 in the rooftop solar segment needs substantial policy push

Government’s ambitious solar target requires an expanded and improved institutional infrastructure to support a complex, new policy process: an excellently staffed “Central New Energy Command”

Last week, in a run-up to the RE Invest India conference to be held in Delhi in February, a tweet from the official RE-Invest 2015 handle for the first time published a year-by-year road map on how the government intends to ramp up solar capacity. 

TITLE: The Indian government’s roadmap to achieving 100 GW in 5 years

This plan shows a very quick initial ramp up from the current 1 GW per year market size. In the upcoming financial year, the government wants to install 7 GW, of which 3 GW is to be of rooftop solar. That is a 100-fold increase from the current total rooftop capacity. In the year after that, India is to be a 18 GW solar market. No country has ever added 18 GW of solar in a year.

According to the BRIDGE TO INDIA analysis, an un-incentivized rooftop solar market would add 1.5 GW by 2018. In the roadmap, the government is planning to add around 20 GW by the same time. Achieving this will need a substantial policy push. As of now, we have little idea about what that might be. The only substantial announcement so far has been a plan to provide an interest rate subsidy by using around EUR 1 bn of funds from the German KfW. However, even this has not yet been formalised and it would take at least a year to become operational. The government has also been tinkering with the subsidy mechanism (refer) but that too doesn’t seem to be adding up to any larger plan.

The most active market segment at present is utility scale capacity addition through the solar parks model. Yet this, too, is not without roadblocks. There is still some confusion on what parks are ready for the first 3,000 MW of allocations to be auctioned by March 2015. The guidelines for allocations have been changed multiple times in the past weeks, as the situation changed on the ground due to land, infrastructure and funding challenges (refer). International developmental banks have been asked to finance these parks, but there is still not enough clarity on the business models and on how this could work from a lender’s (and investor’s) perspective. Under the current conditions, many investors might just decide to give this opportunity a pass.

BRIDGE TO INDIA continues to believe that India can achieve its ambitious solar targets, but it will need to rapidly step up its policy planning and implementation. What India actually wants to do, is to significantly shift its future energy mix towards renewables. That is strategically sound, but definitely not business as usual. It requires an expanded and improved institutional infrastructure to support a complex, new policy process: an excellently staffed “Central New Energy Command”. That should be the starting point.

Even with this in place, a build-up as rapid as anticipated will be a stretch. It just takes time to fine-tune the details of a successful policy. Long delays have plagued Indian policy making in solar and other areas in the past. Given the strong economic fundamentals behind solar market growth in India, the goal could more easily be reached with a slower initial ramp up and larger additions towards 2020.

In the current policy environment, and given the time pressures created by this roadmap, we see the danger of a knee-jerk reaction: if the market is not quick enough to react, then the government will simply push large projects through directly, using a select group of public and private companies, whose decision-making calculus includes factors not related to the solar opportunity at hand. This will undermine competition and slow down the fall of solar costs. It might lead to a faster capacity addition in the short term, but carries the risk of the market stalling. For solar to be the big success in India that it can, it needs a wide spectrum of innovative players (including start-ups and international companies), a predictable policy framework and a large range of financing options.

The revised guidelines have been issued for implementation of tranche-I of batch II under phase II of NSM for 3,000 MW (see here). The development of the solar park in Andhra Pradesh is delayed due to land acquisition challenges. The delay has hampered the plan of Ministry of New and Renewable Energy (MNRE) to complete project allocation by March 2015. With the increased targets and strict deadlines, the bureaucratic machinery underneath is finding it difficult to keep up and issues with the implementation of solar parks seem far from being resolved. The salient changes in the guidelines are:

Projects can be set up outside of the solar park, too

The minimum project size has been reduced from 50 MW to 10 MW to encourage more competition

Some limited mitigation has been provided for development risk of solar park. But relief is provided only up to three months  and there is no provision of compensation, liquidated damages or deemed generation for developers due to such delays. BRIDGE TO INDIA is of the opinion that the provision of extra time should not be limited and must be extended in line with delays in implementation of solar parks

The maximum capacity for a single bidder has been capped at 300 MW in a single lot

For the first time, the bidding process will be conducted electronically. Solar power will be bundled with unallocated coal power from NTPC on a 2:1 basis (two units of solar with one unit of coal). This bundling mechanism reflects the extent to which the cost of solar power has fallen. In phase I, the bundling ratio for solar power and coal power was 1:4. The power will be purchased by NTPC Vidyut Vyapar Nigam (NVVN), which sells it on to state distribution companies.

The initial power purchase agreement (PPA) would be for 25 years. However, the developers will be allowed to operate the plant for longer period. The extension after the period of 25 years will be based on mutual agreement between developer and NVVN. The guidelines consider a plant life of 40 years. The developers will be free to reconfigure and repower their plants from time to time during the PPA duration.

Earlier, the MNRE was planning to allocate the capacity in three parts of 1,000 MW each for three states – Andhra Pradesh, Telangana and Madhya Pradesh. The guidelines have been reworked such that MNRE can decide the lot size and state depending on the readiness of solar parks and willingness of distribution companies to buy power. The domestic content requirement (DCR) is yet to be defined for each lot. The minimum project size has been reduced from 50 MW to 10 MW. Since these guidelines do not distinguish between developers claiming AD and developers not claiming AD, this puts pure renewable IPPs at a considerable disadvantage.

The removal of complicated two stage bidding process as suggested in the draft guidelines (January 5th 2014) is a welcome step.

 BRIDGE TO INDIA’s key observations and suggestions on the guidelines are as follows:

        i.            If the government is unwilling to underwrite solar park development risk, the project developer are likely to shun this alternative altogether. The project developers must be provided with suitable compensation in case of delay in solar park development

       ii.            Pricing differential needs to be provided between AD and non-AD investors to provide a level playing field

      iii.            Developers should be provided a mock session to the electronic bidding tool in advance of the actual bidding so that they are familiar with the process

Since the beginning of India’s push for solar energy and the launch of the National Solar Mission in 2009, two segments of the solar market have been in focus for both corporations and national and state governments – utility scale and distributed segments. The former’s realizable potential has been estimated by BRIDGE TO INDIA at 53-69 GW by 2024 and the latter at 57-76 GW[1] However, only the utility scale segment has been able to establish a strong foothold in India’s energy sector. As of October 2014, 90% of approximately 3,000 MW of solar PV installations are attributed to the utility scale solar segment. The distributed segment, on the other hand, has contributed less than 10%, totaling a mere 285 MW[2]For the distributed markets to grow faster, a practical solution is needed.

 Consumer awareness: consumer need to be educated to understand the benefits and limitations of solar

Decision making tools: Consumers also need the right tools to assess and choose the right solar solutions for themselves

BRIDGE TO INDIA has developed IndiaGoesSolar.com (IGS) as a comprehensive solution for consumers who are thinking of going solar

Unfortunately, while the utility scale solar market is well on its way to becoming a stable consolidated segment, the distributed market is still facing a steep uphill battle. There are a number of contributing factors, but the most difficult to overcome is customer ignorance about solar. An online survey we conducted found that over 90% of customers view solar as either important or somewhat important for India and for themselves. The survey also found that there are prevailing misconceptions and a general lack of awareness and confidence on solar PV’s capabilities. The customers are usually surprised when they learn of solar’s adaptability to their unique power needs.

However, the story is not all that gloomy for the distributed segment. There is light at the end of the tunnel: By October 2014, solar commercial systems crossed grid parity in eight states without using accelerated depreciation (AD). The number rose to 13 states when AD was added to the mix. Meanwhile industrial systems, using AD, have crossed grid parity in 11 states[3]. Our assessment is that falling solar prices and rising demand will be the main driver for adoption of solar in these states.

BRIDGE TO INDIA projected that based in the commercial fundamentals alone, India will add 1.5 GW of rooftop solar capacity in the next four years. This represents approximately USD 2 billion[4]. Meanwhile, the Indian government is targeting 40 GW of distributed solar capacity by 2020[5]. To achieve this scale the solar rooftop market is in need of a solution that not only spreads awareness but also offers the consumer tools to determine solar needs, and correct and reliable information about solution provides.

Acknowledging this requirement, BRIDGE TO INDIA has developed INDIA GOES SOLAR (www.IndiaGoesSolar.com), unique website designed to help end consumers make informed decisions about going solar. The website features a solar calculator, educates consumers about solar and its capabilities through easily consumable articles, publishes unbiased reviews of solar products, provides a curated list of solar installers and suppliers in every state, and a dedicated platform for the solar enthusiasts to discuss and clarify issues or concerns. The website will also partner with a number of regional newspapers and magazines to help consumers make informed choices. IGS has already started to make an impact. MNRE recently tweeted about it and consumers are coming on the website through organic search.

For the distributed market to grow at a substantial pace and solidify itself, all industry stakeholders will have to work together to eradicate the lack of consumer awareness. It is a mammoth task, one that INDIA GOES SOLAR is dedicated to overcome in order to help the market grow.

[1] BRIDGE TO INDIA estimates. See our report “Beehives or Elephants”. (http://www.wordpress-117315-688799.cloudwaysapps.com/blog/reports/2128-2/)[2] BRIDGE TO INDIA market intelligence. See our India Solar Rooftop Map 2015 (http://www.wordpress-117315-688799.cloudwaysapps.com/our-reports/indian-solar-map/)[3] BRIDGE TO INDIA market intelligence. See our India Solar Rooftop Map 2015 (http://www.wordpress-117315-688799.cloudwaysapps.com/our-reports/indian-solar-map/)[4] Using current market average of INR 8 Cr/MW and current currency conversion rate INR 60/USD.[5] MNRE’s target for rooftop solar by 2020. (http://mnre.gov.in/file-manager/UserFiles/Press-Release-Grid-Interactive-Solar-Rooftop.pdf)

At the ongoing Vibrant Gujarat Summit 2015, Adani Enterprises and SunEdison have announced a partnership to explore building an integrated solar manufacturing facility worth USD 4 billion at Mudra, Gujarat (refer).

 This partnership to culminate into the biggest solar manufacturing related announcement till date

These manufacturing decisions are driven by compelling fundamentals of cost of manufacturing, domestic consumption and export

If new domestic capacities are globally competitive, there is enough room for such capacities to be set up

 The envisaged facility will vertically integrate poly-silicon refining along with ingot, wafer, cell and panel production. It would also include a broader ecosystem involving extended supply chain for raw materials and consumables. This is the biggest solar manufacturing related announcement in India till date. However, actual implementation is still subject to a feasibility study. If realized, the facility is expected to begin production in around 2019. In 2014, SunEdison had made similar announcements to set up a poly-silicon refining facility in China (refer) and a fully-integrated manufacturing facility in Saudi Arabia (refer). All these facilities, including the one planned in India have been touted as “the lowest cost in the industry”. Whether all or only select of these announcements will go through is yet to be seen.

BRIDGE TO INDIA is also aware of other ongoing efforts by leading Chinese and American module manufacturers to set up manufacturing facilities in India. This seems like a victory for the country’s ‘Make in India’ proposition. Is this driven by Domestic Content Requirement (DCR)? Far from it. India can only impose domestic content requirement until it is providing direct incentives to the sector. According to the guidelines for phase two of the NSM, there might be no direct incentives beyond 2018, at least for large scale projects. Until now, only 1,000 MW has been earmarked for DCR. Even for new manufacturing facilities than can come up within 2015-16, the premium for DCR sales will be limited to a couple of years. These manufacturing decisions have to be driven by compelling fundamentals of cost of manufacturing, domestic consumption and export. All of these might not be there yet but things seem to be moving in the right direction.

 India is soon expected to become a 3 GW per year solar market and then grow from there on. The current operational cell manufacturing capacity in the country is less than 400 MW a year. If new domestic capacities are globally competitive, there is enough room for such capacities to be set up. Overall, ‘Make in India’ is a promise for new companies such as Adani and existing international globally competitive companies such as Trina Solar and SunEdison. However, it is unlikely to considerably change fortunes of existing Indian solar cell and module manufacturers unless they are able to raise capital or enter into partnerships to invest into becoming globally competitive through upgrading and expanding their capacities. Up-gradation and expansion is expected to be a continuous process for anyone looking to get into solar PV manufacturing.

On the very first day of 2015, the Ministry of New and Renewable Energy (MNRE) has notified proposed changes to the rooftop solar subsidy (refer). The two major changes are: reduction of subsidies from 30% to 15% and a lower priority for subsidy disbursement to industrial and commercial consumers.

The funding available for subsidy mechanism does not nearly meet demand and that this makes it actually counterproductive

Just like the water heater subsidies, the subsidies for industrial and commercial customers could have simply been revoked altogether

So far less than 15% of the installed rooftop solar capacity has made use of the subsidy

BRIDGE TO INDIA has been arguing for quite some time that the funding available for the subsidy mechanism does not nearly meet demand and that this makes it actually counterproductive. The earlier subsidy scheme has arrested growth even for those industrial and commercial consumers in the country for whom rooftop solar was already a viable option even without government support. The vague (and ultimately unfulfilled) promise of getting subsidies has led customers to just wait and see (refer).

Thus, there was an urgent need to overhaul the scheme and we are happy to see that the government has taken a first step in that direction. However, we believe that overall, the proposed new policy is still flawed. Just like the water heater subsidies, the subsidies for industrial and commercial customers could have simply been revoked altogether. This might sound counterintuitive, given that the government is planning to raise the target for distributed solar to 40 GW by 2022. However, it is clear that a subsidy will not in itself help achieve this highly ambitious target. It could only support a tiny fraction of this capacity and hence its only purpose could be to accelerate a market.

According to a recent BRIDGE TO INDIA analysis, so far less than 15% of the installed rooftop solar capacity has made use of the subsidy (around 40 MW out of 285 MW – refer to our “India Solar Rooftop Map”). Even within that, currently the EPC companies that are able to avail the subsidy (the so-called “channel partners”) also attach a premium to the project cost. This is broadly on two accounts: firstly, they have to use Indian modules that can be 5-10% more expensive and secondly, they put a value to all the hassles, delays and risks associated with the subsidy disbursement. A 15% subsidy will put such players and projects on almost a level playing field with those that are operating outside the realm of subsidies. Thus, the subsidy might not even accelerate the market towards a 40 GW. Its only function might then be to protect domestic manufacturers in a niche market of “subsidised rooftop solar” worth perhaps 50-100 MW (depending on the actual subsidy amount made available).

There is currently still too much ambiguity left in the proposed new policy to contribute in any meaningful way to the larger objective of increasing the market size by a factor of more than 100. If the target of 40 GW is to be reached, the focus has to change from government incentives and protection of domestic manufacturers in niche markets to the creation of an overall, attractive market. The latter includes: financial innovation, availability of reliable information, standardisation of PPAs, and clear and predictable grid rules for grid access. In the commercial and industrial segment, the rest will be done by the dynamics of energy pricing: rising tariffs and falling solar costs. In the residential segment, subsidies make more sense as the viability gap is still too large for solar to gain significant ground without support. However, for residential rooftop subsidies, too, we need a predictable framework in which available subsidy meets the expected demand for it.

Overall, BRIDGE TO INDIA believes that this will have a small positive impact on market growth. However, with the raised expectations of a 100 GW target, we are still waiting for policies that can be substantial building blocks in a comprehensive and ambitious policy framework that does justice to the very ambitious national goals.

India finalizes amendments to the REC mechanismIn other news, on 30th December, the Central Electricity Regulatory Commission (CERC) has released the final order for the third amendment to the Renewable Energy Certificate (REC) regulations (refer). Two key changes that have been enacted are: the new floor price for solar RECs now stands at INR 3,500/MWh and the forbearance price at INR 5,800/MWh and, under a vintage REC mechanism, older solar projects registered under the REC mechanism will get a multiplier on RECs for every MWh of energy. BRIDGE TO INDIA’s analysis to the changes suggested in the draft stage of the amendment can be accessed here. Most of the changes proposed at the draft stage have been incorporated.