Category: Policies & Regulations

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.

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

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.

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

Karnataka Electricity Regulatory Commission (KERC) issued an order on August 18th 2014 exempting open access charges for solar projects within the state (refer). Karnataka is the first state in India to give a long-term visibility on the open access charges. This is a very good precedent. Uncertainty around grid charges is a key deterrent for a healthy development of open access solar transactions in India. The highlights of the order are:

Wheeling, banking and cross subsidy charges are exempted for open access and captive solar projects

This exemption is provided for 10 years from the commercial operation date (COD) for all projects commissioned before 31st March 2018

Captive solar plants availing REC benefits are liable to pay wheeling, banking and cross subsidy charges as per KERC order on 9th October 2013 (refer)

Most of the 41 MW utility scale solar plants currently commissioned in Karnataka are selling power to the state distribution companies through the state solar policy. The open access market for solar has not yet taken off in Karnataka. KERC’s tariff order for solar plants dated 10th October 2013 exempts wheeling, banking and cross-subsidy charges up to March 2018 while the current order provides better clarity and exempts the charges for a ten year period from commissioning of the plant. Currently, the open access charges being levied in the state for other renewable sources are as follows:

 
Percentage of energy injected into grid

INR/kWh

Source
Wheeling charges (for wind and mini-hydel)
5%

–
KERC order on “wheeling & banking for renewable energy generators” dated 9th October, 2013Banking charges (for wind and mini-hydel)
2%

–
Cross subsidy chargesIndustrial (11/33 kV)
–

0.31
BESCOM tariff order 2013-14Commercial (11/33 kV)
–

1.74

Assuming these charges are levied on solar projects for its lifetime, the solar PPA tariffs would increase by INR 1.8/kWh for industrial consumers and INR 2.0/kWh for commercial consumers as opposed to exemption for first ten years of operation. The change is different for commercial and industrial consumers due to different cross subsidy charges for both consumer categories.

Long term foresight on open access charges reduces the risk in cash outflow due to uncertain charges which in turn helps investors predict their returns from the project with more certainty. Developers can secure financing for open access projects more easily leading to better capacity addition of solar power through open access. This can boost investor confidence and lead to healthy growth of solar industry in the state.

The clarity on open access charges makes Karnataka a very attractive destination for solar projects with three different avenues for solar capacity addition. Firstly, plants for third party sale of power and for captive consumption will likely to come up to cater to the large number of commercial and industrial entities in the state. These consumers are interested in buying solar power at a price that is lower than the grid tariff. Secondly, the state policy target was increased to 2,000 MW by 2021 out of which 150 MW is under construction and bidding was recently undertaken for an additional 500 MW. Third, the rooftop segment will get a significant boost with the introduction of net metering policy expected later this year. Such a multi-directional approach was also adopted by Gujarat which went on to become the leading state for solar capacity. This brings us to the question, is Karnataka the next big destination for solar?

Srikant Kumar – Analyst , Project development at BRIDGE TO INDIA

In a major relief to the solar sector, the Ministry of Finance (MoF) has not acted upon the recommendations made by the Ministry of Commerce (MoC) for imposing anti-dumping duties on import of solar cells and modules. No official communiqué has been issued by the MoF yet but the deadline of 22nd August 2014 for acting upon the recommendations has gone by.

Government to focus on growing the market and thus promote domestic manufacturing

Indian government can focus on its ambitious plan for the industry

NTPC is on board and planning to build over 3000 MW of solar capacity in the coming years

The Ministry of New and Renewable Energy (MNRE) under the current minister, Piyush Goyal, is known to have played a key role in ensuring that the duties were not enforced. In an interactive session held on Friday (22ndAugust 2014) between the new minister, ministry officials and stakeholders from the developer and manufacturing community, a very clear message that came out was, current capacity of domestic manufacturing is not large enough to cater to the ambitious plans of the new government and that the government is not willing to wait for domestic manufacturing to grow before increasing the size of the market. Instead, the government is going to focus on growing the market and using that to promote domestic manufacturing. BRIDGE TO INDIA believes that such a pragmatic approach is best for the market.

Now that the anti-dumping hurdle is out of the way, the Indian government can focus on its own ambitious plans. During Mr. Goyal’s speech on 22nd August 2014, it became apparent that, he considers the current policy framework and industry strength does not match up to the solar installation targets that the government is keen to achieve. The minister conveyed that the new government wants to see 5-7 GW of additional solar PV installations per year.

In a bid to bypass the perceived shortcomings in the current market, MNRE is mooting the concept of Renewable Generation Obligations (RGO) to bring the large traditional power generators into the solar market. The National Thermal Power Corporation (NTPC), that shared the dais with the ministry officials in the meeting, has already been brought on board and is planning to build over 3000 MW of solar capacity in the next years.

On behest of the MNRE, NTPC has agreed to use domestic modules for their projects. Due to the limited cell and module capacity available in the country, NTPC will start off with a 250 MW project. A tender for procurement for this project can be expected as early as next month.

If India makes a move towards an RGO model to drive solar demand, it might prove to be bad news for independent power producers (IPPs) in the utility scale solar market. This opinion was re-iterated by the developers present at Friday’s meeting who called for a more ‘democratic and organic’ growth in the market by limiting the capacities constructed by a single player. BRIDGE TO INDIA believes that the solution to this problem also lies in growing the solar pie, which the government appears to be aware of.

The rooftop and off-grid market were not discussed in detail in the meeting and we still do not know the government’s perspective on them. The minister has, however, promised to ensure that the funds from the National Clean Energy Fund (NCEF) would be directed to MNRE. Until now, the funds have almost completely been transferred to offset India’s fiscal deficit. We still await details on how the Indian government wants bring solar into the off grid market to power the millions of unserved households.

Mr. Tarun Kapoor, Joint Secretary for the Ministry of New and Renewable Energy (MNRE) announced at a conference last week that India might look at following Germany’s lead by going ahead with fixed Feed-in Tariffs (FiT) as opposed to the current system of reverse auctions. The government is considering this in order to rapidly expand India’s solar program.

The FiT based approach may result in cutting down project development cycle

MNRE needs to specificy clear criterions to lend transparency and certainty to the market 

A location adjusted FiT structure may ensure a wider spread of solar projects across the country

FiTs can bring in a sense of stability to the Indian solar market that has, in the past, seen record low tariffs that most people in the industry consider unviable. Now that equipment prices have largely stabilized, BRIDGE TO INDIA believes that a move supporting the FiT based approach may prove to be very positive for the sector. It dramatically reduces the project development cycle and cuts down on the time and money spent on working through the complicated bidding processes. FiT approach will also prevent players with little experience in solar to usurp the auctions and create bad precedents. An output driven tariff structure is more preferable than upfront capital subsidies or viability gap funding (VGF). This tariff structure will create stronger incentive for project developers to focus on project quality and rigorous operational processes.

On the other hand, there are various challenges to implementing FiTs. To ensure that solar projects get evenly distributed throughout the country and to avoid stress on the transmission network, an elaborate location based FiT structure needs to be specified taking into account local factors like irradiation, cost of land, power demand-supply situation etc. This policy has been successfully followed in wind and can be easily replicated in solar. However, MNRE needs to lend transparency and certainty to the market by specifying very clearly – availability of funding, expected capacity allocation and process for allocating capacity. Again, we can derive useful learning from the wind experience where uncertainty in PPA execution in some states caused avoidable distress for project developers and lenders.

A location adjusted FiT structure may ensure a wider spread of solar projects across the country but at an additional cost. The central government will need to provide financial aid to states for buying more solar power or give its backing to the PPAs signed by the financially stressed state utilities.

Anti Dumping Duty (ADD) update

The Minister for Commerce and Industry Nirmala Sitharaman clarified in the upper house of India’s Parliament that an ADD between USD 0.11 to 0.81 is likely to be imposed on modules imported from China, Taipei, Malaysia and USA (‘subject countries’). The Ministry of Finance is evaluating the proposal (click here). The government indicated that the duties collected might go towards providing subsidy to projects affected by ADD. BRIDGE TO INDIA has maintained that ADD would cause significant damage to the Indian solar market. And any convoluted move to subsidise the affected projects is going to further distort the market and create a bureaucratic nightmare. See our popular infographic here.

Akhilesh Magal is a Consultant at BRIDGE TO INDIA.

Last week, the Ministry for New and Renewable Energy (MNRE) under the new minister held a meeting with the Forum of Regulators (FoR) to discuss ways to revive the Renewable Purchase Obligation (RPO) mechanism (refer). Until parity in terms of landed cost of power (LCOP) between renewables and other energy sources is widely reached, the RPO mechanism can be a key driver for demand for solar power in India.

The RPO mechanism currently works indirectly, and has failed to have a more direct impact on the solar demand

RGOs (Renewable Generation Obligations) might be easier to implement than RPOs on loss making distribution companies

BRIDGE TO INDIA believes that demand creation for solar in India should have more linkages with parity and market forces – rather than focus on obligations

Currently, it works indirectly, by incentivising state and central policies. However, a lack of penal action for non-compliance, the bad financial health of most obligated entities, non-co-operation of state regulators and an out-dated Renewable Energy Certificate (REC) pricing mechanism have prevented it from having a more direct impact on solar demand.

In the meeting, the ministry asked the State Electricity Regulatory Commissions (SERCs) to direct the distribution companies to make financial provisions in their revenues to ensure RPO compliance. Also, SERCs should invoke penalties for non-compliance. Another suggestion is to increase the validity to the RECs that have already been issued in the hope that better compliance over the next six months will help these certificates find an off-take. These proposals and directives are not new. Similar meetings with similar statements have been held before. What can be done to really affect change?

The central government needs to ensure that the directives are followed up on ground. For example, a very large part of the power consumed in the states is bought from central generators. The central government could link access to this power to conditions, such as financial restructuring and RPO compliance.

A newer suggestion that came up in the meeting relates to “Renewable Generation Obligations” (RGOs). This means that generators of conventional power have a related obligation to also produce renewable power. This can then be bundled with conventional power and sold to the distribution companies at tariffs very similar to the existing cost of power procurement (as long as the renewables share is small). This would transfer the responsibility of going renewable to the financially healthy power generators. It might be easier to implement than RPOs on loss making distribution companies.

BRIDGE TO INDIA, believes that an ideal mechanism to create demand for solar in the country should have more linkages with parity and market forces – rather than focus on obligations. This would mean a significant overhaul and expansion of the existing policy framework and in all likelihood mean a larger focus on distributed solar. India needs to do this eventually anyway, for a transition to parity based markets. The government should start thinking in this direction.

Jasmeet Khurana is a consultant at BRIDGE TO INDIA.

There are no reasonable doubts that man-made climate change is happening and that it is likely to have a devastating effect on the planetary ecosystem, which includes us. Almost everyone knows it. And yet, collectively and individually, politically and privately, we fail to act. I am no exception. Why is that? The blog contains a personal list of hypotheses.

The cost of fighting climate change is much smaller than the cost of climate change

This is an intergenerational conflict as much as an international one

We have psychological, political, institutional barriers that make us act fundamentally irrationally

Climate change is happening already. The American Association for the Advancement of Science in its recent report “What We Know”, wrote: “The overwhelming evidence of human caused climate change documents both current impacts with significant costs and extraordinary future risks” (refer). The US National Climate Assessment concludes, that “climate change, once considered an issue of the distant future, has moved firmly into the present” (refer). The 2013 report by the International Panel on Climate Change (IPCC) states that the global temperature rise is “more likely than not to exceed 2°C” (refer). 2°C is considered to be the safe limit before our ecosystem changes irreversibly.

Failing to act on climate change is fundamentally irrational. The costs of preventing it are surprisingly low. As Paul Krugman wrote in his New York Times column: “there is one piece of the assessment [of the IPCC] that is surprisingly, if conditionally, upbeat: its take on the economics of mitigation. Even as the report calls for drastic action to limit emissions of greenhouse gases, it asserts that the economic impact of such drastic action would be surprisingly small. In fact, even under the most ambitious goals the assessment considers, the estimated reduction in economic growth would basically amount to a rounding error, around 0.06 percent per year.” (refer)

The costs due to climate change, on the other hand, are staggering – disproportionately high for the poor, who face widespread death and disease, but also for the rich whose standards of living will fall. If everything is so clear, then there should be no doubt about what to do. And yet, we seem to fail. Why? These are my personal hypotheses:

We would need to change our habits and (as a species) we are not good at that. (I am not changing myself…)

Perhaps it’s too big a problem? It seems too daunting to even contemplate. So we ignore it and stall and rather spend our time solving simpler problems.

There are political questions around distributive justice i.e. who should pay/do how much? While these should be solvable in one way or another (given the vast discrepancy between the cost of inaction and the cost of action), we absurdly seem to be ready to self-destruct rather than accept even the slightest perceived injustice. It’s like a very childish game of chicken (made more dangerous by the fact that there are many cars, not just two, racing towards each other).

As a whole (humanity), we seem to not yet have the institutions or governance to deal with it. (The good news is: we are building them. See, for instance the climate reports by the IPCC that aim to create a scientific base-line on what is actually happening.)

It’s an intergenerational conflict as much as an international one. I am stunned by the failure of the young (I’d still count myself among them…) to take the matter up more forcefully. The old guys in the developed world might think it’s not their problem. The trouble is, that they still call the shots.

Adverse power structures: A few benefit from playing down the problem. They probably have highly disproportionate access to decision-making. Big oil? A recent report by the Carbon Tracker Initiative said that oil companies would have to write-off around two thirds of their proven reserves (“unburnable carbon”), if we are to stick to the 2 degree climate change goal (refer). Markets, interestingly, still give oil companies high valuations, based on the assumption that they will not be limited by carbon goals.

Thinking of a positive note at the end… Is the rate of innovation and cost reduction in climate friendly technologies (especially: energy efficiency, renewables) much faster than in more mature traditional carbon-heavy technologies? Probably not. A lot of research goes into deep-sea oil drilling, fracking, even tar sands. But we are already investing as much into renewables as we are into fossil fuel power generation. However, that in itself will not make enough of a dent. We would need a more radical transformation of how we generate and use energy than the current path. We are at best on “rapid evolution” mode. What we need is to shift to “revolution” mode.

Previous blog post on climate change: Is India getting sidelined in climate diplomacy (refer)?

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

The recent railway price hikes indicate that the Modi government is capable of taking tough decisions that are unpopular but in India’s long-term interest. This augurs well for the entire economy and in particular for the power sector.

Power prices need to be deregulated. This will mean prices go up in the short-term, but in the long-term that will ensure a more stable grid

The Minister of Coal, Power and Renewable Energy, Piyush Goyal has already shown his intent in allowing for greater private participation in the sector

Indian power sector equities might be en route to a dream run for the next decade

Prime minister Narendra Modi has demonstrated that he is capable of taking hard decisions. He bit the bullet and has announced a 14% hike in passenger rail fares. Railway fares is a highly sensitive issue. It remain one of the last but significant vestiges of the socialistic Nehruvian economic model. Low railway fares have led to a lack of investments into rail safety systems, better facilities, cleaner and faster trains, maintenance and expansion of rail infrastructure and train stations. While China is crisscrossed by the most modern high-speed trains, in India, a rail journey of just over 1,200 km between Bangalore and Mumbai still takes a painstaking 24 hours. This announcement might just be the beginning of a larger systemic reform that is so badly needed in India’s railways.

The Indian railway is just one elephant in the room. An equally large elephant is India’s messy power sector. The cumulative losses for India’s power sector are estimated at USD 40 bn (INR 2,400 bn) per year. These losses, similar to the railways are due to the politics of power pricing. I have previously talked about how politicians pander to vote bank politics by opposing power hikes. India’s power sector is underinvested, badly managed and delivers abysmal power quality to its consumers – all because, prices are far too low to allow meaningful investment. The hike in railway fares signals that this government is serious about getting India’s economy back on track. We can expect similar reforms in the power sector.

The government has already shown its intent in setting India’s power sector back on track. Minister Goyal met with leading bankers last week to understand constraints in funding power projects in India. Although no specific announcements were made, Goyal gave out the right signals, conveying to the press that he understands the gravity of the problem and is keen to start implementing solutions. This may be rhetoric, but the stock market is optimistic. Stocks of power companies have already rallied by more than 50% since the exit poll results were announced in mid-May. The share prices of some companies like Torrent Power have doubled in the last three months. This trend will now accelerate and it could just be the decade for power sector equities.

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

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

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

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

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

Photo Credit: Pete Souza

India can avoid China’s mistakes

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

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

Carbon emissions are not a zero-sum game

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

Source: McKinsey

Inequalities within India

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

 Accept emissions caps and turn the tables

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

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

This is part two of a blog series in which I propose a renewable energy agenda for the next Prime Minister of India. Part one outlined how the current energy strategy (or perhaps the lack of it) is damaging the economy (Click here to read part one). In this part, I outline the solutions.

Reduce India’s dependence on imported energy by primarily focusing on solar energy – a widely available resource in India

Slowly phase out fossil fuel subsidies while simultaneously increasing solar subsidies. As solar gets cheaper, the subsidy can altogether be eliminated

Complete the incomplete deregulation of the power sector

ndia can change course. The technology, skills and finance are already available. Perhaps, the only significant thing lacking is the will to change. Every election presents an opportunity for change and therefore, I have three recommendations for the new Prime Minister.

1. Reduce India’s dependence on foreign energy

India must make a conscious decision to reduce its dependence on coal and diesel for generating electricity. India is rich in solar and wind resources and should aggressively pursue them in order to make bring them into the mainstream.

India has made a good start. It has been a pioneer in the wind sector. And the National Solar Mission (NSM), India’s flagship solar program has been quite successful with the quotas always being oversubscribed. Similarly, a host of states have announced solar policies and although many of them are caught up in delays, states like Gujarat have shown the way.

My recommendation to the next Prime Minister is to come out with National Wind, Biomass and Waste-Energy mission, on similar lines as the NSM. The NSM has shown that when policies are transparent, investors are willing to put their money behind these technologies. The NSM has also shown that governments play a very important role in bringing down costs of generation of renewable energy. Solar prices in India have more than halved from INR 17.91/kWh in 2010 to INR 6.48/kWh as of 2013. Wind energy in India is as low as INR 4.0/kWh. Already today, renewable power is cost competitive with coal based power during certain times and in certain segments of the electricity market. However, the pace of deployment remains far too slow. India must set itself more aggressive goals to increase renewable energy deployment.

2. Reallocate subsidies targeted towards fossil fuels to renewable energy

India spent a record 170 thousand crore (USD 26 billion) on fossil fuel subsidies for the year 2012-13. The largest contributor to the fossil fuel subsidy bill is diesel. Most diesel subsidies are targeted at farmers (tractors and water pump sets), but a report by the Petroleum Planning and Analysis Cell (PPAC) shows that most benefits of the subsidy goes to unintended recipients.

The report suggests that over 13.15% of diesel subsidies are consumed by high-end SUV cars (owned by the rich). Commercial vehicles utilize a further 8.94% and three-wheelers 6.39%. Industries and electricity generation (diesel generation sets) consumed 9% while mobile towers consumed 1.54%. This means that only about 13% of the diesel subsidy bill is reaching the farmers (the recipients who need the subsidy the most) and the transport sector, with the rest being siphoned off.

Source: Petroleum Planning and Analysis Cell (PPAC). http://bit.ly/1kWaSre

In comparison, renewable energy subsidies are negligible. The National Clean Energy Fund (NCEF) funds the National Solar Mission (NSM). The total budget allocated so far to the NCEF is INR 8,180 crore (USD 1.3 bn). Out of this INR 3,320 crore (USD 0.52 bn) has already been allocated to the MNRE. The MNRE (which is responsible for the NSM) has allocated INR 1,793 crore (USD 0.3 bn) towards Phase 1 of the NSM and INR 1,875 crore (USD 0.3 bn) for Phase 2. This means that the total NCEF subsidy budgeted between 2010 and 2013, is less that 5% of the total fossil fuel subsidy during one year (2012-2013). This must change.

Source: BRIDGE TO ANALYSIS based on publically available data

I therefore recommend the reduction of fossil fuel subsidies in the following manner: (1) Completely phase out diesel subsidies for all sectors except agriculture and transport of goods (especially agricultural produce). This can be done using the direct cash transfer mechanism. (2) Target LPG subsidies only for the poor.  Cash transfer mechanism can help here, too. (3) Reduce kerosene use for lighting by subsidizing solar lanterns.

3. Completely deregulate the power sector

The deregulation of India’s power sector began in 2003, but has remained incomplete. Open Access (OA) ensures that private power producers can now sell power to consumers by using the state owned transmission and distribution network. However, unrealistically high OA charges often deter consumers from switching to private power producers. Moreover, OA charges are often tweaked to discourage competition. There is an urgent need for a fair methodology of determining the OA charges so that neither the DISCOM, nor the consumer nor an independent power producer is disadvantaged. Truly opening up open access will allow consumers to tie up with cheaper renewable energy producers (especially wind). This lowers energy costs, boosts productivity and improves the economy.

Second, politicians must not be allowed to tinker with power prices. The State Electricity Regulatory Commissions (SERC) must have the absolute authority to decide power prices. In the financial year 2012-13, DISCOMS across India suffered from aggregated losses of over INR 250,000 crore (USD 39 bn). Most Indian DISCOMs are simply not bankable. This is the single greatest hindrance to private sector investment into the power sector.

These three recommendations may be simple, but implementing them requires political audacity. The election will hopefully open the path for the much-needed reform of the sector and enable India to recover it’s lost economic and development momentum.

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

In this two-part blog piece, I propose a renewable energy agenda for the next Prime Minister of India. In the first part, the influence of the current energy consumption patterns on the economy of India is discussed. In the second part, the recommendations and potential solutions are outlined.

India’s GDP growth is being restrained by an acute shortage of energy

Our energy supply is heavily dependent on imports. This affects both the current account deficit and the fiscal deficit, both of which are a drag on the economy

If India is to grow, it needs a better energy strategy. Renewables, especially solar should play a key role

India is in the midst of a national election, the results of which will be announced on 16th May 2014. The elections come at a crucial time: the years since 2010 saw a steep decline in India’s economic performance with GDP growth falling from 10.5% in 2010 to 5.0% in 2013 (world bank data).

(Source: World Bank data)

Although global factors played a role, the main culprit is found in domestic structural issues. These include infrastructure bottlenecks, corruption, complex taxation rules, and bureaucracy among others. Energy reforms are also critical – yet hardly discussed (see Tobias Engelmeier’s four part blog series on India’s strategic energy options on the BRIDGE TO INDIA blog).

No country has ever achieved prosperity without a commensurate increase in its per capita energy consumption. India has one of the lowest annual per capita consumption of energy at 565 kg of oil equivalent (kgoe) per annum. China’s people, in comparison consume over three times as much (1,806 kgoe/annum). In India, the problem has not been on the demand side, but on the supply side. Securing energy supplies and delivering it to consumers has been a significant challenge.

To understand what this means at the ground level, one needs to visit the industrialized state of Tamil Nadu during the summer months. Most industries there face power cuts up to 15 hours a day. This has increased energy costs because it forced them to turn to expensive diesel power. And even diesel is sometimes hard to come by, thus affecting the productivity or even ability to operate. Many factories have shut down as a result. Tamil Nadu is no exception. Businesses in many other states face similar challenges. Not to speak of the millions of households across the country without grid power.

On the macro economic level, also, India’s energy crisis is becoming a cause of great concern as it undermines India’s credit rating and limits the government’s policy options by draining national resources away. This finds expression in the current account deficit (CAD) and the fiscal deficit.

The CAD or the trade deficit is the difference between what the country earns by exporting goods and services and what the country spends on its imports. The CAD for last financial year (2012-13) stood at a negative USD 87.8 bn or 4.8% of GDP. This is well above the safe limits for a developing economy. India imported more than it exported. When this happens, the rupee depreciates against the dollar and reduces dollar reserves held by the country. A weakening currency might be good for exports, but is detrimental to the country’s ability to fund its foreign purchases i.e. the country spends more to purchase the same amount of goods. This weakens the entire economy.

The largest contributor to India’s import bill, making up around 35% is the import of oil, gas and coal. Crude oil prices have risen sharply in the last few years. The rupee too has depreciated by nearly 20% against the dollar in the last six months. Given the fact that most international oil transactions happen in dollars, this has been a double blow to India’s import bill and therefore the CAD.

Coal is the main energy source for firing India’s power plants, providing nearly 54% of the electricity. Although India has one of the most abundant coal reserves in the world, a host of scams, poor policy making, insufficient infrastructure and environmental protests have led to a shortage of domestic coal supplies. As a result, India turned to importing coal in ever-larger quantities, mainly from Indonesia.

India’s energy woes have also contributed significantly to the fiscal deficit. The fiscal deficit is the difference between what the government earns and what it spends. In India, it stood at an alarming 4.9% of GDP for the period 2012-13. Subsidies make up a large part of government spending and subsidies on fossil fuels major part of that. In the financial year 2012-13, India spent nearly INR 170,577 crore (USD 26 bn) on subsidies for diesel, kerosene and domestic LPG alone. This is 3% of the GDP[1].

Ultimately, India’s economic success is strongly correlated to its ability to secure energy supplies and deliver this energy to critical areas of the economy in a speedy, reliable and cost effective manner. Renewable energy will play a crucial role in this. India is blessed with good renewable resources (solar, wind and hydro). Moreover, solar and (to a lesser extent) wind are not location dependent. That is, they can be installed close to areas where there is a demand, thereby reducing the need for transmission and distribution infrastructure.

In part two, I outline recommendations for a renewable energy agenda for the next prime minister.

On 20th January 2014, Solar Energy Corporation of India (SECI) opened bids for the allocation under batch one of phase two of the National Solar Mission (NSM). A total of 68 bids were received from 58 developers, covering 122 projects and having a cumulative capacity of 2,170 MW. Of this, 36 projects with a capacity of 700 MW opted to bid under the Domestic Content Requirement (DCR) part of the bidding process and the remaining 86 projects with a capacity of 1,470 MW opted for the open bids.

Domestic content requirement (DCR) part of the bids has been oversubscribed

State power companies have also shown interest to invest in solar assets

Pure-play solar IPPs get a level playing field

The following trends emerged from the bid process:

Domestic content requirement (DCR) part of the bids has been oversubscribed

A total of 36 projects with a capacity of 700 MW bid for the DCR part of the allocations, making it oversubscribed two times over. International developer, SolaireDirect, bid for a 30 MW capacity under the DCR part, based on its tie up with Websol Energy, from where it bought modules for its project under phase one. Module manufacturers such as TATA Power Solar, Waaree and Moser Baer also opted for the DCR part of the bidding. Most other developers opted for the DCR part along with non-DCR projects to increase their chances of getting an allocation. There has been widespread speculation that Indian suppliers might not be able to supply quality products within the required time frame owing largely to financial constraints on availability of working capital. Some of the developers we had spoken to pointed out that in the financial bids, they have prioritized their bids in such a way that the DCR allocations get second priority and their base line against most risks are covered. This means that the Viability Gap Funding (VGF) requirement for the DCR part will be significantly higher than the non-DCR bids. Many developers such as Green Infra, Renew Power and Essel Infra decided to stay away. However, many other prominent developers such as SolaireDirect, Azure Power, ACME, TATA Power Solar have taken the chance. This is a positive development for the domestic manufacturing industry.

State power companies have also shown interest to invest in solar assets

Green Energy Development Corporation of Odisha, Gujarat Power Corporation Limited, Karnataka Power Corporation Limited and West Bengal Power Development Corporation Limited, all participated in the bidding process and bid for a capacity of 10 MW each. Even though they might seem less ambitious than their private sector counterparts, the message, that state owned utilities have thrown in their hats to become a participant in the solar story, is a powerful one. This signifies a more conducive approach towards solar by state utilities, going forward.

Pure-play solar IPPs get a level playing field

The advantage of scale and separate tariffs for companies claiming accelerated depreciation (AD) and not claiming AD has given pure-play solar independent power producers (IPPs) a level playing field (refer to our blog on how pure-play solar IPPs have been at a disadvantage in most state policies). Among the bids received, we have seen that almost 60% of the capacity has been bid for by serious companies that aim to build an IPP company for solar assets. This is significantly higher than most other allocations that have taken place before this.

Jasmeet Khurana works on project performance benchmarking, success factors for module sales, financing and bankability of projects in India.

The Government of Tamil Nadu released a new scheme called the 10,000 solar rooftop scheme for domestic consumers on 2nd December 2013 (click here to access the scheme, and here to access the corrigendum document). The highlights of this scheme are:

The scheme is restricted to battery-less grid-tied systems. This is unlike Kerala’s 10,000 rooftop scheme which is restricted to off-grid (battery based) systems.

Tamil Nadu Government will provide a capital subsidy of INR 20,000 per kWp in addition to the MNRE subsidy (30% of the benchmark capital cost of INR 100,000 per kWp). This amounts to nearly 50% of the system cost. Unfortunately, the Tamil Nadu Govt. does not assume any responsibility for claiming the MNRE subsidy. This is left entirely unto the developers.

There is a Domestic Content Requirement (DCR) for PV modules for the entire allocation.

This policy comes immediately after the net metering policy was announced on 3rd November 2013 (read our analysis of the net metering policy here). The policy is aimed at LT-1 category residential (domestic) consumers. The total planned capacity is 10,000 rooftops x 1kW = 10 MW.

The scheme has significant variations over Kerala’s rather successful rooftop scheme. The following table summarizes the comparison:

Comparison of 10,000 rooftop scheme of Tamil Nadu and Kerala

Although the capital subsidy structures of both Kerala and Tamil Nadu are similar, the process of claiming this subsidy varies. The nodal agency of Kerala, ANERT already have the funds pre approved from both the MNRE and the Govt. of Kerala and is responsible for disbursing the funds to successful projects. However, TEDA, the nodal agency in Tamil Nadu does not assume responsibility in obtaining the MNRE subsidy and leaves it entirely unto the developers. BRIDGE TO INDIA reported earlier that the MNRE is facing a severe shortage of funds and its 30% capital subsidy program has been put indefinitely on hold (read our blog post here). Tamil Nadu’s 10,000 rooftop scheme requires developers to bear the subsidy risk. It is unlikely that developers would be willing to do so.

While the earlier policy on net metering allows domestic users to avail Generation Based Incentive (GBI) of INR 2.00/kWh for first two years, INR 1.00/kWh for next two years, INR 0.50/kWh for the subsequent two years , this policy does not allow GBI and capital subsidy (TEDA or MNRE) to be simultaneously availed. It therefore appears that consumers have two options.

Option 1: Net-metering with capital subsidy from Tamil Nadu State Government and MNRE

Option 2: Net-metering with Generation Based Incentive (GBI) (see our earlier blog post for more details)

From a purely economic standpoint, option 1 seems to be a better proposition since nearly 50% of the cost of the system is received upfront. However, it is unclear whether the Government of Tamil Nadu will grant subsidy if the MNRE subsidy doesn’t come. The Government of Tamil Nadu can take a leaf out of the neighboring state of Kerala and ensure that both subsidies are already available before it grants project applications. Despite these shortcomings, the policy is in the right direction.

Akhilesh Magal heads the Project Development team at BRIDGE TO INDIA. He likes to present his opinion on the policy environment in solar in India.

What are your thoughts? Leave a comment below

Tamil Nadu announced its final order on LT connectivity and net metering on 13th November 2013 (click here to view it). The highlights of this order are:

Generation Based Incentive (GBI) is applicable for domestic (residential) consumers. This makes the policy an attractive proposition for homeowners

This regulation is limited to government run institutions and residential consumers. Unfortunately, the net metering scheme rules out those consumers for whom solar would actually make sense – commercial clients (IT companies, private hospitals, educational institutes, malls and shopping complexes) and industries.

There is a policy disconnect between those clients on whom SPO’s are enforced and those eligible for net metering.

Tamil Nadu is one of the first states in India to come out with a net metering policy. It announced the net metering scheme under its flagship solar policy of 2012. Since then, there have been two separate drafts submitted on the Tamil Nadu Electricity Regulatory Commission (TNERC)’s website. The final order announced on the 13th of November 2013, has incorporated several comments from stakeholders.

The policy now allows residential consumers and housing societies to go via the net metering route. The tariff applicable to residential consumers under the highest slabs of consumption is INR 5.75/kWh. It is highly unlikely that any project developer will be willing to offer an OPEX (operating expenses) based solution at a price lower than this figure. Most residential installations will be self-owned (CAPEX: Capital Expenditures). In this case, one can expect a payback of around 10 years without the MNRE subsidy.

BRIDGE TO INDIA earlier interviewed MNRE officials and confirmed that the capital subsidy program (30%) has been indefinitely delayed due to lack of funds (see our blog).

Interestingly, a Generation Based Incentive (GBI) is also being offered to eligible domestic consumers. According to the Tamil Nadu Government Solar Policy, domestic consumers are eligible for a GBI of INR 2.00/kWh for first two years, INR 1.00/kWh for next two years, INR 0.50/kWh for the subsequent two years (Link: http://bit.ly/1cHq9Iv). This is an attractive proposition for residential consumers and can shorten the payback period. In addition to the GBI, there is the Chief Minister’s Capital Subsidy program which offers INR 20,000/kW for LT-1 consumers(link: http://bit.ly/1cNMpjM). It is not clear if both incentives will be simultaneously applicable or not. Nevertheless, the proposition seems attractive enough to incentivize residential consumers to set up their own power plants.

Unfortunately, the net metering policy leaves out industrial consumers and commercial consumers altogether. See table below for list of eligible customers.

Net metering policy: Tamil Nadu

This comes as a surprise because the Tamil Nadu Solar Policy 2012, enforces SPOs on HT I to HT V consumers. Industries typically do not work 24/7/365 and require a banking policy to export excess energy on to the grid. Leaving out such clients from the net metering policy will only increase the unit cost of procurement of solar power for these consumers.

Most factories and industries that fall under this enforcement are exploring the possibility to meet their requirement through in-house power plants. Ironically, this is something that would go against the interests of TANGEDO. TANDGEDO would lose out high value clients. Denying net metering to these clients implies that they would be forced to either procure solar power from TANGEDCO or utilize their grid to wheel power from solar power plants across the state (for which they have to pay a fee to TANGEDCO). Either way, TANGEDCO clearly wants to have its share of the solar pie.

Tamil Nadu’s solar policies are progressive and ambitious. It was the first southern state to announce a GW scale solar policy. It was also the first state to announce a net metering policy. In this case, though, the state has taken one step forward and perhaps two backwards.

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Akhilesh Magal heads the Project Development team at BRIDGE TO INDIA. He likes to present his opinion on the policy environment in solar in India.

Average project allocation sizes under India’s National Solar Mission (NSM) have been increasing ever since the mission started. The batch one of phase one allowed a single developer to take up a capacity of up to 5 MW. This was increased to 50 MW in the second round. In the first round of phase two, it has been increased to 100 MW. With this, the direction of the national policy is clear. It is moving towards ever larger projects.

MNRE plans to set up five ultra-mega renewable power plants to add up to a capacity of 18 GW over the next 10 years
The central governments focus is on centralized solar primarily to bring down costs and ensure hassle free meeting of targets
According to BRIDGE TO INDIA, it is more important to help solar stand on its own feet than just to meet targets

Now, the Ministry of New and Renewable Energy (MNRE) has taken it a step further by announcing ultra-mega solar power projects. These are envisaged to be gigawatt scale projects. The first of its kind is the 4 GW project that has been allocated to a joint venture of six government owned companies (refer). Bharat Heavy Electricals Limited (BHEL), one of the project proponents, is expected to announce EPC bids for the first 1 GW capacity by March 2014.
According to media reports (refer), the MNRE may be planning to set up five ultra-mega renewable power plants which will add up to a capacity of 18 GW over the next 10 years. However, it is important to note that these are renewable parks and not solar parks . Hence, this would not increase India’s solar capacity by nine-fold as claimed in the report.
According to BRIDGE TO INDIA, the MNRE will stick to its target of allocating 2.52 GW of solar PV capacity by 2017 (refer). The only shift that can be envisaged is that the 1.08 GW of solar thermal capacity will also be diverted to solar PV. This means that a maximum of 3.6 GW can be allocated to solar PV by 2017. Considering that 750 MW is already being allocated under batch one of phase one of the NSM and 1,000 MW is being allocated to the first ultra-mega project, only 1,850 MW will be left to be allocated until 2017. Most likely, up to four projects with a capacity of around 500 MW each will be allocated in 2014 to meet the current five year plan (2012-2017) targets. Apart from this 3.6 GW capacity, any predictions for allocations beyond 2017 cannot be made as of today as they will be guided by a new policy document for phase three of the NSM.
With very little emphasis on decentralized solar under the central government policy, it seems like India has put all its eggs in one basket, i.e., centralized solar. From the ministry’s perspective, the key objective of doing this is to bring down costs and ensure a hassle free meeting of targets.
However, all these decisions are being made by the ministry even when the debate about centralized solar vs. decentralized solar, as the way to go for India, has not even begun. Centralized solar offers economies of scale and helps bring down costs on the generation side. However, this power needs to be transmitted to the consumption end and the losses in between can be as high as 20%. Moreover, in the centralized framework, solar power is competing with the cost of power generated from other sources of power such as thermal, wind and nuclear. Also, under the centralized model, new transmission infrastructure in the form of green corridors needs to be set up.
On the other hand, solar power, unlike most other sources of power, can be generated directly on the consumption end. Under this framework, there is no need to set up new transmission infrastructure and there are no transmission losses. The drawbacks of decentralized generation include higher cost of generation due to the lack of scale and new investments in making the distribution of power smarter at the last mile. Within the decentralized framework, economies of scale can be created if the market size increases and investments in making the grid smarter can also help make distribution of conventional power more efficient.
As a country, until we have a clear answer as to whether centralized generation is better than decentralized generation or vice-versa; it might not be very wise for us to choose a side.
According to BRIDGE TO INDIA, creating an ecosystem which will help solar to stand on its own feet in the future is more important that just meeting the target numbers set under the policy document.
This post is an excerpt from this week’s INDIA SOLAR WEEKLY MARKET UPDATE. Sign up to our mailing list to receive these updates every week.
You can view our archive of INDIA SOLAR WEEKLY MARKET UPDATES here.
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The pre-bid meeting for allocations under batch one of phase two of the NSM was held today and was chaired by officials from the MNRE (Ministry of New and Renewable Energy) and SECI (Solar Energy Corporation of India).

The first point that was discussed was about the location of projects, its impact on the open access charges and who would be responsible to bear this cost
Another key aspect which was raised was regarding the impact of possible anti-dumping duties on these projects
Aspects related to project capacity and Capacity Utilization Factor (CUF) were also discussed at length

The government officials seemed satisfied that despite a new mechanism of funding, they have been largely successful in keeping the process simple and as similar to the phase one process as possible. SECI took up the responsibility from NVVN of trading power between the developers and the state utilities/any other obligated entities. Senior NVVN officials have helped in this transition. SECI hopes to create a dynamic trading environment, in which a developer is shielded from the direct off-taker risk. A special fund has been allocated to SECI to ensure timely payments in case one or more off-takers are unable to meet their commitments.
Approximately 60 developers along with several equipment suppliers, EPC contractors and consultants were present for the meeting. The variation in the type of developers was evident from the questions raised. On one end of the spectrum, there were developers who were sure that they would be bidding for the maximum possible bidding capacity of 200 MW. Given the fact they can secure only 100 MW, they wanted to know if they need to submit Earnest Money Deposit (EMD) for just 100 MW. On the other end of the spectrum were developers who were just figuring out how to become eligible for the bidding process. Then there was everyone in between. It was easy to count on your fingers to see how, if the bid viability permits, a handful of serious developers could easily take up the entire capacity two times over.
The first point that was discussed related to the location of projects, its impact on the open access charges and who would be responsible to bear this cost. This is a point BRIDGE TO INDIA has been raising since the first draft of the guidelines was released back in April 2013 (refer). SECI and MNRE have clarified that the developer is only responsible up to the interconnection point and will not have to pay any open access charges. Even SECI will not be paying these charges as they have not been accounted for in the margin that they are charging. It is the final off-taker who will end up the paying charges.
Another aspect that was raised regarded the impact of possible anti-dumping duties on projects. BRIDGE TO INDIA has raised concerns about this risk at multiple occasions in the past (refer). A suggestion was made to pre-exempt these duties for the upcoming projects as it is essentially unpredictable and might make projects unviable. The bidding process for India’s coal-fired Ultra Mega Power Plant (UMPP) policy was cited as a precedent for such an exemption. The MNRE officials did not think that a similar step could be taken, but acknowledged the fact that the risk is serious. The ministry will try to provide as much clarity as possible on both the timelines and the dumping proceedings to facilitate an informed decision for the developers.
Several clarifications were made for land procurement and lease related aspects: lease of private land for a project was permitted and a clause is to be added to that effect. The legality of a ‘right to use of land’ (given in states such as Madhya Pradesh) instead of the regular lease agreement will be looked into. The only state government officials that participated in the discussion were from Gujarat. It was indicated that Gujarat might be looking to attract NSM projects by providing support on evacuation and land allotment in the state’s existing solar park.
Aspects related to project capacity and Capacity Utilization Factor (CUF) were also discussed at length. As suggested by BRIDGE TO INDIA earlier, it was amply clear that as the incentive is in the form of an upfront capital infusion, SECI was comfortable with allowing excess generation at the project facilities. Any excess power generated is expected to be bought by SECI at INR 3/kWh. However, as all the excess power generated will be used to meet the renewable purchase obligations (RPOs) of the off-takers, developers will not be allowed to claim Renewable Energy Certificates (RECs) for this power.
The bidding process envisages a wait-list for the allocation process. For the waitlisted capacity, developers pointed out that submitting guarantees for a period of seven months and thereafter agreeing to the bid quoted today will put them at a risk of changing equipment costs and they asked for an option to be created for them to withdraw their names from the waiting list after two months. The MNRE officials agreed to look into the request.
It was clear that, based on everyone’s learning from phase one, the developers now seem much more comfortable with the overall structure of the bidding process and are more interested in understanding the finer details of the documents. The MNRE and SECI officials are meeting with lenders tomorrow to address their concerns as well. A document clarifying the relevant doubts raised by developers along with the necessary changes in RfS, PPA and VGF securitization documents will be published in a few days.
BRIDGE TO INDIA believes that the bidding process is on track and all major concerns have been addressed. We expect the non-DCR part of the biddings to be oversubscribed many times over. As far as the DCR part is concerned, developers are still unsure about the Indian manufacturers’ ability to supply the equipment on time. In case the DCR part of the biddings is undersubscribed, the capacity could perhaps be shifted to the non-DCR part. If that happens, we expect the entire 750 MW capacity to be allocated through this process.
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The RfS for capacity allocations of 750 MW under batch one of phase two of the NSM has been released (refer) and interested developers are required to submit their proposals by 28th December 2013. There are several aspects of the process which will have an impact on the bidding strategy for different developers. In this analysis, BRIDGE TO INDIA gives an assessment of what this might mean. We will continue to analyze more aspects in our blog over the next few days.

Developers can bid for a maximum of 10 projects and 200 MW

CUF limits are fairly lax, at least for generating on the higher side

A capacity of 375 MW has been earmarked for DCR

Aspect 1: Developers can bid for a maximum of 10 projects and 200MW

This means that developers will likely try to diversify their risk profile and have a variance across bid amount across multiple projects. For example, in a hope to get multiple projects with a higher average tariff, a developer might ask for a VGF amount of INR 15m in the lowest bid and INR 17m in the highest. Due to this attempt to find a higher mean incentive in the form of VGF, companies may end up dividing the aimed for capacity into multiple projects, accepting that they end up perhaps not getting the entire 100 MW capacity. Individual project sizes are likely to be small (10-30 MW) and even the most successful bidders will most likely end up with far less than the maximum 100MW. The total number of projects will likely exceed 30.

Aspect 2: The first VGF tranche will only be released after project commissioning

As the developers will need to finance the entire capital cost upfront, it would be preferable to use cheaper short term construction finance (with a solid guarantee of the VGF being released after commissioning) in the form of trade financing or supplier’s credit rather rather than seeking bank loans for the entire amount.

Aspect 3: CUF limits are fairly lax, at least for generating on the higher side

The RfS document has fixed the maximum AC power output and minimum DC power generation. However, there is sufficient room for developers to account for the losses of DC to AC conversion. Also, SECI has mentioned that any excess power generated can also be bought at INR 3/kWh if SECI finds a buyer for this power. Due to this, developers will try to keep the DC side of the project as high as possible to keep the CUF in range. Developers could opt for as much as 15% excess on the DC side as compared to the rated AC capacity . Aggregate project capacity (DC) could theoretically reach 863 MW.

Aspect 4: Projects need to be commissioned within 13 months

A number of projects will be over 50 MW (at single location) and prominent EPC companies with a good track record, like Sterling & Wilson, Mahindra, Enerparc or L&T, will have their hands full. This opens up a lot of room for sub-contracting. Smaller EPC companies could offer specific parts of the EPC services to these larger EPC companies rather than trying to offer turn-key EPC services directly to the developers. Developers will also need to ensure that a certain EPC does not have its hands full before awarding it a project. This can lead to delays.

Aspect 5: A capacity of 375 MW has been earmarked for domestic content requirement

There are a total of 12 domestic cell manufacturers with total capacity of around 1 GW. Most of this capacity is currently lying idle and only a few meet quality requirements of large scale projects. Developers can assume an annual production capacity of less than 500 MW for good quality cells and modules. This means that these manufacturers will have to start their production units very soon and stock their products to cater to the upcoming demand. However, almost all of these companies do not have sufficient working capital. A key factor for developers to tie up Indian supplies will be to make advance payments.

This is a preliminary analysis from BRIDGE TO INDIA and we would like to engage the stakeholders to discuss these and other such aspects of the bidding process in further detail. Also, if you have any concerns with the RfS document that you feel should be taken up among fellow developers or clarified by the competent authority, please write to Jasmeet Khurana (jasmeet.khurana@bridgetoindia.com). We will try to take up common concerns from the industry.

Track BRIDGE TO INDIA’s take on the National Solar Mission here.

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The Renewable Purchase Obligation (RPO) mechanism in India sits awkwardly between the older generation-based incentives for renewable energies and the coming parity. Half supply side push, half demand side pull, is an incomplete framework in a rapidly changing power market. In the long run, it can become relevant only as a measure of success in implementing renewables in India, not as a specific driver for them. The following are notes taken during an excellent, closed-door roundtable on the subject organised by Ashwin Gambhir of Prayas in Delhi on the 10th of June 2013.

The RPO mechanism does not yet create a functioning market, its future is uncertain

Renewable Energy Certificates (RECs) equally are not yet a functioning market. They are regarded as a potential upside by investors, but not as a foundation or driver for a business decision.

As parity of renewables has arrived and will continue to deepen, RPOs will become a measure of success, rather than a driver of policies. The REC market might well become irrelevant.

There are a number of factors that undermine the current RPO market and by extension, the REC market in India. The most obvious and important is the fact that (now that almost all states have set themselves RPO targets), non compliance is not penalized; and if it is penalized, the penalty would have to be paid by mostly indebted state electricity boards. This is compounded by another, counterproductive trend: RPO targets are not ambitious enough to create a market pull. Some states such as Rajasthan have reduced their target to match the actual renewable energy production. Very few states have escalating RPO targets. Tamil Nadu has set a target lower than its (considerable) renewable power generation.

The REC market has its own challenges, over and above the unpredictable demand from RPOs. There is an illusionary offtake stability given the floor and forebearance prices. However, as prices are fixed, volumes traded become volatile. Only around 50% of RECs are actually sold, trading languishes during the early months of a financial year. This makes RECs not-bankable. Most developers pursuing REC projects get their returns through the accelerated depreciation benefit. RECs, if they generate revenue, are a potential upside. There are a number of further bottlenecks and open questions, involving, for instance the lack of market aggregators (trading is only allowed through the energy exchanges), the discussion about vintage RECs or clarifications on whether captive and off-grid renewable energy plants can generate RECs.

Various public institutions, including the CERC, the SERCs, the Ministry of Power, the Planning Commission and the PMO are working hard to fix the various challenges around the mechanism. The challenges can all be fixed.

However, there looms a larger question on what the role of RPOs can be under conditions of grid parity, when renewables no longer need to be incentivised but make commercial sense on their own. In such a scenario, REC revenues would be an additional ‘green benefit’. India needs to decide whether it wants to reward and pay extra for renewables just for being ‘green’. There is no political consensus on that. Under parity, the RPO mechanism would presumably evolve from being a market driver (through penalization and encouraging of incentivising policies) to being a measure of success.

Parity in renewables does not necessarily mean rapid adoption. The governments still needs to create a level playing field for them with respect to grid access. In turn parity needs to account for related costs of grid upgradation and balancing. Investment risks are still substantial in heavily frontloaded renewables projects. Reducing those and improving financing conditions will be a key concern. Also, as long as the costs of renewables keep falling, there is an ‘incentive to wait’. Here, RECs could play a role in creating an early mover advantage through a falling additional green benefit.

Tobias likes to write about solar business models, solar and energy policy and wider issues of sustainability, development and growth.

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Mr. Akhilesh Magal is the Head of Project Development at BRIDGE TO INDIA.

The government recently delayed announcing the NSM Phase 2 for lack of funds. In this blog post I discuss why the phase 2 may not see the light in 2013. The underlying reasons are:

The fiscal deficit is alarmingly high at 5.3% of GDP and the government is serious about limiting it to 5%

This means the government must spend less without jeopardizing their electoral chances just before the general elections in 2014

This can be done by limiting all other subsidies except direct cash transfers to the poor (who form the majority of the Congress’ government’s vote-base) through the UID scheme

There are worrying signs that the NSM phase two will be indefinitely delayed due to lack of funds. The funds were supposed to have come from the National Clean Energy Fund (NCEF). Phase one of the NSM did not have such funding issues due to ‘Bundling of solar power’. Bundling meant that the government ‘mixed’ solar power with previously un-allocated conventional power from the National Thermal Power Corporation’s (NTPC) generating stations. Because solar power was bundled in a ratio of 1:4 with thermal power, the price increase was marginal and therefore passed along the consumer value chain.

However, under Phase 2, there is no more power available to bundle. This means, that the government would have to foot the bill for expensive solar power.

That is precisely the problem. The government does not want to. Why? Election politics. The government, especially finance minister P. Chidambaram, wants to reign in the fiscal deficit. The fiscal deficit is the difference between what the government earns (primarily in taxes and interest on deposits) and what the government spends. The fiscal deficit is already alarmingly large at 5.3% of GDP. India risks facing a downgrade if this remains un-checked. Diesel prices have already been raised and there are talks of a complete deregulation of diesel prices (similar to petrol prices). Just today, the government announced that diesel prices would be increased by INR 10 per litre for bulk purchases.

One needs to read these actions in the background of the election scheduled in 2014. Going by the current corruption riddled image, it seems highly likely the Congress government will come to power based solely on performance. The Congress government (with its voter base especially in rural India) needs as much funds as possible to buy their way into power in 2014. The Congress needs a philosopher’s stone. This is where the Universal Identification Card (UID) – used for direct cash transfer to the poor comes in handy. The Congress government is rushing the implementation of the Aadhar card, despite stern warnings from several NGOs and experts. It is cash for votes – only done under the legal framework. Given the extent of the direct cash transfer, it is no surprise that the government does not have funds for other projects – least for subsidizing renewable energy projects.

So the logic is pretty straightforward – limit fiscal deficit to 5% of GDP and allocate most subsidies through the direct cash transfer to the poor, win votes of the economically backward section of society and hope to come to power in 2014. Its goodbye solar mission at least for now.

What are your thoughts? Leave a comment below.