06 December 2014 | Mudit Jain
India’s new government has been very bullish on growing solar. Plans are underway to revise the National Solar Mission (NSM) target to 100 GW by 2022. There is a lively debate in the industry about the achievability of the targets and about the best ways to reach them. Now, it transpired that the Ministry of New and Renewable Energy (MNRE) wants to increase solar Renewable Purchase Obligation (RPO) targets for obligated entities (including distribution companies) could be raised to 10.5% from the current 3%.Is that a good idea?
- An RPO target of 10.5% would be in tune with the government’s goal ofhaving 100 GW of solar by 2022.
- Cash strapped distribution companies (discoms) might not be able to bear the burden of purchasing so much solar power
- The government is planning to reduce the cost of solar power to discoms through a bundling mechanism and low cost financing
India’s power requirementhas grown over the last years by 5.2% p.a. and reached 1,002TWh in financial year 2013-14. BRIDGE TO INDIA estimates that this power requirement will reach 1,580TWh by 2022.
A target of 100 GW of solar by 2022 would mean a generation of 160 TWh/year.Solar could then contribute just over 10% to India’s total power requirement. This is very near to the 10.5% solar RPO target. Considering the fact that Germany is already generating 17% from intermittent sources (solar and wind), 100 GW of solar in India will (if managed well) not destabilize the grid.
The biggest impediment to reaching the target will be the resistance or inability of cash strapped discoms to buy (still more expensive) solar power. Currently, only Gujarathas more than 1% solar power.[TE1] This would have to increase in these states and ramp up very quickly in other states.
Figure 1: Expected solar capacity installations for states to meet RPO requirement of 10.5% in 2022
The central government will have to ensure that the cost of solar power should not create an unaffordable burden the discoms. Many of them aremaking losses already. In the draft guidelines launched by the Ministry of New and Renewable Energy (MNRE), 3GW of solar plants are to be promoted through a bundling mechanism with 1.5 GW of unallocated coal power.The MNRE is actively trying to arrange for low cost financing for solar projects to bring the cost down.These efforts make sense but they will have to be vastly expanded in scale. Only setting RPO targets will not achieve the 100 GW of solar capacity by 2022.
If the government is serious about RPOs, it will need to enforce their observance and make this demand-side tool the primary driver for the market. As long as it is still more expensive than non-solar options supply side measures, such as cheap finance, can help lighten the burden to discoms. Once solar achieves significant parity with alternatives, then the supply side measure will presumably no longer be needed. By then, however, having RPO targets is somewhat gratuitous. It will simply make sense for consumers and discoms to by solar power.
In that sense, the RPO targets are a vision statement for what role in the power mix the government envisions for solar. And the vision clearly states that solar will become a mainstream power source, perhaps able to contribute more to India’s power supply than gas, nuclear, or biomass power. It also seems to indicate that the government favors solar over wind, because having an additional 10% of infirm power from wind in the grid might be too ambitious by 2022.
Power requirement is a measure of power consumption plus power deficit
CEA LGBR report from 2008-09 to 2014-15
 Assumption: Average CUF of 18.2%
 BRIDGE TO INDIA analysis