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