Will land be the main hurdle for India’s solar dreams?

22 April 2015 |

The Indian government has upgraded the target of solar capacity from 20 GW to 100 GW by 2022. Of this, 60 GW are to be from ground-based projects. A key bottleneck for achieving this target is suitable land. Many developers believe that the single biggest factor for delay in project execution is the time-consuming process of land identification and acquisition. Even the government’s own plans for creating solar parks, have been put on hold because of challenges in making available the required land. A new, badly needed land acquisition bill is stuck in Rajya Sabha. Is it really that difficult to find a solution for the land acquisition bill?

  •    While states have committed to participate in the 25 solar park plan (for 20 GW), implementation is a challenge due to land acquisition issues
  •    Maharashtra’s renewable energy policy is delayed also due to hurdles in land acquisition
  •    Land acquisition problems could be addressed by fixing a realistic compensation agreeable to both farmers and developers

The Ministry of New and Renewable Energy (MNRE) is well aware about the challenges faced by developers in land acquisition. To fast track the installation phase, the government initially introduced the concept of solar parks. Under this, the government agencies would be responsible for land acquisition and the development of power evacuation infrastructure. The idea is to build 25 solar parks for a total solar capacity of 20 GW. A draft policy has been released in September 2014 by the MNRE for solar parks, proposing a contribution of 50% (or up to INR 2 million) from the central government towards the setting up of solar parks in any Indian state.[1] Following this, the MNRE has prepared a roadmap for installing 15 GW by 2019.[2] However, after six months of waiting, the allocation process has still not seen the light of the day. The main reason is the difficulty in identifying and acquiring suitable land acquisition for the first few parks.

The much-awaited Maharashtra renewable policy that targets 7.5 GW of solar is facing the same challenge with land acquisition.[3] Equally, developers are seeking clarity with respect to land availability for the recent 2 GW tender in Telangana.[4]

All the while, the urgently needed reform of the land acquisition is stuck in parliament.The previous UPA government has made land acquisition very difficult. It has introduced a bill mandating the consent of 70% of farmers (for a public-private partnership project) and the consent of 80% of farmers for private projects. A detailed social impact study has to be performed and the land acquisition process cannot be completed until satisfactory resettlement and rehabilitation have been prepared. It typically takes at least three years for complying with the process.

The present NDA government is trying to relax the norms for priority projects relating to national security, defence and rural infrastructure, including electrification and industrial corridors.[5] But the move has faced a lot of opposition and been labelled “draconian” by opposition parties. Amended land acquisition bill has been passed in Lok Sabha but, it is stuck in the Rajya Sabha (Upper House), where the opposition still has majority.

In my opinion, the situation can be fixed. The focus of the land acquisition bill should be to ensure that the landowners are fairly compensated while processes are not held up too long. It is not about protecting farmers’ rights to farm as some politicians claim. According to the National Sample Survey Organisation, in 2005, 40% of farmers did not want to engage in agriculture.[6] Additionally, the educated children of most farmers also do not want to engage in agriculture. I believe that a significant proportion of the farmers, operating on not so fertile land, would be willing to sell their land. They want a functioning market place as much as solar developers do.

Currently the compensation for land acquisition has been fixed at four times the market value. The trouble with this process is that the “market value” is dictated by the state.[7] Typically, it takes into account historic transactions and not the current trend. The solutions is to develop a mechanism that allows the two contractual parties to settle on a price they are both happy with – without involving the state more than necessary. In addition, the consent clause, the biggest deterrent to land acquisition act, needs to be lowered to, say, 50% to keep the buyers interested.

Though an ordinance has been passed for land acquisition, it won’t drive the market. Professional investors need a legally sound long-term solution. There is a good chance that the land acquisition bill will be passed in the next parliamentary session in a compromised form, more docile that the ordinance.

Mudit Jain is Manager – Consulting at BRIDGE TO INDIA

[2] Refer to our blog, “MNRE releases draft guidelines for 3,000 MW solar under NSM” http://goo.gl/D2qird

[3] News article, “Land acquisition bill row delays solar policy nod in Maharashtra”, http://goo.gl/IsxZJX

[4] News article, “Telangana solar power developers seek clarity on land, evacuation issues” http://goo.gl/90Vmz

[5] News article, “Decoded: What changes has the Narendra Modi government made in the Land Acquisition ordinance”, http://goo.gl/doDRfr

[6] News article, “What the states got right”, http://goo.gl/NwjFTc

[7] News article, “Empower, don’t patronise, the farmer”, http://goo.gl/QHKDeS


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