Sarang Shi­dore

So­lar power, with pol­icy pushes and cut­downs in costs, is look­ing at a good run in 2018 and be­yond. But is­sues in an­cil­lary sec­tors could take the sheen off


WITH THE COM­ING OF THE NEW YEAR comes the good news that In­dia’s in­stalled ca­pac­ity in re­new­able elec­tric­ity crossed 62 GW in Novem­ber 2017 in an over­all elec­tric­ity port­fo­lio of 333 GW, thus rep­re­sent­ing nearly 19 per cent of the to­tal. The 62 GW num­ber in­cludes 16.6 GW of so­lar and 32.7 GW wind, with small hy­dropower and biopower mak­ing up the rest. While wind re­mains the big­gest source in the re­new­ables cat­e­gory, so­lar has been one of In­dia’s ma­jor suc­cess sto­ries in which out­comes on the ground have well ex­ceeded ex­pec­ta­tions of only a few years ago. Mar­ket fac­tors have un­doubt­edly fa­cil­i­tated the so­lar surge—mod­ule prices have crashed 70 per cent in the past eight years and other ‘bal­ance-of-sys­tem’ costs have also fallen through economies of scale and learn­ing.

But govern­ment pol­icy has been ar­guably even more im­por­tant than mar­ket dy­nam­ics. In­dia has had a na­tional so­lar mis­sion (NSM) since 2010 with a tar­get of 20 GW to be achieved in 2022. But in a bold de­ci­sion that caught most ob­servers by sur­prise, Prime Min­is­ter Naren­dra Modi quin­tu­pled this tar­get to 100 GW shortly af­ter com­ing to power in 2014. This en­hanced tar­get formed an im­plicit part of the for­mal In­dian

com­mit­ment un­der the Paris Cli­mate Agree­ment (signed in De­cem­ber 2015) to achieve at least 40 per cent non-fos­sil fuel ca­pac­ity (which in­cludes re­new­ables, nu­clear and large hy­dropower) in elec­tric­ity gen­er­a­tion by 2030.

An­nounc­ing an am­bi­tious tar­get was, how­ever, only part of the ef­fort. Pol­icy im­ple­men­ta­tion hur­dles were also sub­stan­tially re­moved. Power, coal and new and re­new­able en­ergy min­istries were placed un­der a sin­gle, dy­namic min­is­ter for the first time, which led to a min­imis­ing of turf wars. A com­pre­hen­sive so­lar parks pol­icy was an­nounced with a sub­sidy of Rs 2 mil­lion per in­stalled MW. Pay­ment guar­an­tee mech­a­nisms through en­ti­ties such as the So­lar En­ergy Cor­po­ra­tion of In­dia (SECI) en­hanced in­vestor con­fi­dence in a sec­tor no­to­ri­ous for pay­ment de­lays. In­stead of the ex­pen­sive feed-in tar­iffs im­ple­mented in coun­tries such as Ger­many and Spain, the Modi govern­ment dou­bled down on the re­verse auc­tion mech­a­nism al­ready op­er­a­tional un­der the NSM, re­sult­ing in record-set­ting price dis­cov­er­ies that reached a new low of Rs 2.44 per kWh in a re­cent auc­tion in Ra­jasthan.

Tar­iff bids, how­ever, do not re­flect the ‘true’ cost of so­lar elec­tric­ity. So­lar power only gets gen­er­ated when the sun shines, and this vari­abil­ity in gen­er­a­tion needs to be bal­anced ap­pro­pri­ately and in­te­grated into the grid. Ac­cord­ing to es­ti­mates by the Cen­tral Elec­tric­ity Author­ity, this ad­di­tional hid­den cost cur­rently amounts to Rs 1.50 per kWh (drop­ping to about Re 1 per kWh by 2022).

Thus, even af­ter ac­count­ing for hid­den costs, the cost of so­lar power is now below power from new coal plants (which is well above Rs 4 per kWh.) In ad­di­tion, a sig­nif­i­cantly im­proved in­vest­ment cli­mate due to fall­ing in­ter­est rates, in­creased role of mul­ti­lat­eral lenders and other for­eign sources of in­vest­ment, and a greater en­vi­ron­men­tal aware­ness among all stake­hold­ers are also aid­ing the growth of the sec­tor.

Even as so­lar surges, coal is stalling. Many newer coal plants are run­ning at low ca­pac­i­ties and may not be vi­able go­ing for­ward. Al­though about 50 GW of new coal power projects are cur­rently in the pipe­line na­tion­wide, it is not clear how many of th­ese will see the light of day. For in­stance, the state-owned util­ity in Tamil Nadu (Tangedco) re­cently de­cided to can­cel a ma­jor new coal plant planned in Ra­manatha­pu­ram district and set up a 500 MW so­lar power project in­stead. Though this par­tic­u­lar de­ci­sion was also trig­gered by en­vi­ron­men­tal con­cerns, the cost-com­pet­i­tive­ness of so­lar also drove the switch.

But th­ese suc­cesses, re­mark­able as they are, need to be jux­ta­posed against some old and new bar­ri­ers to the sec­tor’s fu­ture rapid growth. The big­gest among the legacy bar­ri­ers is the debt bur­den of the dis­tri­bu­tion com­pa­nies (dis­coms), typ­i­cally owned by state gov­ern­ments.


Discom dis­tress mat­ters hugely, as it places a ma­jor limit on how much new power states can buy.

Discom debt is noth­ing new, nor are bailout pack­ages to res­cue them. The lat­est such pack­age, which goes un­der the acro­nym UDAY, is sup­posed to fix the prob­lem once and for all. Though it has pro­vided short-term debt re­lief to dis­coms, ag­gre­gate tech­ni­cal and com­mer­cial losses, which amount to ap­prox­i­mately 23 per cent, re­main stub­bornly high. It is vi­tal that UDAY suc­ceeds for the so­lar take-off to ac­cel­er­ate.

Then there is the bar­rier of slug­gish elec­tric­ity de­mand in In­dia, grow­ing at a pace of about 4-5 per cent per year rather than the 7-8 per cent power plan­ners had orig­i­nally as­sumed. Some of this is due to in­creased en­ergy ef­fi­cien­cies, but a chunk of it is also due to weaker-than-ex­pected eco­nomic ac­tiv­ity, par­tic­u­larly in the en­ergy-in­ten­sive man­u­fac­tur­ing sec­tor. If de­mand re­mains slug­gish, so­lar can only grow rapidly if more old coal plants are shut down. But it is th­ese older al­ready-de­pre­ci­ated plants that gen­er­ate the cheap­est elec­tric­ity, which makes them po­lit­i­cally and eco­nom­i­cally dif­fi­cult to phase out quickly.

Newer hur­dles are also emerg­ing in the sec­tor. The re­mark­ably low tar­iff bids in re­cent so­lar auc­tions have also trig­gered fears of an ir­ra­tional ex­u­ber­ance and ques­tions about their sus­tain­abil­ity. The rapid fall has also caused sev­eral states to rene­go­ti­ate pre­vi­ously closed auc­tions, hop­ing for a re­vised lower price. All this cre­ates pol­icy un­cer­tainty, damp­en­ing the sen­ti­ments of new in­vestors in the sec­tor.

Prob­lems are also emerg­ing in the rooftop seg­ment (rooftop in­stal­la­tions are in-house grid-in­te­grated mini power plants lo­cated within the premises of com­mer­cial and in­dus­trial es­tab­lish­ments and higher-end res­i­den­tial prop­er­ties). The seg­ment has per­formed well over the past two years, but is slow­ing down of late. Many of the larger busi­ness es­tab­lish­ments have al­ready em­braced so­lar. The next tier of busi­nesses that would like to do so have much lower credit-wor­thi­ness. Given the lack of a pay­ment guar­an­tee mech­a­nism sim­i­lar to the case of large cen­tralised projects, de­vel­op­ers see this as a riskier mar­ket, save for the few buy­ers who are will­ing to fork out the en­tire cost up­front. Pol­icy in­no­va­tion in the rooftop seg­ment is sorely needed to over­come this hur­dle.

If rooftop is slow­ing, the of­f­grid seg­ment aimed at poorer, ru­ral con­sumers never re­ally took off in the first place. Univer­sal elec­tric­ity ac­cess re­mains a ma­jor chal­lenge, 72 years af­ter in­de­pen­dence—around 250 mil­lion ru­ral In­di­ans lack elec­tric­ity ac­cess of any kind. Of­f­grid ca­pac­ity ad­di­tions have been in­cre­men­tal, tar­iffs are sky high, and fi­nanc­ing is rarely avail­able on com­mer­cial terms. The of­f­grid busi­ness model does not ap­pear to be scal­able. This may be why the Cen­tre re­cently launched the grid ex­ten­sion scheme, ‘Saub­hagya’, a new in­car­na­tion of sim­i­lar schemes in the past.

The strong na­tional per­for­mance thus far masks the widely di­ver­gent tra­jec­to­ries of in­di­vid­ual states. Of the states with ma­jor so­lar po­ten­tial, Ra­jasthan, Te­lan­gana, Andhra Pradesh, Tamil Nadu, Kar­nataka and Mad­hya Pradesh have been strong per­form­ers. Gu­jarat was the early trail­blazer in so­lar, but has stalled of late in adding new ca­pac­ity. Ma­ha­rash­tra has done well on rooftop but much less well on cen­tralised so­lar. Ch­hat­tis­garh has shown lead­er­ship in en­ergy ac­cess. Most of the re­main­ing states are con­strained on so­lar po­ten­tial but even so have gen­er­ally per­formed poorly. Power be­ing a con­cur­rent sub­ject in the Con­sti­tu­tion, it is im­por­tant that lag­gard states come fully on board.

So­lar man­u­fac­tur­ing has also largely failed to take off partly due to the su­pe­rior abil­ity of China to flood global mar­kets with cheap prod­ucts. Mean­while, the anti-dump­ing duty on so­lar im­ports cur­rently be­ing en­vis­aged by the cen­tral govern­ment can be a dou­bleedged sword. While in the long run it will pro­vide in­fant in­dus­try pro­tec­tion to do­mes­tic so­lar man­u­fac­tur­ing which may or may not en­able it to grow, it will cer­tainly make so­lar less cost com­pet­i­tive and hurt its prospects in the short to medium term.

All said and done, it is vir­tu­ally as­sured that so­lar will con­tinue to make gains in 2018 and be­yond. But there is still a long way to go be­fore In­dia can be said to have achieved its three crit­i­cal na­tional goals of en­ergy se­cu­rity, en­ergy ac­cess and en­vi­ron­men­tal sus­tain­abil­ity in the elec­tric­ity sec­tor.


Sarang Shi­dore is a se­nior global an­a­lyst with geopo­lit­i­cal fore­cast­ing firm Strat­for and vis­it­ing scholar at the Univer­sity of Texas. The views ex­pressed are per­sonal

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