Solar power’s moment under the sun

India’s shift to a green economy will draw investments of $140-160 billion in the next six years, of which $100 billion will go to the solar industry


Photo: Bloomberg
Photo: Bloomberg

New Delhi: India’s aspiration for minimizing the environmental cost to economic development by meeting 40% of its energy needs from non-fossil fuels by 2030 has made its nascent solar power industry the destination for global investors, creating growth opportunities for a host of businesses in the entire electricity value chain.

The massive scale-up of solar power generation capacity from 6.7 gigawatts (GW) to 100 GW by 2022—which is twice the present output of China, the world leader in solar power generation —comes as a stimulus to manufacturing equipment, panels and supply of services and technology used in the solar industry, say industry leaders.

India’s shift to a green economy through the use of different renewable energy sources will attract an investment of $140-160 billion over the next six years, out of which $100 billion will go to the solar industry, according to official estimates. More than a third of it will be in the form of equity and the remaining from domestic and overseas lenders and trade credit or development finance agencies. Many of the lenders have reworked their power sector portfolios with a strong focus on renewable energy.

According to Sanjeev Sharma, chief executive officer and managing director of power and automation technology firm ABB India, a set of factors make solar power industry in India not only an attractive business proposition but also an imperative to decouple growth from environmental impact, which is crucial to developing economies. Demand for reliable power supply, 300 sunny days in a year and the scale and range of solar power applications are some of them.

“There are a host of products and system requirements to make solar energy usable and reliable, which can spawn productivity and boost the manufacturing sector. Between the solar panel and the plug, there are several electrical components used and each is an opportunity to make quality equipment in India,” said Sharma. These include inverters, low voltage products, technology and equipment for managing solar power plants as well as its connection with the grid. Remote and on-site maintenance services for grid-connected as well as roof top solar power generators and micro-grids provide a huge opportunity for local manufacturing and supply, said Sharma.

The unmet demand for electricity in remote villages, including where grid connectivity could get delayed due to the difficult terrain, is an area where many solar power businesses are finding a role to play.

“Nearly 40 crore people in the country do not have access to electricity. There are places where the grid is very unreliable. Many people face up to 20 hours of power cut daily. In such a scenario, a conventional power back-up system (such as inverters) has little use because it also needs power to operate. Solar, on the other hand, is an alternative source of power as well as a power back-up. It is also cost-effective when compared to diesel generators, as a 10 kilo volt ampere (kva) diesel generator consumes about two liters of fuel per hour,” said Kunwer Sachdev, managing director & founder of Su-Kam Power Systems Ltd. Replacing diesel generation sets with solar or natural gas based power is one of the pillars of India’s efforts to cut carbon emissions.

Su-Kam has installed more than 50,000DC solar systems comprising solar panels, batteries and electrical appliances that run on DC in remote areas of Uttar Pradesh. The excess electricity after using the appliances is stored in the battery for later use. Households that never had access to electricity earlier now enjoy uninterrupted power, said Sachdev.

Setting up micro-grids with solar power or a combination of energy sources can help run agriculture pumps and charge e-rikshaws in remote villages as well as supply uninterrupted power to IT parks and industrial complexes, said Sharma of ABB India.

The growth in solar power industry will have a multiplier effect in a number of ways, says Santosh Kamath, partner and head of renewables, KPMG in India. “We will see a rise of storage technologies, automation systems and a widespread service industry as distributed rooftop solar projects take off. It will lead to the creation of a new ecosystem and support a vendor market for chemicals, glass and other materials used in solar manufacturing,” said Kamath.

Out of the country’s planned 100 GW solar capacity, 40 GW is to come from rooftop solar projects, 40 GW from large scale projects and 20 GW from ultra mega solar power projects (UMPPs).

Growth is aided by policy measures such as renewable power generation obligation of new coal and lignite-based thermal power plants as well as renewable power purchase obligations of power distribution companies.

However, for businesses, there are still some areas of concern, land acquisition delays being one of them. For bankers, the concern is whether the projects, which were won by companies at a less than Rs.5 per unit power tariff, will remain viable when the economic cycle changes. For the government which is committed to cutting carbon emissions by 35% by 2030, though, falling cost of solar power is music to ears.

“The most challenging part of project execution is land acquisition. We have different rules and regulations in each state and further, so many approvals are required which are time-consuming and a challenge in timely execution of projects,” said Naresh Mansukhani, country head (solar), Orange Renewable Power Ltd.

Kamath of KPMG said that stable demand and reasonable profit generation across the value chain is necessary to promote new investments. In that respect, there is a need to safeguard against overly aggressive tariff bids so that there is sufficient profit for all, he said.

Tariffs at which solar power projects were awarded have come down from over Rs.12 a kilo watt hour in 2010 to below Rs.5 in 2015 due to the drop in the global photovoltaic module prices. The lowest discovered price so far is Rs.4.34 a unit.

Power minister Piyush Goyal has defended the declining trend in tariff discovered through competitive bids, saying affordability will remain one of the pillars of the country’s energy policy along with sustainability and energy security.

A generic tariff number is not the right way to assess the viability of a project as tariff is a relative term and is a result of multiple considerations, said Mansukhani of Orange Renewable.

“Solar resource and other cost parameters differ from location to location and project to project. Considering a continuous drop in module prices, developers are taking aggressive positions in their project cost estimates to bid aggressive tariffs which have been witnessed in recent past. The actual scenario may or may not follow such aggressive considerations,” said Mansukhani. Location and other project parameters will determine a viable tariff, he said, adding that for a state like Rajasthan, Rs.5 a unit could work with stretched considerations but for a state like Assam, it will not.

India’s shift to a cleaner energy mix involves replacing petrol, diesel, naphtha and coal with natural gas and renewable sources wherever possible. The idea is to have more battery-operated vehicles in place of those run on petrol and diesel, solar power generation plants replacing diesel-operated ones and having more renewable and gas-based power generation capacity to meet the incremental demand for electricity. Power minister Goyal said on 10 May that electricity demand will grow four-fold from about 1.1 trillion units to 4 trillion units by 2030. He said that despite the energy efficiency measures being taken, he saw a 10% jump in possible electricity demand growth annually for the next 15 years.

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