In 2014, when Prime Minister Narendra Modi first placed solar energy at the core of the energy mix that would fuel India’s economic growth, scepticism abounded: how will the government deliver? Isn’t the target of 100 gigawatts (GW) of solar energy, later revised to 175GW of renewable energy, by 2022, too ambitious? Also, isn’t solar energy expensive? How will India’s poor afford it? Just about two years later, the answers are emerging—slowly but steadily.
This past Friday, the Solar Energy Corporation of India (SECI) called for bids to install 1GW of rooftop solar power projects on central government buildings—its largest tender yet in this segment. India is already home to the world’s largest single-location solar power plant which has been set up by the Adani Group at Kamuthi in Tamil Nadu. The 648 megawatts (MW) project, built in a record time of eight months, dislodged California’s 550MW Topaz Solar Farm in September to secure the top spot and propel India past the 10GW total capacity threshold.
Indeed, huge advances have been made in the past few years—in terms of solar energy specifically and renewable energy in general. According to a Bloomberg New Energy Finance report, the solar sector has had an impressive compound annual growth rate of 59% in the last four fiscal years and its installed capacity at the end of the FY2016 was pegged at 6.8GW. Similarly, the share of renewable energy in India’s total energy mix has also increased from 12.5% in FY2013 to 14.1% in FY2016. Yes, this also shows how fossil fuels still make up the majority of India’s energy basket but let’s not ignore how quickly renewables are catching up. With a cumulative CAGR of 15%, renewables are growing at a faster rate than coal power plants, which are increasing at 12.5%.
Now, place this against the backdrop of India’s large untapped renewable energy potential—according to the government-developed India Energy Security Scenarios, India can achieve 479GW of solar power and 410GW of wind power by 2047—and it is possible to see how, if India plays its cards correctly, solar and other forms of renewable energy may eventually drive economic growth. Specifically, India seems to be on track to achieve its Intended Nationally Determined Contribution, promised as part of the Paris pact to fight climate change, to get at least 40% of its total installed power from non-fossil fuel sources by 2030.
In terms of pricing, SECI breached new frontiers yet again in November with a record low tariff offering of Rs3 per unit. The winning firm at the reverse auction—Gurgaon-based Amplus Energy Solutions Pvt. Ltd, which will be installing a total of 14.5MW of solar rooftop plants across the country—has promised these rates specifically for Uttarakhand, Himachal Pradesh and Puducherry. At one level, low tariff offering doesn’t come as a surprise—this figure has been consistently falling since 2010 when it was pegged at Rs17.91 per unit; over the past few years, it had somewhat stabilized at about Rs5 per unit when the US-based SunEdison, one of the world’s largest renewable energy firms and which has now filed for bankruptcy protection, shook up the market in late 2015, offering to sell power at Rs4.63 per unit to win NTPC Ltd’s contract for a 500MW solar park in Andhra Pradesh. Months later, in January, Finnish company Fortum FinnSurya Energy Pvt. Ltd went a step ahead and quoted Rs4.34 per unit to secure the contract for 70MW solar plant at NTPC’s Bhadla Solar Park in Rajasthan.
What these low rates now mean for consumers is that solar energy, which until recently was too expensive for large-scale use in a developing country, is now on track to compete with cheap fossil fuels. Today, India’s cheapest electricity tariff is at around Rs1-2 per unit. This rate is for the farm sector which is followed by the residential sector and then the commercial sector. But while these are of course promising figures, there is still a long way to go. The low tariffs, for example, are a double-edged sword. Driven by aggressive bids from firms desperate for a toe-hold in this sunrise sector, they have fuelled concerns about viability and project financing, especially for those below the Rs5 per unit threshold. SunEdison, in fact, has put its India assets on the block (some of which were incidentally picked up by Amplus).
Moreover, India still has to make available the necessary capital for developing renewable energy infrastructure—the former Planning Commission had estimated under the 12th Five Year Plan that more than a trillion dollars will be required—and it will have to work every option on the table (from domestic industry to international donors) to fund this turnaround. Similarly, several structural issues in the distribution of power need to be addressed. India’s installed capacity of 275GW is already in excess of its demand of 140GW. Yet, there are still parts of the country where there is no electricity while in many others, power cuts are the norm. This is due to a variety of factors such as coal supply shortage, transmission losses and the poor health of power utilities.
As renewables enter this mix, they will have to be integrated into the existing system and structure. As a NITI Aayog expert group report notes, “A probable re-engineering of institutions, the redefinition of policies, the re-tuning of power systems, and the replacement of old habits with new ones” will be required. This fundamental re-structuring of the country’s power and energy infrastructure will be its biggest challenge.
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