Of late, we have seen some intriguing discussions on the rationale and viability of the proposed five-fold increase in targeted installed solar power capacity from 20 GW to 100 GW by 2022. To achieve the targeted capacity, it is imperative that an environment is cultivated which induces confidence in investors to invest in this sunrise sector. This necessitates development of a prudent policy framework, which is ably supported by regulatory commitments with respect to honouring all the contractual agreements.
The renewable energy Act proposed by the ministry of new and renewable energy (MNRE) is a vivid step in the right direction. Implementation of the framework would be the catalyst for the targeted capacity additions without necessarily adding any significant fiscal burden on the relevant stakeholders.
I would like to bring forth the following points with respect to solar power sector in India.
1. India has vast solar power potential, where sunshine is available for long hours per day and in great intensity. As per an MNRE study, India’s solar power potential is as high as 748 GW, against our country’s cumulative installed capacity from all sources at around 275 GW. Given the country’s present high dependence on imported fossil fuels for meeting its ever-growing energy demand, India has little choice but to harness solar energy for achieving energy supply security.
2. In addition to a perennial power deficit situation faced by the country, around 300-400 million Indians do not have access to electricity. Since solar power has an advantage of permitting decentralized generation and distribution of energy, it, therefore, presents high potential for contributing towards empowering people at grass-root levels in terms of energy access and bringing them in the mainstream of development.
3. Unfortunately, solar power in India is largely viewed as a costly source of power, thereby putting strain on already financially weak discoms and worsening the competitiveness of the domestic manufacturing industry. I strongly disagree with these concerns in view of the following:
a) One of the primary reasons why renewable energy is being termed as an expensive source of power is because there is no system in existence for pricing carbon, pollution, and other environmental damage caused by fossil fuels based on conventional power generation plants. Further, we cannot continue to depend so heavily on fossil fuels for meeting all our energy requirements due to inherent limitations of its availability. Increase in share of renewable energy in the overall energy mix is critical for achieving energy security and resultant sustainable development. Therefore, arguments against solar power purely on economic factors would not be pragmatic.
b) It would be a biased approach to compare solar power with conventional sources without considering the tariff over the life cycle of a power plant. Solar power prices under power-purchase agreements (PPAs) are generally fixed for 25 years (or increases at a pre-agreed rate), whereas, in most thermal power agreements, fuel cost is a pass-through, which results in consumers being left to the vagaries of highly volatile fuel prices. A marginally higher solar power tariff today, therefore, may not necessarily be a higher risk adjusted tariff as compared to other sources.
c) Industrial and commercial (I&C) consumers are actually finding solar power a cheaper source of electricity. Hence, they are already evaluating rooftop solar projects and, of late, are also entering into third-party solar PPAs with independent power producers. Also, more importantly, industry competitiveness today is not being eroded by expensive grid power, but largely by scarcity of uninterrupted power (owing to high levels of aggregate technical and commercial losses and load shedding), which necessitates investment in expensive backup power (diesel power today costs upwards of ₹ 15 per kWh).
d) Solar power tariff has been declining rapidly over the years and has almost reached grid parity as is evident from the results of latest round of reverse e-auction conducted by NTPC for 500 MW capacity in Andhra Pradesh under the national solar mission. It saw leading developers competing at tariffs under ₹ 5 per unit before the hammer went down at an all-time low solar tariff of ₹ 4.63 per unit. The list of recent winners in highly competitive central and state- level auctions covers developers having a sound track record and domestic and international experience to understand the viability of figures bid by them.
These prices compare fairly with the price discovery in few thermal power bids over last couple of years. The recent coal-based bids for the purchase of thermal power by Andhra Pradesh saw tariffs in the range of ₹ 4.27-4.98 per unit, which reassures that in the long run, solar power need not lead to any burden on the financial health of discoms. Further, distributed generation channels such as solar irrigation pumps would contribute in reducing the significant burden on discoms’ financial health by reducing grid power demand from agriculture.
4. It is also being argued that an increased solar capacity base will further raise the peaking power requirements in the evening, which may result in the need for investing in more peaking power plants or run existing thermal power plants only during peak hours, resulting in under-utilization and inefficiencies. This concern is clearly misplaced and misdirected. The correct response to addressing peaking requirement is to send the right pricing signals, which can be ensured by extending time-of-day metering to all customer categories. Today’s stranded gas-based capacities, which are unfeasible to be run on imported gas or LNG as base load plants, can be made feasible if run as peaking plants and provided there are right peaking tariffs.
Time-of-day metering, coupled with technological advances in consumer electronics domain, has the potential to address peaking requirements from the demand side. For example, washing machines can be scheduled to run at off-peak hours. Also, in the long run, the daily peak period is expected to move towards day time with increased cooling load resulting from growing urbanization and continued growth in the services sector.
It is not my intent to suggest that solar power is the panacea for India’s energy needs. Solar power also has its own share of issues in terms of its effect on overall grid stability, more so in the case of India, where the grid does not have buffer capacities like in the West. However, while plans are being drawn to scale up solar power, equal attention is also being provided to improve transmission corridors and grid management systems through increased investments and budgetary allocations to states to strengthen the network and deploy smart grid framework.
Additionally, multilateral development agencies are also working in tandem with the government to augment green energy corridor investments, which will directly connect load centres with solar energy generation centres like solar parks or other distributed generation systems. It is certainly my intent to suggest that the sun has finally risen on the renewable energy sector and it is in our nation’s interest to harness it for India’s economic success.
Rana Kapoor is managing director and chief executive officer of Yes Bank.