During my fellowship placement with ONergy Solar, I conducted research on solar energy financing initiatives in India. As part of this research, I wrote about India’s current solar energy landscape. This excerpt is listed below and includes background on the need for further solar energy implementation in India, solar and renewable energy policies in India, and the future outlook of India’s solar energy market.
Background
The implementation of solar energy in India has so far enhanced its energy security, mitigated carbon emissions, and improved its economic well-being. Scalability, ease of deployment, and abundant availability of sunshine in India have positioned solar energy as a critical part of its energy strategy. In 2015, India added more than 2 GW solar capacity to reach a cumulative capacity of 5.6 GW by December. In addition, 35 new tenders with cumulative capacity of 15.5 GW were announced.
Currently, 25 GW of projects are in various stages of development, and 5 more GW of new tenders will be released within the next few months. With increased interest from domestic and foreign developers, rapidly decreasing costs, key policy changes, and 5.4 GW of expected additional capacity[1], India is on target to become the fourth largest solar energy market globally in 2016 behind China, the U.S., and Japan.
As India’s energy requirement has been expected to increase by 200% from FY 2015-30, 175 GW of renewable energy will contribute to 18.9% of India’s entire power consumption in 2022. Out of the 263.66 GW installed power capacity in India and 34.35 GW of renewable energy (13.1%) through March 2015, solar energy constituted 1.3% (3.34 GW). Out of the 263.66 GW installed power capacity in India and 34.35 GW of renewable energy (13.1%), solar energy currently constitutes 1.3% (3.34 GW).
Solar and Renewable Energy Policies
The Indian government has also introduced key policy changes to foster solar energy’s growth. The Jawaharlal Nehru National Solar Mission (JNNSM), launched by the Ministry of New and Renewable Energy (MNRE) on 11 January 2010 by former Indian Prime Minister Dr. Manmohan Singh, aims to promote ecologically sustainable growth while addressing India’s energy security challenge and constitute India’s contribution to the global effort to meet the challenges of climate change.[2] Specifically, JNNSM aims to establish India as a solar energy global leader by creating policy conditions for large-scale diffusion nationwide as quickly as possible.
In the face of India’s increasing energy demands, JNNSM has set renewable energy targets of 175 GW by 2022 and likely 250 GW by 2030. JNNSM has set a target to deploy 20,000 MW of grid-connected solar power by 2022. Interim targets include 1,100 MW by 2013 and 4,000-10,000 MW by 2017, which would be achieved by “mandatory use of renewable purchase obligation by utilities and backed with a preferential tariff”[3]. Though ambitious, these targets are beneficial for the Indian economy, climate, and 400 million Indian citizens without electricity access. As achieving these targets would require an estimated $160 billion, financing is key[4].
The Solar Parks Policy and Ujwal Discom Assurance Yojana (UDAY) are additional policy changes. The Solar Parks Policy, established by MNRE, provides financial support for the infrastructure to construct solar parks nationwide. As of April 2016, MNRE has approved 33 solar parks in 21 states with 19.9 GW capacity[5]. The Union Cabinet approved UDAY in November 2015 as a “rescue plan” and permanent solution for power distribution companies (DISCOMs) unable to buy electricity[6]. Through UDAY, state governments need to assume 75 percent of their respective DISCOMs’ total debt obligations and convince banks to reduce interest rates on the remaining DISCOM debt[7] States and industry observers have received UDAY well; within 2 months of approval, more than half the states in India agreed to join.
Though the Solar Parks Policy and UDAY scheme have experience success, broader policy reform via Electricity Act 2003 amendments are still waiting on approval from the Parliament of India. Challenges exist in ensuring robustness of the grid and demand for investment/lending at aggressive tariff levels, so both policy interventions and demand growth measures are essential to growth of the solar energy sector.
Future Outlook
Though the overall trend looks bright, progress in India’s solar energy market in 2017 and 2018 will likely not move as quickly as expected. With tariffs decreasing sharply to Rs 4.34-5.00/unit ($0.07-0.08/unit), developers are facing challenges raising capital, and banks are not as willing to lend to projects[8]. Though MNRE targets 12 GW of utility scale solar projects for FY 2016-17, BRIDGE TO INDIA, a leading consulting and knowledge services provider in the Indian renewable market, estimates an actual capacity addition of 5-6 GW.
Though solar energy’s growth trajectory over the next 3-5 years appears positive. The central government will be releasing more than 9 GW in project tenders through the National Thermal Power Corporation and Solar Energy Corporation of India as of April 2016. Additionally, southern states have expressed interest in solar energy to address their increasing power deficit. However, with slow growth in power demand and grid stability issues becoming increasingly more important – especially in high renewable energy penetration – BRIDGE TO INDIA estimates the sector will slow down after 2017 and 2018.
Solar energy is also likely to reach grid parity sooner than anticipated and become competitive with conventional energy sources, in light of increasing coal prices, decreasing module prices, technological innovations, and increasing installations. Solar PV capital costs and tariffs have also decreased by more than 60% since the launch of JNNSM in 2010[9]. Tariffs have been reduced further from relevant benchmark costs, as witnessed during central and state government competitive bidding.
[1] http://www.bridgetoindia.com/wp-content/uploads/2016/04/BRIDGE-TO-INDIA_india-solar-handbook_2016_email.pdf
[2] http://www.mnre.gov.in/solar-mission/jnnsm/mission-document-3/
[3] http://ficci.in/spdocument/20295/Financing-Paper.pdf
[4] http://climatepolicyinitiative.org/2016/03/17/two-instruments-attracting-foreign-investment-renewable-energy-india/
[5] http://www.bridgetoindia.com/wp-content/uploads/2016/04/BRIDGE-TO-INDIA_india-solar-handbook_2016_email.pdf
[6] http://www.firstpost.com/business/govt-launches-uday-scheme-to-rescue-state-bankrupt-discoms-2497108.html
[7] http://www.bridgetoindia.com/blog/success-of-the-discom-package-crucial-to-the-future-of-solar-power/
[8] http://www.bridgetoindia.com/wp-content/uploads/2016/04/BRIDGE-TO-INDIA_india-solar-handbook_2016_email.pdf
[9] http://www2.deloitte.com/content/dam/Deloitte/in/Documents/energy-resources/in-enr-solar-power-in-karnataka-noexp.pdf
