India’s solar energy challenges

  • Category
    Economy
  • Published
    3rd Dec, 2019

The Prime Minister recently committed to setting up 450 gigawatts (GW) of non-fossil fuel power by 2022. India is determined to be the world’s greatest solar energy success story, but caught in an economic slowdown, India’s clean energy transition is likely to not go as per the plan.  

Issue

The Prime Minister recently committed to setting up 450 gigawatts (GW) of non-fossil fuel power by 2022. India is determined to be the world’s greatest solar energy success story, but caught in an economic slowdown, India’s clean energy transition is likely to not go as per the plan.  

Background:

  • While speaking at the United Nations Climate Action Summit in New York, Prime Minister Narendra Modi committed to setting up 450 gig watts (GW) of non-fossil fuel power by 2022.
  • With this, he more than doubled the initial target of 175GW of green energy that his own government had set in 2018.
  • However, the renewable energy industry is flailing. India’s installed green energy capacity stands at about 65GW today.
  • It was expected to cross 100GW by December 2022, definitely short of the government’s 175GW target and far behind 450GW. But even the expected 2022 projection now seems a bit too optimistic
  • The on-going slowdown in economic growth and electricity demand has worsened the deep stress in India’s renewable energy industry.
  • Solar energy tariffs in India are among the lowest, but states are keen to push them down further.
  • Independent power developers (IPPs) are wary of admitting to a slowdown, but the signs are everywhere. Of the 64GW that was auctioned by the Centre and states in FY19, 26% received no or lukewarm bids and another 10% got cancelled

Analysis

Why solar energy?

  • Climate change: We must accept that if we have to overcome the serious challenge of climate change, then what we are doing at the moment regarding switch away from fossil fuels is just not enough.
  • Relatively favourable: For the last few years, thermal power has become unfavourable due to rising coal costs and natural gas disappeared from the domestic market.
  • Environment-friendly: When in use, it does not release CO2 and other gases which pollute the air. Hence it is very suitable for India, which is one of the most polluted countries of the world.
  • Varied use: Solar energy can be used for a variety of purposes like as heating, drying, cooking or electricity, which is suitable for the rural areas in India. It can also be used in cars, planes, large power boats, satellites, calculators and much more such items, just apt for the urban population.
  • Abundant & Secure: Solar power is inexhaustible. In energy deficient country like India, where power generation is costly, solar energy is the best alternative means of power generation.
  • Grid independent: You don’t need a power or gas grid to get solar energy. A solar energy system can be installed anywhere. Solar panels can be easily placed in houses. Hence, it is quite inexpensive compared to other sources of energy.
  • Solar watersheds:
    • In 2010, government launched National Solar Mission or Jawaharlal Nehru National Solar Mission (JNNSM).
    • In 2015, India initiated the International Solar Alliance (ISA).

Where does India stand in its solar capacity?

  • India is largely dependent on fossil fuel imports to meet its energy demands. About 70% of India’s electricity generation capacity is from fossil fuels.
  • By 2030, India’s dependence on energy imports is expected to exceed 53% of the country’s total energy consumption. Greater import dependence is a threat to India’s energy security as it makes the economy susceptible to global market volatility.
  • It also adds to a huge import bill leading to a loss of valuable foreign capital. Hence there is need to shift our focus towards the renewable energy sources.
  • India is a late comer in the clean energy market.
  • Nearly 46% of Germany’s energy comes from renewable sources. In China, that figure crossed 26% in 2018.
  • BNEF estimates that by 2050, 75% of India’s electricity will be from renewables (from the current 21%), higher than in China (62%) and the US (55%).
  • To ensure that there is a stable market for solar energy, the central government has already made it mandatory for state power utilities (discoms) to buy a certain amount of this clean energy from independent power producers (IPPs).
  • The duty structure for equipment needed to generate solar energy is more favourable compared to that needed for producing wind power. Government is ensuring grid connectivity and subsidies for rooftop solar projects.
    • Why discoms favour low solar tariffs is because solar power helps discoms meet their peak power requirement.

India’s solar potential

  • As per World Energy Outlook Report 2015, India has substantial solar potential; around 750 GW (based on the assumption that 3% of wasteland in each state can be used for solar power projects, plus an assessment of the potential for rooftop solar). This represents almost three times India’s total installed power capacity today.
  • The solar resource is strongest in the north and northwest of the country (Rajasthan, Jammu and Kashmir), but the potential is also considerably high in several other states, including Maharashtra, Madhya Pradesh, and Andhra Pradesh.
  • A breakup of India’s earlier renewable energy target of 175GW:
    • 100 GW from solar
    • 60 GW from the wind
    • 10 GW from biomass
    • 5 GW from small hydroelectric projects
  • 100GW of solar energy comprised:
    • 60 GW of utility-scale projects (both solar PV and CSP) like solar parks
    • 40 GW of rooftop solar applications for commercial users and households, together with some small-scale schemes and off-grid capacity

What has gone wrong?

  • Silicon panel industry losing: A big bulk of the new investments in green energy went into silicon panels, which were powered by the sun. However, the slow pace of development in the last few years is now bringing the industry on the verge of a shutdown.
  • Low tariffs: Solar energy tariffs in India are among the lowest in the world, but state governments are still keen to push them down further. These dangerously low tariffs are turning unsustainable for some developers, who in turn start compromising on quality.
    • For example, developers in Andhra Pradesh are facing an existential crisis as the state holds them hostage with two equally unpleasant options: either lowering the tariffs or see their long-term power purchase agreements (PPAs) cancelled.
    • The bone of contention for the state government is PPAs signed from 2014-2019 that were over and above the mandated 5% renewable power purchase obligations of the state.
    • Tariffs that states are willing to pay are capped at ?2.50-2.80 per unit, limiting the room for IPPs to improve profit margins and disincentivising quality projects.
  • Uncertain policy changes: Before competitive bidding for awarding projects was introduced for the renewable energy sector in 2017, states invited developers by setting a fixed tariff (called the feed-in tariff). Policy changes have been sudden and unpredictable.
    • Uttar Pradesh made an attempt to renegotiate old renewable energy tariffs.
    • Gujarat decided that only projects which supply power to the state discom could use land within the state, flouting a central procurement agency’s rule for setting up projects under the interstate transmission system.
    • Rajasthan, one of the most sought-after states for solar power plants, recently announced its decision to impose additional charge on all projects that sell power outside the state.
  • Mounting discom dues: Some state power distribution companies (discoms) are also late on paying their power bills. As of July 2019, state discoms owe a whopping ?9,735.62 crore to the renewable energy companies.
  • Slack in new Investment: While the renewable energy sector has been fuelled mostly by private equity (PE) investments so far, the number of firms now able to attract investment has dwindled due to the problems faced by the industry. There is also uncertainty in the bidding of new projects. The projects that have already started, the pace has slowed down dramatically.
    • PE investments into renewables have stayed low and large banks like State Bank of India are no longer lending to renewable energy projects that sell power at below ?3 a unit.
  • No broad solar development: Countries which are a success story in solar energy have all had a parallel development in solar-based IP, manufacturing and deployment. But in India, we went straight to deployment and that makes it vulnerable to global players like China and Vietnam who lead in manufacturing. That dependence will only grow more as India’s energy transition slows or gets delayed.
  • Currency risk: There is also currency risk involved because modules are imported and then the cost of the module itself keeps varying.
  • Low quality power: Beyond the rising risks and regulatory uncertainty, an increasing area of concern is also the quality of solar energy installations in India, most of which are purchasing cheaper panels from China to break-even. There are higher-than-expected degradation levels in the solar modules that Indian developers are using.
    • Studies have suggested that quality issues in solar Photo Voltaic (PV) cells could be the result of aggressive pricing policies and commissioning deadlines for PV plants.
  • Decline in power sector demand: A large part of the stress in renewable energy sector is because the slow rates of growth in power demand, particularly from high energy-consuming industries.
    • Data from Central Electricity Authority show all-India power demand growth slowed to 4.4% in April-September 2019, down from 6% a year ago.
  • Operational issues:
    • The solar panels used are not designed for very high temperatures. In remote areas with high temperatures, the panels do not yield their optimal usage.
    • Dust is a problem, especially in Rajasthan, which require frequent cleaning and increase the operational costs. There is alluvial dust present in plains of north India and delta regions of south India) which turns into mud when water is poured.
    • Other main issue is the hardness of the water. Hard water is not suitable for cleaning, and companies have to invest in reverse osmosis (RO) and other technology to make it suitable.
    • Skilled workforce is required for cleaning and maintenance is not available in these areas and so companies have to bring them in from other areas and train them.

Domestic content controversy

Guidelines for the solar mission mandated of cells and modules for solar PV projects based on crystalline silicon to be manufactured in India. This accounts for over 60% of total system costs. For solar thermal, guidelines mandated 30% project to have domestic content. A vigorous controversy emerged between power project developers and solar PV equipment manufacturers. Domestic manufacturers wanted to avoid competition with global players and lobbied the government to incentivize growth of local industry. US Trade Representative filed a complaint at WTO challenging India’s domestic content requirements citing discrimination against US exports. WTO ruled in favor of USA.

 Consequences:

  • In the rush to build market share, some players have become very aggressive are bidding very low tariffs with fairly low returns. It is important that every project remains viable from both aspects—tariff and profitability.
  • Given that several discoms, the ultimate buyers of power, are in a poor financial condition; and India’s banking sector is already facing its own set of challenges, viability of solar power projects has become a serious cause for concern.
  • We need to attract more players and many more investors into this nascent sector. This will come only if the returns are attractive for investors.
  • If the slowdown persists, not just in renewables but in the broader economy, it will adversely affect India’s energy transition plans and the target of achieving 450 GW by 2022.

Consumer side Problems:

  • There is no power generation when then sun sets down.
  • It is weather dependent hence not reliable.
  • There is need to clean the panels regularly. Cleaning panels of large solar farms is wastage of lots of water.
  • Sunny area is required. Even small shadow on the panel can disrupt the generation of whole string.
  • Replacement of batteries in off-grid plants is costly. While installing a solar panel is quite cheap, installing other equipment becomes expensive.
  • Solar panels require considerable maintenance as they are fragile and can be easily damaged. So, extra expenses are incurred as additional insurance costs.
  • In On-grid systems, when there is a power cut from the grid then your own power cannot be used instead. This results in no power at all in such situation.
  • Finding faults in and maintenance of big solar farms is hard because of large size.
  • The land space required to install a solar plant with solar panel is quite large. India is already a highly populous and land starved country.
  • While the government has provided subsidy for rooftop solar installations, consumers are still expected to foot the water bill and cleaning bill which means bearing the operational costs of having solar modules on roofs.

Conclusion and Way forward

Regardless of whether or not the International Solar Alliance is effective, renewable energy, particularly solar, is crucial to India's future. Due diligence should be exercised while selecting and procuring solar modules, including verifying the antecedents of the manufacturer, and independent checks on the quality of the modules imported into India. Today, discoms are forced to buy expensive power and political pressures prevent them from raising tariffs for consumers. If there is no demand for more power, the ripple effect is longer payment cycles and more standoffs between states and generators. This isn’t going to change until economic growth picks up soon.

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