Japan increases Solar Panel Efficiency Criteria to curtail foreign imports

Asian countries like Japan and China routinely erect non explicit barriers to imports to protect their domestic firms. This is not isolated to solar panels but extends to other industries as well. The governments and the financial institutions exhibit a strong nationalistic streak to support their companies over foreign competition. It is notoriously difficult to sell foreign brands in Japan be it mobile phones or cars. China too has protected its domestic companies through a variety of ruses like staring its own telecom standards, mandating local procurement by state owned companies, domestic content requirements for wind turbines etc.

Japan has become a magnet for solar panel producers around the world, thanks to a very generous government subsidy which has led to a huge PV Panel boom. Goldman Sachs and gambling parlor operators too have joined the fray along with a large number of conglomerates and industrial powerhouses like Mitsui, Sumitomo, Mitsubishi, Softbank etc. To protect the Japanese solar panel companies like Kyocera, Sharp, Panasonic, the Government is going to only allow import of solar panels which have a high threshold with respect to efficiency. This will lead to the elimination of a vast majority of Chinese, Korea and Taiwanese players who sell panels cheaply but have lower efficiency. Note Japanese solar panel makers make mostly high efficiency solar modules with Sanyo having one of the highest commercial efficiency solar panels in the market.

Note Japan has already curtailed imports of solar inverters through a registration requirement which has led to a boom for Japanese solar inverter companies as demand is greater than the current supply.

Japanese solar inverter manufacturers

While Japanese solar panel companies are sweating due to cheap Asian solar panel imports, the solar inverter companies in Japan are facing the happy problem of supply shortages. The reason is that the Japan requires that PV inverters be certified by Japan Electrical Safety & Environment Technology Laboratories (JET). Most of the big global solar inverter companies lack this, which means that the local companies have a massive advantage. The Japanese solar market is set to boom due to very generous subsidies set by the Government which would imply returns of around 30%. While global solar panel majors are salivating at the prospect of the huge growth, solar inverter companies face a big barrier in the form of the JET certification.

Japanese Solar Bubble

Solar Energy in Japan is seeing a huge boom in solar installations as the generous subsidy announced by the Government sees the entry of newer players each day. The growth is driven by assured returns in excess of 30% which is attracting all sorts of investors from Japan where the interest rates are as low as 1%. The Solar Bubble is growing bigger and bigger each day as the surge in solar installations refuses to stop. The Government in Japan has refused to learn from the solar bubble bursting in Spain, Italy, Czech and Bulgaria.

The bureaucrats are blind to the bubble forming in front of them. Instead Kazuhiro Ueta, the head of the five member solar panel thinks they have a late mover advantage. But they are not using the advantage by setting the solar feed in tariffs so that the rate of return is around 5-8%. Instead they have kept it at the highest rate in the world.

The setting of a crazily high Feed in Tariff of 52c/KwH, solar demand is set to increase exponentially in Japan. Note Japan is already one of the biggest markets globally and has a large solar manufacturing industry. This is ideal grounds for a subsidy led solar boom like what happened in Spain in 2008 and Czech in 2010 with pernicious results. You know there is a bubble when Gamblers and Goldman Sachs start investing massive amounts to reap the early mover advantage of the Solar Bubble.

DigiTimes

The Japan government will reportedly hike energy efficiency standards for imported PV modules in 2013 from 250W currently to 255-260W for a module made of 60 monocrystalline silicon solar cells and from 235-240W to 245W for one made of 60 polycrystalline solar cells, according to Taiwan-based makers.

As the Japan government began to offer a feed-in tariff rate of JPY42 (US$0.53)/kWh for electricity generated by PV systems in July 2012, Japan has become a target market for Taiwan- and China-based solar cell or PV module makers because production costs in Japan are significantly higher, the sources pointed out.

The hike in energy efficiency standards for PV modules is equivalent to an increase in energy conversion rate for monocrystalline silicon solar cells from 18.2% currently to 18.8%, and that for polycrystalline ones from 16.8-17.1% to 17.4%, the sources indicated.

Infrastructure: The roots of growth for emerging markets

When you don’t invest in infrastructure, you are going to pay sooner or later

–      Mike Parker

Infrastructure, in general, defined as the set of interconnected structural elements that provide framework supporting an entire structure of development.

A well-knit and coordinated system of transport plays an important role in the sustained economic growth of a country.  It also helps a nation develop a stature in today’s world where globalization is the buzzword. Evidence also suggests that creation of infrastructure, through its direct and indirect effects, has a significant impact on poverty reduction.

Now when the need of infrastructure is defined, its working is a mandate to be discussed. To accelerate the pace of infrastructure development Government has taken the initiative and has started a host of projects and schemes with the sole motive to upgrade physical infrastructure in all crucial sectors.

In the Indian context, though there has been some improvement in infrastructure development in transport, communication and energy sectors in recent years, there are still significant gaps that need to be bridged. The current economic slowdown provides an opportunity for countries like India that have a substantial degree of unmet infrastructure requirements. This is reinforced by the understanding that spending on infrastructure has large multiplier effects.

Indian Economy

Post Independence Era (1947-1975):

Indian Economy was known to be an agrarian economy wherein the major part of the revenue, to an extent of 70%, was generated from the agriculture sector. The main objective of planning in India at this stage was to initiate a process of development which will raise living for a richer, more varied life. The sole problem of development of an under developed economy is one of utilizing the potential resources available to the community effectively. An underdeveloped economy is characterized by the co-existence of unutilized or underutilized manpower on the one hand and of unexploited natural resources on the other.

Indian economy, post independence, was somewhat more focused towards increasing the investment the reason being accounted to the fact that being a fresh, new economy freed from the British Raj it was necessary for the government to stabilize itself so as to control its economy in future. A somewhat low rate of capital formation might have been adequate for countries like the U.K. and the U.S.A., wherein the modern industrialization took root early. On the other side the under developed countries which make a late start have to aim at comparable development within a briefer period.

The First Five Year Plan involves an outlay on development by public authorities of around ` 2069 Crores over the period of 1951—56. The main considerations that have been taken into account are:

  1. Need for initiating a process of development that will form the basis of the much larger effort needed in the future
  2. Total resources likely to be available to the country for the purpose of development
  1. The close relationship between the rates of development and the requirements of resources in the public and in the private sectors
  2. The necessity of completing the schemes of development initiated by the Central and State Governments prior to the commencement of the Plan ; and
  3. The need to correct the mal adjustments in the economy caused by the war and the partition.

Following the budgetary plan formulated by the Planning Commission, since its inception in the year 1950, for the year 1951-1956 which is the First Five Year Plan of and for the Indian Economy. It is seen from the chart that a major portion of the plan was focused on areas like agriculture and irrigation.

Sector Amount
Agriculture

360

Irrigation

561

Transport and Communications

497

Industry

173

Social Services

339

Rehabilitation

85

Miscellaneous

51

Total

2066

 

 

 

 

 

 

 

 

 

Table 1: Sector wise Plan for 1st Five Year Plan

Chart 1: Sector wise Plan for 1st Five year Plan (Percentage wise)

Thus we can see that Indian economy was not focused into infrastructure development rather the development of the economy so as to ensure utmost utilization of the resources.

During the period of 1947-1965, the rate of growth of the Indian economy in the first three decades after independence was derisively referred to as the Hindu rate of growth by economists, because of the unfavorable growth rate. Since 1965, after the number of revolution in  the agricultural sector like the Green Revolution, Yellow Revolution or the White Revolution which enhanced the use of high-yielding varieties of seeds, increased fertilisers and improved irrigation facilities collectively contributed to the improved condition of agriculture by increasing crop productivity, crop patterns and strengthening forward and backward linkages between agriculture and industry.

Liberalization of Economy (1991)

Liberalization Period- Is it liberalized or Paralyzed?

The major breakthrough in the economy came during the year 1991, when Dr. Manmohan Singh served as the Finance Minister and incorporated the Policy of Liberalization, Privatization and Globalization. In 1991, after India faced a balance of payments crisis, it had to pledge 67 tons of gold to Union Bank of Switzerland and Bank of England as part of a bailout deal with the International Monetary Fund (IMF). In addition to the bailout, IMF required Indian government to undertake a series of structural economic reforms. As a result of which, the government of P. V. Narasimha Rao and finance minister Manmohan Singh started breakthrough reforms.

The new neo-liberal policies included

  • Opening for international trade and investment,
  • Deregulation,
  • Initiation of privatization,
  • Tax reforms, and
  • Inflation-controlling measures

The main objective of the government was to transform the economic system from socialism to capitalism so that a high economic growth is achieved and industrialization can be seen in the nation which was, at the end of the day, intended for the well-being of Indian citizens. Today India is mainly characterized as a market economy.

Figure 1 Timeline of Development of Indian Economy

Following is the chart of trend of gross domestic product:

    Comparison 
Year GDP w.r.t  year 1975 w.r.t year 1990
1975 8,42,210 1 0.151949
1980 13,80,334 1.638943 0.249036
1985 27,29,350 3.2407 0.492422
1990 55,42,706 6.581145 1
1995 1,15,71,882 13.7399 2.087768
2000 2,07,91,898 24.68731 3.75121

 Table 2: India’s GDP

The figures itself shows how the GDP of the economy in 2000 grew by more than 24 times than that of the GDP in the year 1975. Thus the trio policy of LPG came out to be a boon for the nation where in the infrastructure was also taken care of in the second generation reforms. The Indian economy which generated around 70% of its revenue from the agriculture sector has now turned the scenario with the services sector taking the lead with 57%.

Sector Contribution (%)
Agriculture 14.9
Services 56.6
Manufacturing 28.5
Total 100

 

 

 

Table 3: Sector wise contribution to GDP

 

Chart 3: Sector wise contribution to GDP (Percentage)

Sector Workforce
Agriculture 52
Services 34
Manufacturing 14
Total 100

 

 

 

Table 4: Sector wise workforce distribution

 

Chart 4: Sector wise workforce distribution

In the past, development of infrastructure was completely in the hands of the public sector which was characterized by:

  • Slow Progress,
  • Poor Quality, and
  • Inefficiency

Infrastructure deals with the availability of power, construction, transportation, telecommunication or real estate etc.; it was seen that India’s low spending on these categories at $31 billion or 6% of GDP in 2002 had prevented India from sustaining higher growth rates. With changing policy and reforms, certain minimal infrastructure was required in order to sustain the pace of development. This has prompted the government to partially open up infrastructure to the private sector allowing foreign investment, and most public infrastructure, barring railways, is today constructed and maintained by private contractors, in exchange for tax and other concessions from the government.

  • ElectricityAs of 2006-07 the electricity generation capacity was at 652.2 kWh, against an installed capacity of 128400 MW. In 2007, electricity demand exceeded supply by 15%. Major notable lacks of infrastructure in electricity dimension can be
    • Some 600 million Indians have no electricity at all
    • 80% of Indian villages have at least an electricity line, wherein just 44% of rural households have access to electricity
    • The stolen electricity amounts to 1.5% of GDP.

The reforms brought about by the Electricity Act of 2003 caused the separation of generation, transmission and distribution aspects of electricity, abolishing licensing requirements in generation and opening up the sector to private players, thereby paving the way for creating a competitive market-based electricity sector.

  • Water Supply – Notable improvements in water supply infrastructure, both in urban and rural areas, have taken place over the past decade. The proportion of the population having access to safe drinking water has risen considerably as shown below:
Year Rural Urban
1991 66% 82%
2001 91% 98%

Table 5: Change in Water Supply

However, quality and availability of water supply remains a major problem even in urban India, with most cities getting water for only a few hours during the day.

  • Transport – India has the world’s third largest road network, covering about 3.3 million kilometres and carrying 65% of freight and 80% of passenger traffic. In terms of road length, India has one of the largest road networks in the world. The national highways account for less than 2% of the total road network but carry 40% of the movement of goods and passengers.
  • Telecommunication – India has a national teledensity rate of 67.67% with 806.1 million telephone subscribers, two-thirds of them in urban areas, but Internet use is rare—there were only 10.29 million broadband lines in India in September 2010.

Thus we can see that India after getting liberalised has developed to a great extent in terms of infrastructure wherein the country which didn’t had metalled roads is now having one of the largest and dense transport system including all the roadways, railways, airways and yes not to forget the waterways.

Approach to 12th Year Plan

The Indian economy which is now on the verge of releasing the Twelfth Five Year Plan for the period of 2012-2017, which can be characterized by strong macro i.e., the overall fundamentals and is also characterized by a successful and good performance over the ongoing Eleventh Plan period. At the same time looking at the other side of the coin the economy can be seen clouded by some slowdown in growth in the current year which can be accounted to the fact of continuously growing concern about inflation and a sudden increase in uncertainty about the global economy.

Plan of Action

The twelfth year plan commencing April 1, 2012 projects a total investment of Rs 41 trillion (at 2006-07 prices) in infrastructure. This would account to approximately 10% of India’s GDP during the period and is twice the targeted levels during the eleventh five year plan. Following is the brief intended plan of financing of Infrastructure projects during the plan. The Sources of Financing is categorically divided into the Equity and Debt Financing.

Sources of Equity Finance
Corporates’ internal accruals 329
IPOs 93
Private Equities 65
FDI 74
QIP 17
Shortfall 135
Total available sources 578
Total requirement 713

 

 

  All Figures in Crores

 

 

Table 6: Source of Equity finance

Chart 6: Source of Equity finance (Percentage)

The equity financing includes IPO’s, private equities, Foreign Direct Investment or the QIP (Qualified Institutional Placement). The equity finance, as per the Planning Commission projection, is expected to raise around 29% of the total amount chart projected for financing inclusive of both debt and equity.

Sources of Debt Finance
Commercial banks 931
NBFCs 168
Insurance/pensions 116
ECB 179
Private Placements 158
Shortfall 230
Total available resources 1552
Total requirements 1782

 

 

        All Figures in Crores

 

 

 

Table 7: Source of Debt finance

Chart 7: Source of Debt finance (Percentage)

Key Challenges

There are several other external challenges arising from the fact that the current stature of the global economic environment is less favorable than it was at the start of the Eleventh Plan. The global slowdown and the European Crisis along with the fear of the double dip recession have added fuel to the fire. Apart from this, the downgrading of US economy from it’s ever since AAA to AA+ by the Standard & Poor’s have done the remaining icing. These global challenges call for renewed efforts on multiple fronts.

Performance and Key areas

As far as the Indian economy performance is considered it has performed well on the growth front which is 8.2 percent as seen in the first four years where as the growth in the final year of the Eleventh Plan saw a growth of 8.5 percent in contrast to the projected 9 percent.

This slight underperformance can be owed to the strong rebound from the crisis thus the actual growth in 2011-12 is likely to be around 8.0 percent which would lead to achieve an average GDP growth of around 8.2 percent over the Eleventh Plan period, lower than the targeted 9.0 percent, but better than the 7.8 percent growth as seen in the Tenth Plan.

This increase accounted for an increase of nearly 35 percent in per capita GDP. The slowdown in 2011-12 is a matter of concern, but can be reversed if the investment climate is turned around and if fiscal policy is strengthen alongside.

One of the major shortcomings of 11th Plan was inadequate infrastructure which resulted as a major constraint on rapid growth of the economy. The Plan had, therefore, emphasized the need for a massive expansion in investment in infrastructure based on a combination of public and private investment, the latter through various forms of public?private?partnerships. The total investment in infrastructure which includes roads, railways, ports, airports, electricity, telecommunications, oil gas pipelines and irrigation is estimated to have increased from 5.7 percent of GDP in the base year of the Eleventh Plan to around 8.0 percent in the last year of the Plan. A large number of PPP projects have taken off, and many of them are currently operational in both the Center and the States.

As far as Urbanization is concerned as compared to other developing countries, India has been slow to urbanize, but the pace of urbanization is expected to accelerate over the next two decades. According to the 2011 Census an increase was seen in the urban population from 27.8 percent in 2001 to 31.2

percent in 2011, and is likely to exceed 40 percent by 2030. This would generate a heavy demand for better quality infrastructure in urban areas, especially water, sewerage, public transport and low cost housing. Since it takes time to create urban infrastructure, we must introduce a sufficiently long term focus on urban planning in the Twelfth Plan.

Public Private Partnerships (PPP) in Infrastructure

With the government spending or investment becoming a constraint, the Public Private Partnerships (PPPs) are increasingly becoming the preferred mode for construction of infrastructure projects, both in developed and developing countries. The adoption of standardized documents such as model concession agreements and bidding documents for award of PPP projects have streamlined and accelerated decision?making by agencies in a manner that is fair, transparent and competitive.

How PPP has affected India

India currently has 1,017 PPP projects accounting for an investment of Rs. 486,603 Crore. According to the Private Participation in Infrastructure (PPI) database of the World Bank, India is second only to China in terms of number of PPP projects and in terms of investments, it is second to Brazil.

Few PPP Projects

Major PPP projects undertaken thus far are: Delhi, Mumbai, Hyderabad and Bangalore airports; 4 ultra-mega power projects at Sasan (Madhya Pradesh), Mundra (Gujarat), Krishnapatnam (Andhra Pradesh) and Tilaiya (Jharkhand); container terminals at Mumbai, Chennai and Tuticorin ports; 15 concessions for operation of container trains; Jhajjar power transmission project in Haryana and 298 national and state highway projects.

There have been 758 PPP projects in main sectors of focus where a contract has been awarded and projects are underway – in the sense that they are either operational, have reached construction stage, or at least construction/implementation is imminent. The total project cost is estimated to be about Rs. 383,332.06 Crore.

S E C T O R W I S E F I G U R E S
Sector Total Number of Projects Based on 100 Crore Between 100 to 250 Crore Between 251 to 500 Crore More than 500 Crore Value of Contracts
Airports 5 303.0 18,808.0 19,111.0
Education 17 424.2 365.5 460.0 600.0 1,849.7
Energy 56 337.6 934.0 3,083.0 62,890.0 67,244.6
Health Care 8 315.0 343.0 275.0 900.0 1,833.0
Ports 61 86.0 1,745.3 4,304.8 74,902.1 81,038.2
Railways 4 102.2 873.0 594.3 1,569.6
Roads 405 4,364.6 11,696.5 38,520.5 122,143.3 176,724.9
Tourism 50 1,132.6 1,503.5 800.0 1,050.0 4,486.1
Urban Development 152 2,812.0 3,136.9 6,688.2 16,838.0 29,475.0
Total 758 9,471.9 19,826.9 55,307.5 298,725.8 383,332.1

Source: Planning Commission

Conclusion

Thus we can see that there is a drastic change in the Indian Economy since Independence and a lot has been done towards the development of the Nations’ Infrastructure but still a lot more needs to be done. According to the report published by the standards and poor’s, it is said that lack of infrastructure on the face of Transport and lack of funding is a hindrance to the growth of Indian Economy. The report says that the inadequate infrastructure is a major roadblock for the country’s economic development and if the same condition prevails the forecasted economic growth for the coming twelfth five-year plan would be impossible to achieve.

Also Read on GWI:

 

HSBC’s Wealth & Personal Banking division Closes

India’s largest distributor of Mutual Funds HSBC has closed down its wealth and personal banking division due to growing customer backlash. Note Asset Management Companies in India are poor performers charging very high expense fees. They mainly depend on distributors to sell mutual funds to retail investors who are highly suspicious of the equity market. Given the hazards of investing in Indian stock markets this is not at all surprising. Most of the personal and wealth bankers in the country mostly mis-sell financial products to citizens who are not financially literate. They mostly go by the words of the bankers since big banks like HSBC, HDFC and others have recognizable brand names. However there are a lot of bad mice in the industry and Citibank was in the news for defrauding a top Venture Capitalist. Note if a financially savvy investor could be defrauded by the wealth bankers, then the state of the layman can be guessed.

HSBC found a large number of customer complaints and rampant misspelling of products by the Indian division. Churning of mutual fund portfolios without any rhyme or reason is the favorite tactic of the bankers. Investors not knowing better go along with these bad practices. Maybe with HSBC shutting down the division, other banks will clean up their act. However I doubt that will happen.

Private Banking in India – Another corruption ridden sector

Note Real Estate, Telecom and a number of sectors in India are notorious for the corruption and graft in their dealings. Now Private Banking also joins this infamous bandwagon. Recently a Citibank manager was caught defrauding wealthy customers and companies millions of dollars through stupid investments in stock futures. Some of the company officials were complicit in the fraud. Now Standard Chartered another foreign bank with a big presence has been caught doing the same thing. Note a lot of customers are not that knowledgeable about finance and financial products which have numerous regulations and hidden rules.So cheating is not that difficult for corrupt bank officials. Standard Chartered has been caught in illegally buying up shares in an Indian bank through unethical means as well. Note these banks have been instrumental in causing the Great Financial Crisis in 2008 which led to a huge economic collapse. Now these banks have started their shenanigans in India as well. RBI is right in not granting these banks faster access to India’s financial markets despite strong political pressure from the West. It would not hurt to slap these banks with huge penalties and ban them from opening more branches in India. Putting a small penalty will not deter them from future fraud.

Why not to invest in Mutual Funds in India

I have always said that investing in Indian mutual funds is a dumb idea given the lack of regulation, under performance, high fees and front running and fraud conducted by mutual fund managers. It is best to invest in a good ETF with low fees such as the Nifty Bees ETF which was one of the first ETFs to track India’s benchmark Nifty 50. However lack of sophistication amongst retail investors have not allowed these ETFs to gain popularity. Now there is one more reason to stay away from the chills of the Indian mutual industry as the stock market regulator SEBI has said that 50% of the MFs under perform the benchmark and some fund houses have underperformed over their entire history. It also cites the example of a fund trading circulatory with an investing bank flouting regulations. However lack of criminal cases against these white collar crimes emboldens the fund managers to keep indulging in frauds enriching themselves at the expense of the investors. Note insider trading is quite rampant in India and the fund managers are known to be active participants along with the promoters of the companies.

ET

HSBC, the word’s third-largest bank, has stopped selling insurance and mutual fund products in India. Amid mounting allegations of mis-selling and certain sharp practices, the London headquarters of the British bank, which carried out a “culture audit” of the Indian retail banking and wealth management practices, has ordered a suspension of sales.

Global Labor Oversupply

What has been missed out by economists worldwide is that capital is now heavily advantaged over labor which is leading to massive inequality around the world. The reason is that Labor both educated and unskilled has risen exponentially, with structural changes like the Internet and growing prosperity in large labor pools like India and China. This has given rise to the phenomenon of white collar poverty in these countries. Millions of people are graduating each year and there are not enough jobs to absorb this graduate army. The Internet revolution has meant that traditional jobs like accounting, law, research etc is now easily outsourced at a fraction of costs. This means massive deflation in wages even in the West as wages converge gradually all over the world. This growing unemployed army is growing even larger in size each year as there are simply not enough decent paying jobs.

Chinese Low Cost Engineers Massacres Western Telecom Companies

The relentless rise of Chinese telecom equipment and OEM companies has massacred telecom jobs in the West with major companies like Nokia, Alcatel and others firing in the thousands. Note Huawei and ZTE have become the nemesis of the telecom equipment makers which are showing losses in the last few years. These companies are not managing to compete with the low cost engineer advantage of the Chinese firms . Nokia is also firing thousands in its western factories in Poland and other places as it moves production to Asian factories. Note while Nokia has become unprofitable to other causes like Apple and Android, low cost phones from Asia is the biggest factor in its demise as well.

Labor Cost Arbitrage

One of my theories is that a lot of distortions and opportunities for arbitrage that we are seeing in the world today is because “Labor is not Globalized while Capital and Trade are “. However the Restrictions on the “Globalization” or in other words Free Movement of Labor is being reduced through the following trends:

  1. Improvement in Communication and Transportation, that has given rise to Outsourcing.
  2. Creation of regional blocs like the NAFTA, ASEAN, EU etc. has allowed broken the labor barriers within the bloc between the members. This has resulted in “winners” in the form of the “poorer members labor” and  “losers” in the form of “richer members labor”.
  3. MNCs like IBM, Applied Materials with operations spread across multiple countries exploiting this situation by moving most of their labor requirements to low cost locations.

Part Time Workers growing rapidly as Companies exploit Advantage

While 2 million more workers are employed in the US than in June 2002, there are 4 million more part-time workers today than there were a decade ago. And even with these 4 million part-timers counted, there are 4 million more people unemployed now than there were 10 years ago.This means that there are 2 million fewer full-time workers today than in 2002—an unprecedented change. Over the course of the last decade there has been what can only be described as a seismic shift in the composition of the American workforce, as employers make a calculated move to bring on more workers on a part-time basis instead of hiring them full-time.

600 million jobs needed

Over 600 million jobs will be needed over 15 years, a majority of them in Asia and Sub-Saharan Africa, to maintain the world’s employment rate at current levels, says a new World Bank report.  “Technology is changing the way workers and firms connect, through their access to much larger, even global, employment marketplaces,” the report said. It also noted that part-time and temporary wage employment had become key features of industrial and developing countries.

New Solar Energy Policy in Tamil Nadu

India’s electricity woes are known to Greenworldinvestor as we have been repeatedly highlighting the massive deficits suffered by individual states particularly in the southern India. Now these states are turning to solar power to alleviate some of their electricity issues. Andhra Pradesh’s solar policy which was enacted a month ago, gave a rapid fire clearance to solar power projects beside others incentives. Tamil Nadu has been preparing a solar energy policy for quite some time and has finally come out with a comprehensive policy which touches a number of subjects. Note Tamil Nadu is the biggest renewable energy state in India and accounts of almost 40% of the country’s wind power capacity. The strong growth has been due to the support given by the government which has made it the de facto wind capital of India. The state also has a vibrant wind manufacturing industry in the state with some top wind energy companies having their factories in Tamil Nadu.

Note opportunistic investors had already anticipated this policy and bought large parcels of land in Tamil Nadu’s sun belt which gets over 300 days of sun a year.

Why Solar Investors should sit up and take Notice

Tamil Nadu is one of India’s most prosperous and industrially advanced states located at its southernmost extreme. The state has shown remarkable progress in the  field on Wind Energy utilizing almost 80% of its Wind Power Potential with 40% of India’s total Wind Installations. With the right mix of policies, Tamil Nadu has also become the hub of Wind Energy Manufacturing with Global Heavyweights like Suzlon, Gamesa, Vestas all building plants in the State. A number of new players like Sterling Infotech and Lietner have also started manufacturing Wind Turbines in Tamil Nadu due to favorable networking effects. The state is also generates the 3rd largest amount of biomass energy with around 340 MW installed. Here are the reasons why Tamil Nadu has become the Biggest Renewable Energy State in India.

The previous success of Tamil Nadu in the wind energy sector makes the implementation of the 1000 MW a year target for 2013 -2015 look achievable. While the rest of the states announce ambitious policies for green energy,their implementation track record makes one doubt their claims. However Tamil Nadu is one of India’s most industrialized and fast growing states. Like Gujarat, the state’s governance structure and implementation record is much better relative to other states. So when TN announces a solar policy, solar companies around the world should sit up and take notice.

Hindu

Solar power equipment manufacturers, solar power generators, consumers and industry associations have welcomed the Tamil Nadu State Solar Energy Policy 2012. The policy announced on Saturday targets establishment of 3,000 MW of solar power generation by 2015, provides generation-based incentives for roof-top systems, mandates 6 per cent minimum purchase obligation from 2014, beginning with 3 per cent next year, and provides a package of incentives for solar equipment manufacturers.

Also Read on GWI:

Tamil Nadu Solar Energy Policy Review and Analysis

Title and Enforcement

This policy will be known as the “Tamil Nadu Solar Energy Policy – 2012”. The Government of Tamil Nadu will undertake a review of this Policy as and when required in view of any technological breakthrough or any changes taking place in the policy at the National level.

Key Objectives

  • To project Tamil Nadu as a Solar Hub
  • To generate 3000 MW of Solar Energy by 2015
  • To achieve grid parity by 2015
  • To encourage indigenous solar manufacturing facilities in the State

Development of Solar Power in Tamil Nadu

Phase (2013-2015)                Target (MW)

2013                                          1000

2014                                          1000

2015                                          1000

Total (by 2015)                     3000

With average solar incidence of 5.5-6 kWh/m2/day, Tamil Nadu is amongst the states with the highest solar insolation in India. To retain its leadership position, Tamil Nadu will promote setting up solar power projects to the extent of 3000 MW over a period of 3 years, as furnished above.

Tamil Nadu will actively promote the solar energy sector by prescribing a certain percentage of electricity consumption through solar energy as mandatory. This will be progressively increased.

Solar Purchase Obligation (SPO)

The State will mandate 6% SPO (starting with 3% till December 2013 and 6% from January 2014) for the following category of consumers:

HT Consumers (HT Tariff I to V)

This category will cover all HT consumers including:

  • Special Economic Zones (SEZs)
  • Industries guaranteed with 24/7 power supply
  • IT Parks, Telecom Towers
  • All Colleges & Residential Schools
  • Buildings with a built up area of 20,000 sq.m or more

The SPO will be administered by TANGEDCO.

The above obligated consumers may fulfill their SPO by

  • Generating captive Solar Power in Tamil Nadu equivalent to or more than their SPO
  • Buying equivalent to or more than their SPO from other third party developers of Solar Power projects in Tamil Nadu
  • Buying RECs generated by Solar Power projects in Tamil Nadu equivalent to or more than their SPO
  • Purchasing power from TANGEDCO at Solar Tariff
  • Consumers desirous of availing SPO exemption by captive solar generation shall necessarily install separate meters to measure captive generation

This mechanism will require generation of 1000 MW by 2015.

Mechanism to generate 3000 MW by 2015

The 3000 MW of Solar Power will be achieved through Utility Scale Projects, Rooftops, and under REC mechanism as follows:

Utility Scale (MW) Solar Roof Tops (MW) REC (MW) Total (MW)
(a) (b) (c) a + b +c
2013 750 100 150 1000
2014 550 125 325 1000
2015 125 125 675 1000
Total 1500 350 1150  3000

In utility scale out of 1500 MW, 1000 MW will be funded through SPO and balance 500 MW through Generation Based Incentive (GBI) provided by the Government.

Domestic Rooftop GBI

All domestic consumers will be encouraged to put up roof-top solar installations. A generation based incentive (GBI) of Rs 2 per unit for first two years, Re 1 per unit foe next two years, and Re 0.5 per unit for subsequent 2 years will be provided for all solar or solar-wind hybrid rooftops being installed before 31 March, 2014. A capacity addition of 50 MW is targeted under this scheme.

Consumers desirous of availing GBI shall necessarily install separate meters to measure rooftop generation.

Promoting Rooftops in Government

All new Government/Local Body buildings shall necessarily install solar rooftops

  1. Existing Government/Local Body buildings will be provided with solar rooftops in a phased manner
  2. All Street Lights and Water Supply installations in local bodies will be energized through solar power in a phased manner

Promotion of Solar Water Heating Systems

Public Buildings

The Government of Tamil Nadu has issued amendments to the Building Rules through the following Government Orders, making the use of solar water heating systems mandatory for all designated new Houses/buildings/Marriage halls/hotels etc.

Industries

Installation of Solar water heating systems will be made mandatory for industries having hot water boiler/steam boiler using fossil fuel.

Development of Solar Parks

Utility scale solar parks may comprise 250 MW in sizes of 1 to 5 MW, 600 MW in sizes of 5 to 10 MW and 650 MW of sizes above 10 MW. Solar Power projects will be developed through competitive/reverse bidding. Solar Parks with a capacity of about 50 MW will be targeted in 24 districts.

Single Window Agency (TEDA)

Various statutory clearances that are essential for the development and commissioning of Solar Energy Projects will be handled by TEDA in co-ordination with the concerned departments/agencies. Guaranteed single window clearance will be provided through TEDA in 30 days so that the plants can be commissioned in less than 12 months

Exclusive Solar Manufacturing Parks

Lands will be identified for development of exclusive solar manufacturing parks. The State will promote setting up of solar manufacturing industries in these exclusive solar manufacturing parks to be established in the State.

Preference in Industrial Parks

Preference will be given for establishing Solar manufacturing industries in the SEZs/Industrial estates / Parks viz., SIPCOT, SIDCO and similar Government organizations

Establishment of Solar Power Plants in Industrial Estates

In order to reduce the Transmission & Distribution losses, Aggregate Technical & Commercial (AT&C) losses and other infrastructure expenditure, Solar Power Plants will be set up in all industrial estates subject to availability of land at reasonable cost

Policy Initiatives

Net Metering

Net metering will be allowed (at multiple voltage levels) to promote rooftop penetration

Net metering facility will be extended to Solar power systems installed in commercial establishments and individual homes connected to the electrical grid to feed excess power back to the grid with “power credits” accruing to the Photovoltaic energy producer.

Projects to evacuate power at suitable voltages as suggested below

Solar PV System Size Grid Connected
<10 kWp 240 V
10 kWp to < 15 kWp 240 V / 415 V
15 kWp to < 50 kWp 415 V
50     Wp to < 100 kWp 415 V
>100 kWp 11 KV

Exemption from Payment of Electricity Tax

Exemption from payment of electricity tax to the extent of 100% on electricity generated from Solar Power projects used for self-consumption/sale to utility will be allowed for 5 years.

FULL REPORT FROM TEDA

Solar Gold Rush

The Indian state of Tamil Nadu, which is set to announce a solar subsidy policy soon, is seeing a massive gold rush. Note in India, the information about Government policy is generally leaked to big industrialists and insiders much before the actual government regulations are released. This gives a huge advantage to the big industrial houses who can prepare themselves accordingly. Huge chunks of land in the dust bowls of  Tamil Nadu districts are being bought for less than $6000/acre. The reason is that developers and opportunists are building up land banks to set up huge solar farms.

Global Economy Slowdown

Despite multiple rounds of monetary easing by the global central banks and zero interest rates, the global economy continues to slow down. Top global MNCs like Du Pont, Fedex, Dow etc. are forecasting a sharp cut in their sales and profit forecasts. The companies are reacting by firing thousands of workers and shuttering plants in order to protect their profits. Europe and China have been slowing down for quite a while now due to their muddle headed debt and investment related problems. Other emerging markets which are dependent on China and Europe are also facing slowdown if not outright recession. The stock markets are starting to reflect some of the reality despite the Fed induced money high. Global Trade and debt imbalances continue to be an overhang on the economy.

Unemployment has become one of the biggest global problems as structural changes in the labor market due to the Internet are combining with the cyclical slowdown. Wages are getting cut or remain stagnant even as food and energy prices continue to climb. The bargaining power has moved to global companies who continue to feast on a global pool of labor which is highly oversupplied. The advancement of communication technologies means that work continues to move to even lower cost locations to the detriment of workers globally.

Du Pont

DuPont slashed its earnings forecast, reported a lower-than-expected quarterly profit and announced 1,500 job cuts on Tuesday, signs that demand for the chemical company’s lucrative paint and solar products is slipping around the world.

Shares of DuPont, a component of the Dow Jones industrial average <.DJIA>, fell nearly 8 percent in morning trading.

The job cuts by the company, which also makes Kevlar bulletproof fiber and Corian countertops, marks one of the more extreme reactions to slipping demand and global economic uncertainty so far in this earnings season.

DuPont’s sales fell 9 percent to $7.4 billion in the third quarter, below analysts’ average forecast of $8.15 billion.

Dow Chemical

Dow Chemical Co, the largest US chemical maker by sales, will cut about 2,400 jobs and shut 20 manufacturing plants to reduce annual costs by $500 million in the face of slow global economic growth.

The facilities to be closed are in the US, Belgium , the Netherlands, Spain, the UK and Japan, the Midland, Michigan based company said in a statement released after it inadvertently e-mailed a draft copy to Bloomberg News earlier on Tuesday.

Corning

Corning said Wednesday that it will likely cut costs, which may include “modest” job cuts, to support profit in a weakening economy.

It’s the latest manufacturer to warn that the slowing global growth is hurting its business. Weaker global growth hurt Corning’s telecommunications and environmental technologies divisions, but the company said sales of its super-strong Gorilla glass, used in tablets, TVs and other devices, were much better than expected

The glass and ceramics maker’s stock slid 5 percent, or 67 cents, to $12.74 in premarket trading Wednesday.

Kimberly Clark

US personal-care products giant Kimberly-Clark said Wednesday it was exiting its Huggies diaper business in much of western and central Europe, cutting up to 1,500 jobs.

Kimberly-Clark Corporation announced it would close or sell five manufacturing facilities and some production would be transferred to other plants.

UBS

UBS is about to cut 400 investment banking jobs, two sources familiar with the situation said on Wednesday, with more extensive lay-offs at the Swiss bank likely to follow as it withdraws from the riskier and more capital-intensive parts of its business.

Tighter capital rules and a dearth of deals are forcing many investment banks to slash costs, though big losses in the 2008 financial crisis and a rogue trading scandal last year have added to the Swiss group’s particular problems.