Indian Oil and Gas companies to invest in Solar

India’s large state owned oil and gas companies are looking to invest a huge amount of money in setting up huge wind and solar farms. Two Special Purpose Vehicles (SPVs) are going to be formed by companies such as ONGC, IOCL, BPCL, HPCL, GAIL along with Solar Energy Corporation of India (SECI). The Indian government is looking to set up massive solar farms in the gigawatt range to help boost electricity supply in the chronically power deficit country. There are already plans to build up the worlds’ largest solar power plant in the desert state of Rajasthan. This power plant is being built by a consortium of number of state owned companies such as NTPC, Power Grid, SECI and others. There are also plans on the drawing board for building similar giant solar farms in Ladakh, Gujarat and other places.

These plants will require a huge amount of investment, as a 1 GW plant requires investment of at least $1.2 billion. Note for solar power, the major cost is capital investment as there is no fuel cost. This is the biggest hurdle in the adoption of solar energy, as large upfront payment becomes difficult for both large and small solar energy systems. The companies which are being prodded by the Indian government have a large amount of financial resources. Even though they are not profitable hugely, they generate a huge amount of revenues each year thanks to their monopoly like position in the Indian energy market. They have the financial muscle to build these multibillion dollar renewable energy projects.

Problems with the State Owned Companies

Our only concern is the snail like movement by these companies. These companies are generally not run along corporate lines which means decision making is very slow. There had been earlier plans made as well to get these companies into renewable energy sector, but those plans died a slow death. Note, these large solar farms are eminently doable given that large solar farms have been built around the world in a very short time frame of 1-2 years. The supply of solar equipment has also become quite robust with very low costs. They are not only reliable but also can be procured quite quickly. It is expected that 50 GW of solar panels will be installed in 2014, with just 2-3% being installed in India.

The policymakers have got the right idea to decisively move India’s energy policy towards renewable energy, however the bane for India’s infrastructure sector has always remained execution. I think a better idea would be to enable the policy and regulatory structure, while allowing the private companies to build these massive solar farms. I remain skeptical about the ability of the India PSU companies to do things right.