Solar Power in India

As a tropically located country, India is endowed with vast solar energy potential. With about 5,000 trillion kilo-watt hour (kWh) per year, energy is incident over India’s land area with most parts receiving 4-7 kWh per sq. meter per day. Therefore both technological routes for conversion of solar radiation into electricity – i.e. solar thermal and solar photovoltaic – can be effectively harnessed in the country.

However, despite of supportive government policy Solar Energy remains few years away from the milestone of “Grid-parity” i.e the point where per unit cost of Solar Energy gets at par with per unit generation cost from other conventional sources of energy. The Period is still longer in case of developing economies like India and China. In this article we make an assessment of various roadblocks due to which solar power remains elusive to grid-parity in India.

Issues & Challenges of Solar Power Development in India

Approximately 1 km² of land is required for utility-scale solar power plants for every 20-60 MW generated. Per-capita land availability is scarce in India. Dedication of land area for exclusive installation of solar cells might have to compete with other necessities that also require land. Also, land requirements in such huge proportions pose additional constraint on the capital cost of solar power plants that makes it unattractive for power developers. Highly-distributed, individual roof-top power generation systems — all connected via a local grid — will be more suitable for India. However, such an infrastructure does not enjoy the economies of scale possible in mass utility-scale solar panel deployment. It needs a substantial decline in the market price of solar technology deployment to attract individual and average family-size household consumer. Besides land availability and the sheer size of its requirement for solar power plants, it is important to select the land appropriately as solar power generation depends hugely on the quantity and quality of radiation received.

Depending on the solar radiation map of India, Rajasthan, Gujarat and central India offer good options to erect solar power plants. However, electricity in India is a concurrent subject. Therefore, facilitative policies and appropriate incentives are required from state governments too.

Solar parks involving apportioning dedicated land areas for development of solar power would reduce capital cost and incentivize power developers. These parks could also be made eligible for Special Economic Zones (SEZ) type benefits.

In India, solar energy is usually considered for rural or off-grid applications. However, international experience show that while solar energy has very good applications for rural and off-grid requirements, technology development and commercialization is best achieved by thorough large-scale deployment of solar PV in grid-integrated mode. The table below clearly demonstrates that globally PV technology is being used more for grid-connected power generation application than for off-grid applications.

Table 1: Country-wise Installed Off-grid and On-grid Solar PV Capacity, 2010 (MW)

Source: Compiled from various sources

However, India faces unique challenges in developing grid-connected systems. Indian grids are not as stable as European or other Western grids, which operate within a very narrow band of frequencies. Indian grid officially operates within 49-50.5 Hz range, which is a very wide-band operation for power electronics. However, the creation of the national grid is expected to make grid operation more stable. Further, India needs to develop suitable power electronics that will work under the current grid conditions.

Moreover, MNRE’s proposal for the Eleventh Plan clearly favors solar off-grid applications over grid-connected SPV or concentrated solar power technologies. While MNRE has not cited any particular reason for this approach, high initial cost of solar systems and the need to electrify remote villages inaccessible to the gird appears to be the reasons. However, erecting off-grid stand-alone applications would not provide economies of scale. As a result, the high costs associated with such systems would continue to constraint solar power development. Besides, such systems would require huge government subsidies and restrain development of grid-parity solar power. Even financing communities would not be keen to invest in off-grid applications. Therefore, the strategy to rely on off-grid applications needs to be reviewed.

Solar PV is a costlier than conventional sources. Despite the declining price of solar PV technology over the years, it still remains economically unviable for power generation. The capital cost of solar thermal power generation technologies is 2.25-3 times more than fossil-based generation options, resulting in a higher per-unit cost of electricity than conventional power. Capital cost of solar PV plant with current levels of technology works out to be around Rs 9.78 crore per MW, Rs 15.3 crore per MW for solar thermal plant (Table 4.18 and 4.19), and around Rs 4 crore and Rs 6 crore per MW for thermal and hydro power, respectively.

Table 4.18: Benchmark Capital Cost Norm for Solar PV Power Projects to be commissioned on or before March 31, 2013

Source: MNRE

Table 4.19: Benchmark Capital Cost Norm for Solar Thermal Power Projects to be commissioned on or before March 31, 2013

Source: MNRE

However, the operating cost of solar power plants is lower than other conventional sources. There is no fuel requirement for the plants and the gestation period is less than that of thermal or hydro power plant.

It is estimated that about 1.66 million units of electricity will be produced per MW of solar PV plant annually. The cost of solar power generation project is Rs 13 crore per MW. This cost is based on FY 2011-12 price level.  CERC tariff for 2012-13 is under finalisation.

Given India’s inadequate financing capabilities, funding of solar projects is a major constraint for solar power development in the country. The SEBs are already facing financial losses. Banks and financial institutions are skeptical about lending to solar power projects. However, the government is trying to make provisions to address this concern.

The government has planned a subsidy outlay to boost solar power generation. MNRE is providing a subsidy of up to Rs 30,000/kWp for residential and commercial purpose, and a subsidy of Rs 50,000/kWp for community and institutional purposes.

Under the Off-grid Solar Applications Scheme of JNNSM, MNRE provides a capital subsidy of 90% of the benchmark cost — limited to Rs 243/per watt peak — for setting up of SPV systems, including power plants.

Besides, a National Clean Energy Fund (NCEF) was announced by the Finance Minister in the 2010 budget speech. The NCEF aims to be a long-term, stable source of funding to facilitate the increased share of clean energy in the energy mix through research, innovation, competition and continuous cost reduction. This objective would be met through flexible design to provide support in the areas of capital, technology development and institutional development. Investment will be in the form of: a) equity to support promoters funding gap; and b) loans to leverage equity at affordable rates.

In other words, the fund would leverage investment and assist the beneficiaries in providing them access to finance, reducing their capital cost and extending loan period or grace periods to match projected cash flows.

IREDA has signed a MoU with the Central Bank of India, the National Bank for Agriculture and Rural Development (NABARD) and the National Housing Bank to refinance of projects. During 2010-11 IREDA has sanctioned loan of Rs 3,126.42 crore for various renewable technologies. To assist power developers, the government has decided to issue renewable energy vouchers and bonds to facilitate timely completion of projects. FDI inflow to the tune of Rs 5,826 crore in 319 renewable energy projects has been reported during the period (2009-2012). FDI up to 100% under the automatic route is permitted in Renewable Energy Generation and Distribution projects subject to provisions of Electricity Act, 2003.

However, the government’s efforts alone cannot tackle the funding constraint for solar power projects. The financing community also needs to be made aware of the bright prospects of solar power in India and encouraged to invest in solar power plants. Adequate investment in R&D in solar technologies is expected to reduce the cost of solar power rapidly, which would open up opportunities and facilitate.

Author: Rishi Srivastava. Read more about the author, in the About Section.

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