India to install 350 GW of Wind & Solar

India is looking to set up an aggressive target to achieve 250 GW of solar power capacity by 2030, up from 100 GW by 2022. Wind has been set a target of 100 GW up from around 30 GW now. The combined 350 GW of wind and solar capacity will be around ~40% of India’s power capacity of 850 GW. This is quite ambitious and means that a large part of the 600 GW additional capacity will come from solar and wind. Hydro and nuclear energy are set to have miniscule growth targets with their capacity envisaged to grow to just 80 GW from 56 GW now, which means around ~2 GW a year.

13530930-wind-turbines-and-solar-panels-in-a-rapeseed-field

India is under pressure to reduce greenhouse gas emissions, as it is already the 4th largest emitter in the world. Based on current growth rates, it will soon be the 3rd largest and developed countries want India to reduce its GHG emissions. This will not be easy, given the India’s economy is growing at 7% rates and the per capita energy usage remains extremely low. However, using a solar centric growth trajectory will help ameliorate the pressure on India from the USA and other countries.

What is helping India is that solar power has already become competitive with coal based power based on recent bids of 8c/kWh, seen in recent state tenders. This is expected to go down further even as fossil fuel power prices are increasing due to regulatory pressures, increasing land prices and time delays. India is also power deficient in oil and gas, so going solar also helps in improving the country’s energy security besides reducing the massive billion dollar fuel imports. It will be tough to reduce the reliance on thermal power, given it is the cheapest form of power and also India has abundant reserves of coal deposits found in multiple locations.

Gas is not expected to see much addition now, with the country aiming just to improve the utilization of the existing 25 GW of capacity. Much of this capacity is stranded as there is not enough supply of cheap domestic gas to meet the needs of these plants. Most of these gas power plants are running idle and the power prices are not high enough for them to run based on imported LNG. Though the government has provided subsidies for these plants to run on LNG for some capacity, it does not want to do so over the long term. Providing subsidies for expensive fossil fuel does not make sense, when the prices of green power are falling.

Renewable energy is a relatively new area compared to fossil fuel power, where rapid technology advances and higher costs make it a risky proposition. Investors typically need a higher return from solar investing compared to say a thermal power plant. Stable government policy and regulations are also a prerequisite before investors would put money into green energy. India despite its lofty ambitions of installing 100 GW of solar power from 4 GW now is not a paragon of virtue on this count. Both the central and state governments have changed their policy and targets numerous times, putting investors on a weak wicket. While there is tremendous excitement amongst the financial and investor community over the renewable energy growth, the risks are nothing to scoff about.

The high competition in this sector has already reduced returns to just about 15%, which is not very high considering that risk free Indian government bonds give you 8% without breaking a sweat. On top of this high competition is the whimsical actions of government authorities. The latest government to do this is the MP government. A recently held reverse auction of 300 MW saw bids as low as Rs 5.05/kWh, which translates to around 8c/kWh. This is a very low price considering the extremely high interest rates in India. The highest bids which were successful were around 10% higher at Rs 5.5/kWh. These bids are also very competitive when you consider the overall environment. Many analysts questioned if any decent returns could be made by bidders such as Renew Power and others based on these low prices. However even at these prices, the MP government is not willing to sign a LOI with developers. They want the higher bidders to match the extremely low price bid by Sky Power at Rs 5.05. This makes no sense to me. The developers such as Hero won fair and square based on the tender rules, which had around 300 people bidding. Some large developers had bid Rs 6/kWh, which means that the Rs 5.5 bid by the winning bidders is quite competitive. However, the government is changing the rules of the game after the play has been made.

These frequent changes and not following the rules make the investment case of India quite weak. On the one hand, you have the government indulging in corruption by awarding billions of dollar without tenders. Here you have a very competitive tender and still the government does not want to play fair. MP government is not alone in increasing the risks for the RE investors. Gujarat and Chhattisgarh have done the same. The Gujarat government has insisted on lowering the feed in tariffs which were guaranteed while the Chhattisgarh government changed the mode of evaluation. As any bidder for a government tender will tell you, the bureaucrats don’t care a shit about the rules. They can act whimsical when they feel like it. While the Modi government touts its ease of doing business improvement and “Make in India” campaign, it needs to iron out these basic issues, before India can become an economic powerhouse.

Coal plants to promote Solar power

The Modi Government has asked the coal power plants to make solar farms more competitive. According to this decision, some of the older coal power plants which are into existence for almost 25 years now, shall be used to establish solar capacity set by National Thermal Power Corporation (NTPC). NTPC one of the better run state company, has plans to set up 15 GW of solar plants by 2019.

Electricity from both the technologies will be sold to the grid. This will help in reducing the price of solar, as a result of bundling together cheaper coal with expensive solar. This move will also force distribution companies to take more of solar power.

solar panels india

The distribution companies face a unique problem in India. They sell subsidized power but never receive the subsidies from government. They are unable to charge customers enough to cover the costs and hence run in huge losses. This program is designed to use more of solar energy and also help the government in achieving its 100 GW solar installation target by 2022.

Some of the older coal power plants in India are Singrauli, Korba, Rihand Stage I, Vindhyachal Stage I and Ramagundam, which will complete 25 years in service in 2016 and 2017. The cumulative capacity of these plants is close to 9 GW.

“In case of Singrauli if the present tariff is 1.80 rupees, then the bundled tariff will be only 3.12 rupees or 3.15 rupees,” A.K. Jha, chairman and managing director of NTPC, said in the earnings call.

Source: NTPC

Though I am not a big fan of the idea of NTPC getting into solar, but bundling of power will make sense. It will reduce the overall price of solar and help promote solar. It will also help the distresses coal power plants which are sinking in losses. However, there could be a hurdle since 25 years old plants will not be very efficient. Moreover I am not sure if it would make much sense, as solar power is becoming competitive on a stand-alone basis.

Solar Cities in India

India moves in track to have first of its green and clean solar cities in the country. With rapid development and urbanization, there has been a rising demand for energy in the cities of India. The MNRE had selected 60 cities in India where renewable energy forms could be adopted to reduce the usage of traditional power by minimum 10%. A city having population levels between 0.5 – 50 lakh. Solar cities are not a new concept. In fact they have been successfully implemented in Australia and USA.

solar-citites

Capital sanctions of INR 50 lakhs per city was sanctioned to 31 cities. A combination of renewable energy technologies like solar generators, rooftop installations, solar heating systems etc. will be used in the process. Detailed methodology has been put in place to achieve this target. This program will assist local governments in preparing a master plan, which will entail sector wise preparation of energy demand and supply chain currently and over a period of 2013-2018. Based on this a renewable energy resources assessment would be done. The potential sources are listed below:

Solar energy

Thermal Systems

i)Solar water heating systems

ii)Solar cookers (Box and dish type)

iii)Scheffler cookers for indoor cooking

iv)Solar steam generating systems

v)Solar drying/air heating systems

vi)Solar refrigeration and air conditioning plants

vii)Solar concentrators for process heat applications

Photovoltaic Systems

viii)Solar lanterns

ix)Solar home lighting systems

x)Solar generators

xi)Street light solar control systems

xii)Solar hoardings

xiii)Solar street light/garden lights

xiv)Solar traffic lights

xv)Solar blinkers

xvi)Road studs

xvii)Solar power packs

xviii)Building integrated photovoltaic

xix)SPV power plants for decentralization applications

xx)Roof top plants for replacing DG gensets

xxi)Solar charging stations

Biomass &Waste to Energy Projects

i)Power projects based on Municipal and Urban Waste and also on industrial waste through combustion/bio-methanation technologies

ii)Power projects based on methane available from STPs

iii)Bo-mass gasification and co-generation projects in industries

iv)Biomass gasifies based crematoriums

v) Projects on methane utilization for thermal & electrical applications in industries

Wind turbines for power generation

Miro-hydel plants

Solar passive architecture in buildings/housing

Source: MNRE

Read more about Solar Energy in India

Initiated in 2008, the program received formal approval of the government for 50 such cities last week. The master plans of 46 of these cities have been prepared so far.

State-wise status of Solar Cities as on 19.08.2015
State Approved Solar Cities Status of Master Plans Solar City Cell Created
1. Andhra Pradesh 1. Vijayawada Prepared Yes
2. Telangana 2. Mahbubnagar* Under Preparation No
3. Assam 3. Guwahati Prepared No
4. Jorhat Prepared Yes
4. Arunachal Pradesh 5. Itanagar Prepared Yes
5. Chandigarh 6. Chandigarh Prepared Yes
6. Chhattisgarh 7. Bilaspur Prepared Yes
8. Raipur Prepared Yes
7. Gujarat 9. Rajkot Prepared Yes
10. Gandhinagar Prepared Yes
11. Surat Prepared Yes
8. Goa 12. Panji City Prepared No
9. Haryana 13. Gurgaon Prepared No
14. Faridabad Prepared Yes
10. Himachal Pradesh 15. Shimla Prepared Yes
16. Hamirpur Prepared Yes
11. Karnataka 17. Mysore Prepared Yes
18. Hubli-Dharwad Prepared No
12. Kerala 19. Thiruvananthapuram* Under Preparation No
20. Kochi Under Preparation No
13. Maharashtra 21. Nagpur Prepared Yes
22. Thane Prepared Yes
23. Kalyan-Dombivali Prepared Yes
24. Aurangabad Prepared No
25. Nanded Prepared No
26. Shirdi Prepared Yes
14. Madhya Pradesh 27. Indore* Prepared No
28. Gwalior Prepared Yes
29. Bhopal Prepared No
30. Rewa Prepared Yes
15. Manipur 31. Imphal Prepared Yes
16. Mizoram 32. Aizawl Prepared Yes
17. Nagaland 33. Kohima Prepared Yes
34. Dimapur Prepared No
18. Delhi 35. New Delhi (NDMC area) Prepared No
19. Orissa 36. Bhubaneswar Prepared No
20. Punjab 37. Amritsar Prepared No
38. Ludhiana Prepared Yes
39. SAS Nagar (Mohali) Under Preparation No
21. Rajasthan 40. Ajmer Under Preparation No
41. Jaipur Under Preparation No
42. Jodhpur Prepared No
22. Tamil Nadu 43. Coimbatore Prepared No
23. Tripura 44. Agartala Prepared Yes
24. Uttarakhand 45. Dehradun Prepared Yes
46. Haridwar & Rishikesh Prepared Yes
47. Chamoli – Gopeshwar Prepared Yes
24. Uttar Pradesh 48. Agra Prepared No
49. Moradabad Prepared Yes
50. Allahabad Under Preparation No
25. West Bengal 51. Howrah Under Preparation Yes
52. Madhyamgram Prepared No
53. New Town Kolkata Prepared Yes
26. Jammu & Kashmir 54. Leh* Under Preparation No
27. Puducherry 55. Puducherry Prepared No

*Only In-principal approval given. 

Source: MNRE

With the new 100 GW solar installation target announced by the Central Government, the country is fast ramping up to achieve whatever it can. The government is surely headed in the right direction to achieve the same. It remains to be seen whether all of this can be accomplished in real and concrete sense or only on paper.

India Solar to see new lows

India’s solar auctions are seeing lower and lower prices being bid for solar power sales with each passing year. The latest giant 2000 MW auction by one of the states Telangana saw solar prices being bid in the 8.5-9.5c/kWh range. There were 184 bidders for the 2000 MW auction and it saw stiff competitors between foreign solar developers, Indian solar developers, conglomerates and specialist green energy utilities.

India green energy focused utilities such as Mytrah, Acme saw large wins in the hundreds of megawatts range, while others such as SunEdison, SunPower, Skypower too won big projects by bidding aggressively. Most firms are bidding in the Rs 5.5-6/kWh range, which means that profitability will be severely challenging for most firms given that interest costs in India are in the 12% range. Though equipment prices in India for solar farms have fallen sharply, the interest costs remain quite high. This means that solar prices cannot go down as rapidly as in USA and Middle East, where the interest costs are in the 4-6% range or even lower for the large state owned financial institutions and utilities.

Read more about Indian Solar Installers.

The last tender in MP set a new low benchmark for electricity prices from solar projects and this has continued for the Telangana project as well. Solar auctions are being done dime to the dozen by the central and state government and their companies. NPTC and SECI are also coming out with large project auctions soon.

The main concern is that whether these developers will be able to build these projects given these aggressive prices. The Indian political and regulatory landscape is quite volatile, while the global energy prices are extremely volatile as well due to the commodity massacre taking place. Some of these projects may face issue in financial closure in my views, given that the IRR cannot be too high. I am also not sure whether these developers have done their risks mitigation strategy in place.

The US government now promotes Solar & Wind Energy

The USA government has been a laggard in supporting solar and wind power compared to other developed nations such as Germany and Spain. While the 30% investment tax credit has helped fuel solar power growth, there has been no big bang policy of pushing solar energy growth. Falling solar electricity prices have been the biggest factor behind making USA the third largest market for solar power after Japan and China. This is not a big credit to the USA government considering the fact that USA has the largest electricity producing capacity in the world. Other developed nations such as Italy and Spain produce far more solar and wind energy than USA does.

But however things seem to be changing. Obama has increased his support to green energy sources as his term slowly comes to an end. Obama has been trying to become more assertive in key policies such as the Trans Pacific Partnership to improve trade. He is focusing more on his legacy and is willing to take the Republican majority Senate head on. Obama has increased the compliance conditions for the power industry such that it will make thermal power more costly to produce. He has made the reductions from power industry go upto 32% by 2030 up from 30%. It will become increasingly impossible to run thermal power plants let alone build new ones. EPA has been doggedly making fossil fuel power plants cleaner and has been fighting the utilities in courts.

Read about Solar Installers in USA.

Democrat frontrunner Hilary Clinton has also made renewable energy a center piece of her policy by targeting 500 million solar panels to be installed by 2020 implying a target of 140 GW, which is 7 times more than the current USA capacity of 20 GW.

While the Republican candidates are almost all climate skeptics and supporters of Big Oil and Gas, Democrats are becoming more assertive towards climate change issues. They are willing to stake more and more to help solar and wind power become more important industries each year. Solar energy is already becoming one of the most important employment generators for the USA economy. They are getting large constituencies to support them just like Big Oil and Gas. International agreements such as the one signed with China is also making the US government support more renewable energy.

Guardian

On Sunday, Hillary Clinton took a first swing at the many-headed carbon hydra. By the end of her first term, she said, the US would have seven times more solar energy capacity than it does today. And by 2027, renewable energy would supply a third of the nation’s electricity.

Clinton’s announcement, which the campaign said would be the first of many on climate change from the presidential hopeful, extends the carbon-saving ambition in a significant sector of the economy. Burning fossil fuels for electricity accounts for 31% of US greenhouse gas emissions. One estimate found Clinton’s 33% renewable target could slice another 4% off the US’s existing pledge to cut emissions by 26-28% by 2025.

Bloomberg New Energy Finance’s Americas chief, Ethan Zindler, said the ambition was high, but within reach. “It appears to be on the upper end but it’s entirely doable given the rapidly improving economics of renewables generally and solar particularly.”