Fewer environmental and policy hurdles, lower project cost and falling tariffs for users are making Indian companies look towards the solar sector with renewed interest. Planned capacity is also set to rise over two-fold to 350 MW.
Reliance Industries, Mahindra & Mahindra, Lanco Infratech, Videocon and Moser Baer are building solar plants and the government has revised its capacity addition to 10,000 MW by 2017 in the 12th Five Year Plan from the earlier targeted 4,000 MW. In Jawaharlal Nehru National Solar Mission (JNNSM) in 2009, the government cleared proposals to set up just 29 MW, according to ministry of new and renewable energy records.
?The main reason for this new interest is that prices of solar modules required for the projects have dropped by about 35% over the last 12 to 18 months,? says Sanjay Chakrabarti, leader (cleantech practice) at consultant Ernst & Young India. The modules make up for 60-65% of the cost of the project, he says.
The fall in module prices is driven primarily by supply-demand mismatch. ?While demand has grown as projected, supply has overgrown, driven by aggressive expansion of capacity in China,? says a spokesperson of Moser Baer Solar. In the long term, prices will come down, driven by technology improvements, scale and operational efficiencies, he says.
Rabindra K Satpathy, president (solar energy), Reliance Industries says, ?Localisation of required equipment is important for a price sensitive market like India.?
Other factors that go in favour of solar projects are minimal requirements and very short commencement cycle. With a piece of land, solar modules and an evacuation line system in place, a solar project can be up in three to eight months. This is a breeze when compared to the two to five years? time taken for setting up conventional power plants run on thermal or hydro energy, notwithstanding the time taken for environment clearances and getting water and fuel linkages.
?There is a growing effort to use solar energy for off-grid usage, which is a huge opportunity,? says Vish Palekar, business head (cleantech ventures), Mahindra Partners, part of automobiles major Mahindra & Mahindra.
?At the policy level, India has achieved quite a bit in terms of the stated goals on solar energy,? says Satpathy of Reliance Industries. ?The purchase power agreement (PPA) structure has generally been to world standards and we are very bullish on the future for solar in India.?
?Solar industry worldwide is driven by feed in tariffs and other type of incentives, both are evolving very fast in India in a constructive manner,? Moser Baer?s spokesperson says.
As of date, 186 MW scale grid solar power plants have been commissioned in India, according to Tarun Kapoor, joint secretary, MNRE, who was speaking on the sidelines of Intersolar India 2011, organised by global trade fair managers Messe Munchen International?s India arm. By end of March 2012, 400 MW of installed capacity will be in place, Kapoor added.
However, there are deterrents to the growth of solar power, the biggest being high tariffs. Though tariffs have fallen 50-60% from R17 per kilowatt hour (1 kwh is equivalent to one unit of electricity) two years ago to R8-8.5 now, they remain a deterrent in its wider reach, industry players say. In a coal-based power plant, tariffs range between R3 and R3.5 kwh. Also, efficiency levels are far lower in solar power plants when compared with conventional power generation. For example, in a 100 MW of coal-based power plant running round the clock, the plant load factor (PLF) is 80%. PLF is a measure of the output of a power plant compared to the maximum output it can produce. In a solar plant with similar capacity, PLF will be 18-20%.
?Apart from tariffs, project financing is a challenge,? says Palekar of Mahindra. ?Banks are warming up to solar project financing, but will take one or two more years to take shape,? he adds.
Chakrabarti of E&Y agrees and says, ?Bankers are in a wait and watch mode. They are still waiting for the sector to evolve a bit more and more clarity emerges on the demand profile of solar. They don?t want risk just as yet.?
?Clarity on the future of solar energy demand and more states coming up with policy on the sector will enable more participation from the private sector,? says Palekar of Mahindra & Mahindra.
Gujarat, Rajasthan, Karnataka and Maharashtra have also formulated state solar policies. According to ?The India Solar Handbook? published by consulting company Bridge To India in December 2011, Gujarat is a frontrunner having signed PPAs for 933.5 MW of projects and commissioned 40 MW projects, under the state policy alone. Rajasthan stands second with PPAs signed for 288 MW of projects and 6 MW commissioned.
?According to government?s plan under JNNSM, 1,100 MW of solar capacity will be added and it is well on track,? says Kapoor. ?We are in the process of allotting 800 MW of projects and another 300 will be done by March 2013. We are looking at 10,000 MW of projects in the second phase of JNNSM under the next five year plan. Of this, 3,000 MW will come through direct government support. In phase three, that is by March 2022, 20,000 MW of projects will be allocated,? Kapoor adds.
According to Kapoor, as the years have passed, project sizes have increased and larger companies are looking to enter the sector. ?Earlier, maximum allocation was done for 5 MW, but it has increased to 30 MW and even 50 MW projects,? he says.
