India announced its commitment to achieve 40% of its total generating capacity from renewables by 2030 for the Paris accord. Then, in 2015, the even more ambitious target of 100,000MW of solar power by 2022 was announced.
When the National Solar Mission was launched in 2010, the target of 20,000MW of solar power by 2022 appeared too ambitious, as the country had only 160MW of solar power then. India announced its commitment to achieve 40% of its total generating capacity from renewables by 2030 for the Paris accord. Then, in 2015, the even more ambitious target of 100,000MW of solar power by 2022 was announced. These did not appear at all feasible.
A real breakthrough has, fortunately, occurred with capacity addition of solar power now growing exponentially—the growth rate in 2016-17 being slightly over 80%. The total solar power capacity is now already 20,000MW. What is remarkable is that this has been done through private investment and without large government subsidies. A competitive tariff-based bidding process every year for buying solar power from multiple firms through long-term contracts has been the instrument used by the Mission from the beginning. This created a competitive industry structure. Facilitated by the reduction in manufacturing costs globally of solar panels, the decline in tariffs has been amazing. Tariff in one recent bid came down to below `2.5 per unit, whereas that approved by the Central Electricity Regulatory Commission for solar power was about `17 per unit when the Mission was launched.
While it would be only natural to have a sense of achievement, this success should also give the confidence to aim for new frontiers. The immediate requirement is to correct the distortion that India has 20,000MW solar plants supplying electricity to the grid, but only about 1,000MW of small decentralised/rooftop solar installations. These are, however, preferable as no new transmission lines need to be built for them. The potential of decentralised small solar generation in the over 6 lakh villages in India is enormous. Simple purchase with long-term contracts at substation as well as at the village level distribution transformers could be undertaken. Distribution companies should invite bids to arrive at a feed-in tariff, which may then be used for the next 2-3 years for long-term power purchase contracts with all those willing to supply solar power at these rates. The maximum power that could be technically absorbed at a substation or the distribution transformer would need to be fixed at the outset.
The EESL (Energy Efficiency Services Limited) is well-positioned to work with state distribution companies to get this process going. It could undertake bulk procurement of solar panels to get lower costs and develop local partners for installation of solar panels for village-level farmers and entrepreneurs. The power purchase cost, which would definitely be less than `4.5 per unit, would be much lower than the actual cost of supply of over `6 per unit for distribution companies in rural areas and, therefore, economically beneficial for them. This programme should not need subsidies. A large programme would also bring additional income to small entrepreneurs and farmers across the country.
The EESL could also take up the foremost challenge of getting domestic manufacturing for the full value chain of solar PV panels as a part of Make-in-India. Market forces on their own have not led to any significant progress in manufacturing of solar panels in India, nor is any real progress expected. This can, however, be made to happen by the EESL inviting bids for the supply of multiples of 1,000MW solar panels for four consecutive years, starting from 2020, with the condition that the full value chain from the ingot to the panel be made in India. Similar orders may be placed on other bidders if they agreed to match the price of the lowest bidder. Assured offtake for four years would give potential investors confidence in the viability of their investment. The intention should be to have a competitive industry structure in manufacturing. Land and other infrastructure facilities should be earmarked along with the dispensation of duty-free import of capital goods before the invitation of bids, as was done for the ultra-mega power projects. With this risk mitigation, the bids should be sufficiently competitive. A new plant having the latest state-of-the-art technology should have lower manufacturing costs in comparison to earlier-generation plants. The EESL should be able to replicate its success in LEDs, in driving down costs substantially through its aggregation model of a series of bulk procurements of large volumes in succession. Procurement by the EESL with the condition of full domestic value addition would also have the advantage of being a non-issue as far as the WTO is concerned.
Solar thermal plants can take care of night-time electricity needs. These use mirrors to concentrate heat and pressure to generate electricity through the conventional turbine, with solar radiation substituting for coal. Using molten salt instead of steam enables storage and generation of electricity when there is no sunshine. It’s time to invite bids for peaking power from a few solar thermal power plants to start the process of price discovery, creating a competitive industry structure and to progressively bring down tariffs. Solar thermal has the added advantage of having a high percentage of value addition in India in the beginning itself, and so should be relatively cheaper. Solar thermal offers the possibility of large-scale storage with readily available materials without adding to the demand for rare earths needed for the current generation of battery storage technologies. Once 5-6 small plants have overcome their teething problems and the technology has stabilised, a series of competitive bids for larger number of bigger plants should be invited. This should drive down costs as has been experienced in the case of solar power and LED bulbs. The aim should be to achieve a real breakthrough in the tariff of solar thermal power to make it competitive in comparison to coal- or gas-based peaking power at night. The day this happens, the actual phasing out of the use of coal in power generation in India would become feasible.
By- Ajay Shankar. The author is Distinguished Fellow, TERI.