Solar energy gets set to power India
A Perfect Storm is defined as “an event where a rare combination of circumstances will aggravate a situation drastically”. Based on developments over the last few years, it is becoming increasingly apparent that a perfect storm is brewing in the energy space in the country.
First, India will continue to experience insatiable energy demand growth over the next several years. According to the Ministry of Power, from a current installed base of 170 GW, India will build up to 316 GW by 2020. In the same time-frame, the demand gap will grow from 19GW to 103GW, an increase of 5x! In this scenario, all types of energy are welcome – conventional, nuclear, and renewable.
Second, in spite of having low greenhouse gas emissions per capita, India has already become the 3th largest emitter in the world, according to the International Energy Association. This has created immense international pressure on India to respond. Increasing the percentage of renewable energy in the overall energy mix is one way to take a substantial bite out of the emissions pie.
Third, India is endowed with ample raw materials required to generate solar energy. Two ingredients are essential – land and sun – and India has plenty of both. In fact, the best land tracts for solar energy generation are dry and barren, and have little potential for alternate use. Conservative estimates put solar potential in India at about 70GW. More realistic estimates put the potential closer to 500GW.
Fourth, solar power technologies lend themselves to the scale effect. With increasing scale comes improvement in yields, efficiencies, quality, reliability, and costs of production. All of these work in concert to drive the levelised-cost-of-electricity (LCOE) down. Combine that with increasing costs of conventional energy, driven by increasing costs of inputs, and the utopian spectre of grid parity becomes achievable in the next few years.
Fifth, Indian policymakers are committed to supporting the scale-up while also reducing solar costs. The National Solar Mission employed tariff bidding to allocate 650MW to developers last year. The Gujarat Government has signed PPAs for 950+MW. In future rounds, the tariffs offered by these programmes will reduce, which will drive down the costs of solar generation. Already, capital costs for solar projects have dropped from INR 15-16 crore/MW to INR 12-13 crore/MW. Another government initiative that will drive significant capacity addition is the Renewable Purchase Obligation (RPO) that is being implemented across the country. Distribution companies and captive consumers will have to source a percentage of their energy from renewable sources. This is set at 5% currently and will grow to 15% over the next ten years. Within this, there is a solar-specific RPO of 0.25%, slated to grow to 3% over the same time frame. The RPOs will be implemented through Renewable Energy Certificates (RECs), which will trade within a pricing band established by the CERC. This pricing band will be reviewed periodically and is designed to provide acceptable financial returns to developers .
Lastly, in spite of challenges, several hundred MW are likely to be commissioned within the next year. As stated earlier, over 1,600 MW of PPAs have already been signed. While many developers are facing significant hurdles, related largely to acquiring land and achieving financial closure, several projects aggregating 200-300MW are likely to be commissioned over the next year. Not a bad outcome from a standing start!
These circumstances are leading to a perfect storm in solar, which should result in over 50 GW installed and over $30 billion invested in solar power in India by 2022.