Is Solar Power still shining bright? - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Is Solar Power still shining bright?

Mar 17, 2012

In our December 2011 article, we had highlighted the potential of the solar power industry, and the steps taken by the government to promote the industry.

Targets to be achieved

In January 2010, the government launched the Jawaharlal Nehru National Solar Mission (JNNSM). JNNSM set a target of generating 20,000 MW of grid connected, and 2000 MW of off grid solar power by 2022; and bringing solar energy costs in line with other energy sources. To encourage entrepreneurs, the government awarded solar projects via reverse auction process. Encouraged by the steep fall in tariff bids (Rs. 7.49 per unit, by French company Solairedirect), which is close to the conventional coal-based tariffs of Rs. 4-5 per unit; the Ministry of New and Renewable Energy advanced the date for grid parity to 2017 from 2022.

This second article on solar energy tracks the developments that have taken place towards achieving these targets.

Flurry of investments in the Solar Sector

L & T Construction bagged orders of over 200 MW and is targeting to complete projects which would generate a total of 400 MW by FY13. Bharat Heavy Electricals Ltd. (BHEL) commissioned 13 MW of solar power plants across the country in FY12, and will complete 20 MW in the current year. Tata Power has commissioned 28 MW of solar power projects. Mahindra Solar One, a joint venture between Mahindra Group and Kiran Energy, plans to invest Rs 10 bn to build 100 MW of capacity over the next two years. The company commissioned grid-connected solar power unit of 5 MW in Rajasthan. Adani Group recently commissioned the country's largest solar unit in Gujarat with plans to generate 40 MW. Reliance Industries and the Lanco group are running solar capacities of 6 MW each.

The table below shows a host of companies that have secured solar projects under Jawaharlal Nehru National Solar Mission's (JNNSM) reverse bidding process.

Current & future solar projects
Company name Location Capacity (MW)
Lanco Infratech Rajasthan 100
KVK Energy Ventures Rajasthan 100
Megha Engineering Andhra Pradesh 50
Rajasthan Sun Technique Rajasthan 100
Azure Power Rajasthan 40
Welspun Solar Rajasthan/Andhra Pradesh 55
Corporate Ispat Alloys Rajasthan 50

Rajasthan and Gujarat have attracted the largest investments as their geography and climate are conducive for solar energy radiation. Out of a total 1100 MW new project allocations, Rajasthan received a lion's share of 80% through competitive bidding in the first phase of JNNSM. Furthermore, 722 reputed companies in Rajasthan have shown interest for setting up of solar power plants amounting to a total capacity of 16,900 MW in the state.

Growth drivers for solar energy

The European financial crisis forced Germany and Italy, the world's two biggest solar markets, to withdraw fiscal concessions to the solar industry. As these countries had scaled up their capacities significantly, the demand slowdown triggered a drop in the price of photo-voltaic (PV) modules. Additionally, capacity additions in China and other Asian countries for solar cell manufacturing, coupled with the weak European situation, led to a further fall in the price of PV modules.

The Government's Jawaharlal Nehru National Solar mission (JNNSM) could not have come at a more opportune time. The lowered price of PV modules provided a big impetus to the domestic industry. This is reflected in the fact that the average tariffs of bids by PV solar project developers dropped from Rs 12.25 in 2010 to Rs 8.7, which as per the Ministry of New and Renewable Energy is among the lowest in the world.

NTPC Vidyut Vyapar Nigam (NVVN), the nodal agency under JNNSM, is designated to enter Power Purchase Agreement (PPA) with solar power developers. NVVN will bundle solar power, along with an equivalent megawatt capacity from the Central unallocated quota, and sell it to State utilities. Rates will be as determined by Central Electricity Regulatory Commission. Further, State utilities are entitled to use the solar part of the bundled power to meet their Renewable Purchase Obligations (RPO) under the Electricity Act, 2003. The RPO requirement will be more than 30,000 MW in 2022, as per the Ministry of New and Renewable Energy, and is expected to drive demand for solar-based electricity.

Headwinds for the sector

The low tariffs are reportedly creating problems for developers in raising funds, as lenders feel that such aggressive bidding will constrict profits. The credibility of solar projects can be raised by strengthening the solar specific Renewable Energy Certificate (REC) mechanism. This allows utilities and solar power generation companies to buy and sell certificates to meet their solar power purchase obligations.

Solar energy seems to be shining

Solar energy is a clean, green and virtually inexhaustible source of electricity generation. India, with its locational advantage, is ideally suited to capitalise on this renewable source. As per the Ministry of environment and forests (MOEF), solar PV power projects are not covered under the ambit of 2006 EIA notification. So, no environment clearance is required for such projects. Moreover project execution and management of solar projects is relatively easier as they are modular in nature with relatively short gestation periods. Typically solar PV projects require upto 12 months for set-up.

The falling price of PV modules, the government incentives, along with ease in being able to set-up solar projects, is fuelling the sector's growth more than imagined. The industry is facing a teething problem with respect to financing, but this is expected to be resolved by the development of REC market.

Under JNNSM, solar power capacity target of 1,000 MW will be achieved by FY13, and additional projects by 21 states are expected to add 10,000 MW over the next two years. According to (NVVN), the grid parity of Rs 5.5-6 a kWh is likely to be achieved by 2015-16, much earlier than previously anticipated!

Clearly solar energy is shining relative to the targets of price and power generation.

Equitymaster requests your view! Post a comment on "Is Solar Power still shining bright?". Click here!


More Views on News

India's Top 5 Monopoly Stocks to Watch Out for (Views On News)

Nov 30, 2021

These 5 companies dominate their sectors with a huge piece of the pie.

Will the Revival Plan of JSW Energy's Renewable Business Boost its Presence in India? (Views On News)

Nov 26, 2021

How will this move help the company in building and streamlining its renewables portfolio.

The Reason Behind the Thrilling Performance of IEX in the Last few Sessions (Views On News)

Oct 22, 2021

IEX share price has been on a roll recently. The company's shares surged over 165% in the last six months.

There's a New Kid on the Green Hydrogen Block (Views On News)

Nov 17, 2021

Billionaire Gautam Adani has announced plans to invest up to US$70 bn in renewable energy and produce the cheapest hydrogen in the world.

Solar's Hot in India. It's About to Get Hotter... (Views On News)

Nov 1, 2021

Will this company help India to become the largest player in solar space?

More Views on News

Most Popular

Infosys vs TCS: Which is Better? (Views On News)

Nov 26, 2021

In the post pandemic era, the top two IT companies in India are fighting to capture the growing demand for IT.

This Multibagger Stock Zooms 20% After Dolly Khanna Buys Stake (Views On News)

Nov 24, 2021

Shares of this edible oil company zoomed over 50% in three days after ace investor bought around 1% stake.

6 Popular Stocks that Turned into Penny Stocks (Views On News)

Nov 27, 2021

A look at popular stocks that crashed big time and never recovered, i.e. which went from 'Multibaggers to Multibeggers'.

How to Find Your Next 10-Bagger in this Market (Profit Hunter)

Nov 19, 2021

The #1 make or break factor in your portfolio you shouldn't ignore.

MobiKwik IPO Opens for Subscription Soon. Key Things to Know Before Subscribing. (Views On News)

Nov 20, 2021

The Rs 19 bn issue is set to hit the market soon.


Become A Smarter Investor
In Just 5 Minutes

Multibagger Stock Guide 2022
Get our special report Multibagger Stocks Guide (2022 Edition) Now!
We will never sell or rent your email id.
Please read our Terms


Dec 2, 2021 11:29 AM