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Is Solar Power still shining bright? - Views on News from Equitymaster
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  • Mar 17, 2012

    Is Solar Power still shining bright?

    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.



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