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India's solar power: Bold plan or bargaining ploy?

Dec 14, 2009

The solar mission has been launched in India just in time for the climate change conference in Copenhagen. It has led some to believe that it is a government’s bargaining ploy, writes Padma Nagappan, San Diego-based business writer, but argues that the mission is good for the country.

When Rahul Gandhi, a prominent member of parliament and the son of former Indian Prime Minister Rajiv Gandhi made his pitch for nuclear power last year, the pivotal point of his argument was Kalavati, an impoverished widow with four children who lives in the village of Jalka, in the state of Maharashtra and has limited access to electricity.

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Kalavati became the Indian equivalent of the US’s “Joe the Plumber,” propelled on to the national stage as a media figure. She was invoked passionately by Gandhi, to publicise the fact that 78 million rural households in India live without electric power, that poverty was directly connected to energy security and that nuclear power was the solution.

At stake was a proposed deal between India and the US and access to US nuclear technology for India. The coalition government headed by Gandhi’s Congress party won the debate and the deal was signed last October.

While espousing the need for electricity for all, Greenpeace India took a different approach, writing a new ending for Kalavati’s story.

With the aim of highlighting the fact that the Kalavatis of India need not wait close to 20 years to benefit from a nuclear power plant, after which they would still only be passive consumers of power, the organisation installed solar panels at the village school in Jalka, which powered up 10 fans and one computer. It took just three days to bring about drastic change in the lives of the 100 children who attend the Zilla Parishad School.

Decentralised power

Greenpeace, like many other grassroots organisations and social enterprises in India, believes that centralised power is the root cause of energy poverty. With centralised power, be it through coal, hydro or nuclear power, electrifying cities is the priority and rural villages, often at the tail end of the power grid, are literally left in the dark.

According to estimates, India has an energy deficit of 10 to 17%; over 450 million people – a third of its population – have no access to electricity; power cuts last from two to four hours almost every day in the cities and up to 20 hours in rural areas.

Jalka is testament to this fact, just about 30 miles away from a thermal power station, it still receives only sporadic power. Advocates believe that decentralised renewable power via micro-grids is an optimal solution, one that would not only bring consistent power supply to the villages but would also alleviate poverty by enabling individuals and private and public entities in the villages to become power producers, with income generation through feed-in tariffs (FITs).

This year, India launched a plan that envisions the country becoming a leader in solar energy. After officially unveiling its Jawaharlal Nehru National Solar Mission (named for India’s first Prime Minister and Gandhi’s great-grandfather) at the end of November, the country now has in place an ambitious plan to increase installed, grid-connected solar capacity from the current three megawatts (MW) to one gigawatt (GW) by 2013, and 3 GW by 2017.   The plan is one of 8 missions in India’s National Action Plan on Climate Change.

Also proposed in the mission are targets for one GW in off-grid solar power by 2017 and 2 GW by 2022, in rural areas. By 2022, the country aims to have 20 GW of solar power. Currently, generation costs for solar in India are Rs 15-20 [US $0.32-0.42] per kilowatt-hour (kWh), according to the Ministry of New and Renewable Energy (MNRE) but the plan anticipates grid parity by 2022, acknowledging that this is contingent on several factors such as the scale of global deployment and pace of advancements.

Rapid scaling-up is expected to bring down costs, improve technology and help achieve the goals for the first phase. Import duties may be waived for critical solar components including silicon, to jumpstart the plan. Investment in R&D will aim to increase efficiency and develop cost-effective storage technologies.

To achieve its rural electrification goal, the government aims to provide 20 million solar lights by 2022 and light up 10,000 villages with solar power by 2013, according to a statement by Farooq Abdullah, the minister for new and renewable energy. The government will be subsidising 90% of the cost of bringing solar to those 10,000 villages.

While industrialists have lauded the solar mission, there are those who question the government’s strategy and the argument boils down to the need for decentralised power.

“My initial thoughts are that the plan is too lopsided towards centralised solar. There are not enough incentives for small entrepreneurs and enterprises to take up energy services as a business. The incentives are more for the big guys,” said Harish Hande, who founded SELCO Solar Light, a for-profit social enterprise with revenues of $4 million and 175 employees.

One-size-fits-all approach wrong

Hande co-founded SELCO 15 years ago to provide need-based sustainable energy solutions for the poor, going against the conventional wisdom that grants and subsidies would be necessary to help alleviate poverty and that affordability cripples sustainable development.

He referred to the plan for 90% subsidies to bring power to 10,000 villages as “old wine in a new bottle,” because subsidies have not worked before and they have a huge transaction cost, aside from killing innovation.

The plan should focus on providing incentives and after-sales support instead of subsidies, Hande said. Based on his personal experience working with the poor to address energy needs, he contends that the solar mission is New Delhi-centric instead of approaching it from the perspective of the realities that face the rural population.

“In a decentralised approach, India could encourage hordes of solar entrepreneurs, in the areas of sales and after-sales support and service. India has a fantastic opportunity to solve two huge problems – reduce poverty and combat climate change. This is India’s chance to combine both issues and approach it in a holistic way,” he said.

Mission financing clouded

The solar mission document anticipates that the key problem for off-grid projects will be finding an optimal financial strategy that will fund initial costs. Parts of the grand solar plan are also contingent on India obtaining UN funding from the G-7 nations, based on the Rio Earth Summit agreement that developed countries have a historical responsibility to fund renewable energy projects in developing nations.

“This worries me, from the climate change and renewable energy perspective because financing is the last option in international negotiations. If you base your actions contingent on the financing, then you don’t appear very serious about your climate change action plan,” said Siddharth Pathak, climate and energy campaigner with Greenpeace India, who thinks that this expectation of funding springs from skepticism in New Delhi about achieving its ambitious goals with internal funding.

Several months ago, a first draft of the plan was discovered and published by Greenpeace, which contained references to levies on fossil fuel, quantification of reduced emissions, feed-in tariff details and types of land to be used for the solar plants. But the official mission statement released in November does not contain any of these references, so there is no clarity about feed-in tariff rates and how they would decrease, or which parts of the plan will be funded domestically and which parts will require international financing.

“The initial draft was to the point and it had good ideas, but the final document is vague,” Pathak stated.

Certain targets more realistic

Despite some misgivings, Pathak does think that the proposed goal of grid parity is achievable by 2022, based on the generation costs in the wind sector, which went from Rs 12 [US $0.26] per kWh to Rs. 4.50 [US $.0.10] in the last 6 years as it ramped up in scale.

Krishnappa Subramanya, the CEO of TATA BP Solar, a 20-year old joint venture between TATA Power and UK based BP Solar and one of Indian’s leading solar panel manufacturers and exporters concurred.

“I am confident that we will hit grid parity in India by 2022,” he said. He also believes the mission is realistic, but swift communication and hassle-free implementation are critical.

The plan calls for a 0.25% solar-specific renewable energy purchase obligation (RPO, in the US known as a Renewable Portfolio Standard) for every utility in India’s 27 states by 2013, which would go up to 3% by 2022.  Also known as a solar “carve out,” the balance of India’s 5% RPO will be drawn from wind and other sources. A solar energy certificate (SREC) mechanism will be set up and the national tariff plan will be amended to reflect this RPO.

While a quarter percent may seem small, Pathak puts it in perspective. “Just for the city of Delhi, which has a peak hour consumption of 4000 MW now, this would translate to 10 MW of solar power, which is a huge requirement considering that the sum total of installed solar capacity in India is now three MW.”

The Central Energy Regulatory Commission (CERC) will set the tariffs and stipulate that power purchase agreements (PPA) should be set for 25 years. The National Thermal Power Commission Vidyut Vyapar Nigam (NVVN), a government-owned energy trading agency will institute the PPAs with solar power producers and sell them to the state utilities, enabling bundling of power, scale and financial muscle.

It is expected that concentrated solar power (CSP) will be used heavily to meet the 20 GW target capacity because it has the potential for greater efficiency than photovoltaic and will require less land. Phase one will have several CSP demonstration plants, as well as solar thermal and photovoltaic technologies that help reach initial targets.

While CSP is still a developing technology, Bharath Bhargava, the director of solar photovoltaic within the MNRE pointed out that the U.S has 350 megawatts in CSP and that in the last two years, several hundred megawatts in CSP plants have been in various states of commissioning.

A bargaining tool

The fact that the solar mission was launched just in time for the climate change conference in Copenhagen has led some to believe that it is a government bargaining ploy, not simply part of the country’s climate change action. While there may be some truth to that, the mission is still good for the country.

For example, the solar manufacturing sector in India, which now stands at 700 MW, will need to be ramped up to four or 5 GW by 2020, spurred by local demand based on the plan and for export-oriented special economic zones (SEZ). This will provide investment opportunities not just for Indian industry players such as TATA BP and Moser Baer, which have already begun ramping up capacity, but also for manufacturers from China and elsewhere.

Acknowledging that TATA BP Solar stands to benefit from the solar mission, Subramanya thinks it’s an important step for the country and sees its merits.

“Sure, the solar mission announcement does strengthen India’s position [in Copenhagen]. But just as surely, there is realisation and ownership at the highest level in the government that India has to adopt a low carbon growth plan in order to sustain its economic growth,” Subramanya said.

Bhargava at the MNRE explained that details that flesh out the mission will be announced very soon and that the designated agencies will come out with guidelines in about a month. Copenhagen may address some of the issues about funding the plan but others will need to be worked out over time. Will it work? Bhargava thinks so.

“If all the stakeholders pull their act together, it will push the mission through,” he said.
Pathak agrees, “Even if India achieves only part of its solar mission, it will be a significant milestone.”

Padma Nagappan is a San Diego based business writer who focuses on renewable energy and sustainability. Her articles have appeared in the San Diego Daily Transcript, GreentechMedia.com, Greenbiz.com, Apparel, Huffington Post and other print and online media.

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