CASE STUDIES: Solar PV in India - About to Explode?

By Renga Nathan

India formally launched its National Solar Mission in Jan 2010. This ambitious programme is expected to provide significant incentives to encourage large-scale investments for the production of solar energy. The goal of the mission is to increase the installed capacity of solar energy for electricity generation from a paltry 2 MW currently to 20,000 MW (20 GW) by 2022.

Highlights of the National Solar Mission

20 GW by 2022
The target set by the Mission is to achieve 20,000 MW of solar power by 2022. That's an awesome amount, when you consider that the Target is to be Reached in a Phased Manner. To ramp up capacity of grid-connected solar power generation to 1000 MW within three years - by 2013; an additional 3000 MW by 2017 through the mandatory use of the renewable purchase obligation by utilities backed with a preferential tariff. This capacity can be more than doubled - reaching 10,000MW installed power by 2017 or more, based on the enhanced and enabled international finance and technology transfer. The ambitious target for 2022 of 20,000 MW or more, will be dependent on the 'learning' of the first two phases, which if successful, could lead to conditions of grid-competitive solar power. The transition could be appropriately up scaled, based on availability of international finance and technology.

Focus on Equipment Manufacturing for Solar PV and Thermal

To create favourable conditions for solar manufacturing capability, particularly solar thermal for indigenous production and market leadership. Currently, the bulk of India's Solar PV industry is dependent on imports of critical raw materials and components - including silicon wafers. Transforming India into a solar energy hub would include a leadership role in low-cost, high quality solar manufacturing, including balance of system components.

Proactive implementation of Special Incentive Package (SIPs) policy, to promote PV manufacturing plants, including domestic manufacture of silicon material, would be necessary. One of the mission objectives is to take a global leadership role in solar manufacturing (across the value chain) of leading edge solar technologies and target a 4-5 GW equivalent of installed capacity by 2020, including setting up of dedicated manufacturing capacities for poly silicon material(s) to annually make about 2 GW capacity of solar cells.

India already has PV module manufacturing capacity of about 700 MW, which is expected to increase in the next few years. The present indigenous capacity to manufacture silicon material is very low, however, some plants are likely to be set up soon in public and private sector(s). Currently, there is no indigenous capacity/ capability for solar thermal power projects; therefore new facilities will be required to manufacture concentrator collectors, receivers and other components to meet the demand for solar thermal power plants.

To achieve the installed capacity target for manufacturing of solar PV and CSP components, the Mission recommends local demand creation, financing & special incentives for the manufacture of solar PV and CSP.

Demand and Incentives - Key Drivers

The government reckons that two key drivers - governmental incentives and a demand boost could effectively promote solar power. The mission reckons one of the key drivers would be through a Renewable Purchase Obligation (RPO) mandated for power utilities, with a specific solar component. This will drive utility scale power generation, whether solar PV or solar thermal.

The mission also has an emphasis on providing solar lighting systems under the ongoing remote village electrification programme of MNRE to cover about 10,000 villages and hamlets. The use of solar lights for lighting purposes would be promoted in settlements without access to grid electricity and since most of these settlements are remote tribal settlements, 90% subsidy is provided. The subsidy and the demand so generated would be leveraged to achieve indigenization as well as lowering of prices through the scale effect. For other villages which are connected to grid, solar lights would be promoted through market mode by enabling banks to offer low cost credit.

The government has mentioned incentives for both solar PV and solar thermal. For instance, in the case of Solar Thermal, the mission statement says: "The mission in its first two phases will promote solar heating systems, which are already using proven technology and are commercially viable. The Mission is setting an ambitious target for ensuring that applications, domestic and industrial, below 80°C are solarised".

However, it is expected that the major thrust for solar thermal will be in the context of heating applications. This implies that for electricity generation, which will be the highest priority for the plan, the mission will provide a significant boost to solar PV.

How will the Indian industry and businesses react to this ambitious plan? Will this result in massive investments from the private sector into solar PV?

While there are few actual investment commitments so far from the Indian private sector, the number of companies that have come up with plans and MoUs with various state governments indicate that the response to this plan from the Indian private sector will indeed be very significant. Given the fact that the cost (capital cost) of solar PV is expected to decrease considerably over the next five years, while the cost of electricity generation from coal is expected to increase, solar PV based electricity generation will become more and more attractive as a business opportunity.

In addition, the capital cost of solar PV plant has come down from about $5 million per MW about three years back to about $3 million per MW currently. That's a 60% reduction in just about three years. Further significant cost reductions are projected for the next few years as well. If the cost reduction predictions indeed turn out to be accurate, cost of solar PV based power generation could achieve parity with that from coal.

It has been often repeated that India has one of the highest amounts of solar radiation in the world and hence is an ideal region for solar based energy generation. But it is countries such as Germany and Japan, much smaller in terms of total solar energy potential, that had taken the lead on benefiting from solar energy. The key reason for these countries becoming leaders was the proactive stance taken by the governments of these countries.

The governments provided significant incentives (through the mechanism of feed-in-tariffs) to the solar industry (especially solar PV) thus artificially making the industry attractive to entrepreneurs. This however had the healthy effect of those countries moving up the solar PV learning curve quite quickly, and today, about a decade after the policies were introduced, both these countries have a thriving solar energy industry. It is hoped such a phenomenon would repeat in India as well, as a result of the National Solar Mission.

EAI Consulting - Market Entry Strategy for Indian Renewable Energy
http://www.eai.in/ref/services/ime_consulting.html

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