In a country which reels under voluminous and bountiful amount of sunshine, tapping solar power should ideally be an effortless task. Ironically though, the economics have come in the way of the much hyped solar mission. Ritu Gupta unfolds the trend in India and what we can expect in the times to come
When it was incepted, the aim was to generate at least 20 GW of power by 2022. Now, the market scenario, industry insiders believe, is rather unfavourable, with many hiccups swaying the industry’s foothold. Those in the sector feel that much more needs to be done to accelerate the pace of growth, so as to meet the eventual goal of generating 7 per cent of the nation’s power needs through solar energy.
It was, as is well known by now, in January 2010 that the Union Ministry of New and Renewable Energy (MNRE) launched the Jawaharlal Nehru National Solar Mission, with a goal of developing 20 GW of solar energy in three phases by 2022 and to reach cost parity so that generating solar power costs the same as conventional power by that time. However, the cost factor seems to be hampering the solar sector’s growth. Presently, the price of solar electricity is still high, at
`13 to `16 per unit, compared to the conventional electricity cost of around `4 to `5 per unit. Many Indian solar companies predict that costs will fall by 40 per cent or more in the next three to five years as technology improves, the scale increases and more of the components like glass and inverters are manufactured domestically. Some industry experts, however, are cautious about being so positive. “For the market to move forward, the government’s immense support and a right and rational policy framework is important. Presently, the market is in its nascent stage and it is difficult to say whether it will make or break in the future,” says Amol Kotwal, deputy director-energy and power systems, Frost & Sullivan.
The right nudges by the government appears to have made the cost of solar energy competitive with conventional sources for segments such as telecom towers and water heating applications. Due to a mandate, various telecom tower companies are already experimenting with solar power to replace diesel-based generators, which costs in excess of `16 per kwh at tower sites due to logistical and pilferage related issues.
One of the main reasons for the high cost of grid-based solar power in India is the capital cost. Currently, it costs about `115 crore per MW of capital cost for a solar PV power plant (MNRE has taken a benchmark capex of `16 crore). About 50 per cent of this cost is owing to the cost of panels and the rest is for the balance of systems (inverters, transformers, monitoring systems, wires and cables), the civil support infrastructure and the cost of installation. Among the balance of systems, inverters contribute the highest cost component, at about `2.5 crore per MW.
However, the good news for those concerned about cost is that the prices of panels have declined on a year-on-year basis. The bad news is that the cost of the balance of systems is not declining at the desired rate. This leaves solar (both PV and thermal), three to four times as costly as wind, leave alone conventional energy. This fact is always a shocker to many, and it makes them wonder why the government is so much more aspirational on the solar front, and why it is not being extremely proactive to reduce solar cost, especially after having launched the mission with so much fanfare. Such apprehensions notwithstanding, one cannot deny the fact that government alone cannot make or break the price. Market factors also play a crucial role in determining prices of any commodity and the solar market is no exception to this rule.
During the last few years, there has been a significant cost reduction in solar power worldwide. Solar module prices have dropped from around $3-4 per W about two years back, to under $1.5-1.8 per W. Consequently, the proportion of module prices in the total system price has come down significantly. The corresponding price of electricity which was upwards of `25, has dropped to around `13 to `16 per unit. Besides the aforementioned factors, the solar module prices have also been affected by the global market supply scenario. The entry of China into the solar manufacturing space has contributed significantly to lower costs. Economies of scale and global recession in 2008 coupled with oversupply of modules resulted in the squeeze on margins across the board, triggering a sharp fall in prices. Experts aver that in the near future, cost reduction possibilities in the non-module segment of the solar system could be higher (and more importantly), they would well determine the timing of grid parity.
In India, however, both the cost of panels and the cost of balance of systems would play an important role, as currently, the country has just a small manufacturing base with only a handful of companies making solar panels. Most components that go into solar projects are imported. For example, glass, a key component in making solar panels, is imported from China and Taiwan because the domestic market is not big enough for glass-makers like Saint Gobain, Guardian and Flabeg to focus on this segment. So far, their emphasis has been on the auto and construction sectors and they have not been able to put up plants to manufacture glass made for solar panels. But, as the solar capacity increases, it is expected that the scenario will undergo a sea change. For instance, Saint Gobain plans to set up a glass making plant as the solar capacity reaches around 1,000 MW.
The state of the inadequate supply of indigenous glass is also reflected in other components as the industry has had to rely on silicon leftovers from the
chip-making industry. Now, the element is coming into the mainstream even as research has thrown up alternatives to silicon like cadmium telluride, which is cheaper and more efficient. Solar grade inverters are also imported, but with volumes looking attractive, companies like L&T and Siemens have plans for local manufacturing.
“Currently, we are totally dependent on import of solar wafers for production of solar cells. Indigenous manufacture of ingots/wafers will reduce the cost. Similarly, cost of inverters used for solar PV would also be less if manufactured in India,” believes Jagat S Jawa, director general, of the New Delhi-based Solar Energy Society of India (SESI). Kotwal, who agrees with Jawa, adds, “Locally made components will play the most crucial role in bringing down the cost of solar power.”
Jaideep Chowdhary, manager, marketing communications, of the leading solar energy company Sunedison, feels that economies of scale in manufacturing and project development also need to be achieved for the costs to come down. “Local manufacturing along with economies of scale is the only way out for India’s solar energy market.”
With such developments, solar power could see prices reducing from `8 to `7 in the next three to five years. A report by the leading consultancy firm KPMG says that India could produce 45,000 MW of additional solar power, taking the total solar power generation to 67,000 MW by 2022, as technological breakthroughs, economies of scale and local manufacturing will bring solar power costs to levels of conventional power by around 2017. The report further notes that, by 2022, cheaper solar power will help cut coal imports by 30 per cent, or 71 million tonnes a year. This would result in a saving of $5.5 billion in imports per year from 2022 onwards.
Other factors which will help solar achieve grid parity
While local availability of parts will change the game, there are a host of other developments that can help bring solar prices down, one of them being domestic consumption as against the current focus on export-oriented business. A key driver to build a strong solar ecosystem in India is to have a huge local market. Domestic demand can help fuel the growth of a strong manufacturing base, with investors being assured about a market for their product.
“For meeting its targets, India needs to ensure that the solar energy sector grows as rapidly as the telecom sector, and follows the same demand-supply model,” explains Madhusudhan Atre, President, Applied Materials India Ltd.
Secondly, standardisation in manufacturing is a big need in the PV area and is a key enabler of cost reduction. “For now, the Indian industry needs to build the right alliances and invest in innovation and in acquiring end-to-end technical capabilities as did the Chinese companies over a very short period of time to be able to drive down prices and stay competitive,” avers Debasish Paul Choudhury, President, SEMI India.
Furthermore, continuous study and development to increase the efficiency of solar panels is also important. Research is also required to do innovation in storage technology – solar energy is dependent on batteries for storage as it is not available throughout the day. Therefore, innovations in storage technology will also reduce costs.
The promotion of decentralised solar generation is also a must to reduce cost. If regulations and policies make decentralising possible, then, overall transmission and distribution costs of power will drop and this will be an incentive to install more rooftop systems at an individual/corporate level.
Another crucial issue for the industry players is financing. Most agree in tandem with the fact that the availability of financing at the right rates is a big need for large-scale solar manufacturing growth. Priority lending at lower rates for solar projects would be a major enabler, and help in bringing down the cost of solar energy. The cost of setting up solar power projects in India works out to `17 crore per MW, four times that of conventional projects.
Presently, bankers are unsure about the performance of these plants and apprehensive about the way the model power purchase agreement (PPA) has been structured. They want to know who will compensate for the shortfall if these plants fail to achieve minimum load factor of 20 per cent as mentioned in the PPA and feel the payment security mechanism is far below expectations. Another problem is that most of the project developers of the National Solar Mission are new entrants with no track-record to prove their ability to build and operate solar power plants. Thus, the banks are not sure whether the projects would see the light of the day. “The government needs to address all these issues for the industry to take off,” says Jawa.
According to some solar power project developers, the government’s support is necessary in other aspects also, especially those related to administrative costs. For instance, costs related to land, evacuation approvals/permits can be significantly reduced if solar plants are built on adequately large scale and in clusters, as these help lower the risk for individual investments. “Development of solar parks by the government can enable this through availability of large areas of suitable land, common infrastructure, accelerated / single window permit processes,” adds Sandy Khera, vice president-project development, Bharat Light and Power. The government also needs to ensure that there is a favourable feed-in-tariff system and stricter implementation of the Renewable Energy Purchase Obligations (RPOs), which will help the industry expand at a fast pace, thereby increasing its scale of economies.
For the government, it is crucial that the cost curves come down, as solar power can reduce its subsidy burden. For instance, diesel pumpsets and subsidised electricity used in agriculture could be replaced by solar-powered pumpsets due to favourable cost economics. According to the KPMG report, a cumulative potential of around 16,000 MW from agriculture category could be realised by 2022. “Innovative business models such as integrators of pumpset and solar modules may be required to realise this potential,” the report adds. But for all this to happen, governments both at the central and state levels, should keep the market creation programme going and support the efforts of private developers in setting up projects under the first phase of the mission.