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Top Challenges for India's Solar Energy Growth

Jul 22, 2017 4:30 AM 4 min read

In a bid to pivot sustainable socio-economic activity away from fossil fuels, the Government of India launched the Jawaharlal Nehru National Solar Mission in 2010. The initial plan targeting 20 GW nation-wide solar capacity by 2022 was lifted five-fold to 100 GW by the Modi government. 60 GW is to come from ground-mounted grids. The remainder from rooftop solar systems.


Government’s claims of heading towards 22 GW of capacity in FY17–18 (vs. 12.5 GW in FY16–17) may impress, but nevertheless falls below the planned annual target. That said aside, the key issue, mostly missed, is around effective translation of this topline growth into real utilisation. Capacity Utilisation Factor (CUF) i.e. the actual output of a plant in comparison to the theoretical maximum output (or “installed solar capacity”) stands at a lowly 20%.


A multitude of issues plaguing efficiency such as implementation constraints and the skewed dynamics of manufacturing/pricing deems serious consideration in making this ambitious target count.


Solar power plants, especially ground-mounted systems, require as much land as conventional plants. Acquiring these massive stretches is a pivotal constraint for developers. Mandatory clearances from multiple government bodies and sizeable expenses for on-site development/support infrastructure add to the burden. An alternate approach is the creation of solar parks i.e. a concentrated zone of development for solar units, where common infrastructure, pooled risk and an optimum regulatory framework can speed up implementation. Though the government has sanctioned 40 GW solar park capacity development by 2020, implementation to date has been sluggish with operationalised capacity amounting to only 1.8 GW in major states.


Developers often find themselves without suitable support infrastructure amidst rushed auctions for projects. Moreover, as these parks are usually located in remote arid areas, incessant dust storms spike maintenance costs and hamper panel efficiency. Another potential solution to the issue of real estate is to set up solar units over agricultural farms. Called “solar sharing”, this approach facilitates simultaneous food and electricity production from the same piece of land. Such an arrangement enables a farmer to meet his electricity needs through the grid, while earning additional revenue through sale of surplus power. Though experts believe this technique can be successfully modelled in India, its viability and potency would nevertheless require on-ground testing and validation.


Rooftop solar systems being grid-connected do not require dedicated land and power evacuation infrastructure. Moreover, customers can potentially receive additional benefits via “net-metering”, where they are compensated monetarily for generating localised power. Even as 85% of states/UTs have net-metering policies, the model implementation so far lacks clarity. Poor contract enforcement, reduced bankability of private clients and inadequate financing pose as additional challenges. Of the envisaged 13.2 GW of rooftop solar capacity target by 2021, current installed capacity stands at 1.4 GW. However, one must note that their effectiveness is reportedly best in urban areas, where maintenance, infrastructure, supply chain and human capacity is less of a concern.


Any analysis around key dynamics of solar is incomplete without identifying gaps in domestic manufacturing. Having entered the market late, India’s limited leeway in cell and module manufacturing is validated by its low production output, estimated at 1.3 GW of modules last year of total manufacturing capacity of 5.3 GW, which is already marginal vis-à-vis demand. Local units are unable to compete against the predatory pricing of Chinese peers.


Unless the Government mirrors China’s strategy of aggressively investing in solar manufacturing, including softer financing terms and favourable taxation, its policy framework should prioritise non-manufacturing aspects such as maintenance, installation, system integration and operations. India would face a more level playing field in the latter.


These factors in combination lead to the lack of “grid parity” in solar, when generating electricity from solar costs less or equal to traditional sources of energy. When the cost of production per kWh of solar power fell from INR 7 to INR 2.44 early this year, it was labelled as fulfilment of grid parity. However, this claim is questionable considering it was driven by a series of aggressive reverse biddings and the government directly infusing subsidies for every unit produced. Capital subsidies and viability gap funding cannot be eliminated till Indian solar’s unit economics are not in place. Grid parity hence continues to be an elusive goal.


Even as the present government focuses on solar, there are multi-dimensional issues challenging its set ambitions. Re-alignment of manufacturing efforts, speedy execution of solar parks/solar sharing, and installation of larger capacity/scalable photovoltaic (PV) systems may be significant starting points.


On a longer term, a Feed in Tariff (FiT) policy enabling sale of electricity produced by households/businesses back to the grid will bring much needed decentralisation and economic viability. FiT is currently being implemented in a limited capacity in Tamil Nadu. Such policies can take India a long way in its endeavour to become a global leader in tapping renewable energy sources and secure a sustainable future.