21 Jan 2016 20:05 IST

Will solar power have a sunny future in India?

With almost 330 days of sunshine, tapping the sun’s potential to counter the energy deficit in India is ideal

As conventional resources of energy fall short, India must harness the full potential of solar power generation, which is increasingly becoming cheaper and easier, if it is to meet the rising demand in an electricity-hungry nation growing at 7.5 per cent a year. It is likely to require four times the current capacity in 15 years.

India’s power plants are operating at as low as one-third the capacity, with fuel, difficult to come by, and fail to meet peak electricity demand of 151 gigawatts (GW). Add to this the fact that a large part of the population is still yet to gain access to electricity.

Part of the solution lies in renewable energy, particularly solar power, the tariff for which has fallen by over 70 per cent from 2010. It now costs almost as much as coal power. This is because solar power has been helped by cheaper financing, cheaper equipment, growing competition and the availability of higher execution and operation skills.

The unseen energy deficit

The power plants in the country, with total installed capacity at 279 GW, operated at an average of 33 per cent during April-September and generated only 146 GW electricity at peak, leaving a 5 GW peak deficit. This is even when, according to the World Bank, around 394 million people of 1.25 billion do not have access to electricity. The latent demand from these 394 million people alone would be over 43 GW, assuming their per capita consumption at one-third of the national average of 957 kWh (kilowatt hours) per person, as per an internal study, thus taking the total peak deficit to 48 GW.

According to the 18th Electric Power Survey, peak electricity demand in India will rise to 541 GW by 2032. This implies that at current generation pattern and capacity utilisation, the country will need 1,282 GW of installed capacity — an addition of over 1,000 GW in next 15 years.

India’s substantial and sustained growth has placed enormous demand on the country’s natural resources. In view of electricity supply shortages, huge quantities of diesel and furnace oil are being used by all sectors, be it industrial, commercial, institutional or residential; coal productivity is unable to match the demand in the country; gas has already been a rare commodity; and the country is still struggling to find its way into the Nuclear Suppliers Group for a secured supply of Uranium.

The country is likely to miss the nuclear and hydro power capacity addition targets considering the current momentum. Future planning needs to consider risks of shortage in power generation sources, coupled with a long gestation period for establishing these projects.

The Sunlight to Answer our Woes

On the other hand, solar power is becoming more and more of an attractive option. The tariffs have already fallen to as low as ₹4.63/kWh this year from ₹17/kWh in 2010; while resources and opportunities are abundant for rapid capacity addition. Meanwhile, tariff for conventional power has risen – to ₹4-5/kWh for the new coal power plants.

The daily solar radiation in the country is close to 4-7 kWh/sq. meter, which, with 300-330 sunny days, amounts to 5,000 trillion kWh solar incident radiations in a year. It results in a potential for generation of 20 MW/sq. km of solar power.

India has close to 115.41 million acres of wasteland, most of which is unfit for agriculture and other commercial uses. Thus, less than 1 per cent of the total wasteland in India can support over 250 GW of solar power generation capacity.

In addition, the typical installation time period, from concept to commissioning, a solar project that would generate 1 GW of electricity is much lesser than that for comparable conventional coal, hydro and nuclear power plants.

At the same time economies of scale have come to the fore. Recent bids in Andhra Pradesh and Telangana are for 500 MW, compared to 150 MW for the first bid in 2010. Similarly, individual unit sizes have also increased multi-fold to a 500 MW unit proposed in the recent Andhra Pradesh bid, compared to the 5 MW unit sizes in 2010 bids.

How we fare

In order to attract investments in solar power, several states have come out with their own policies. Additionally, 23 state electricity regulators have set mandatory solar RPOs (renewable purchase obligation) ranging from 2 per cent to 14 per cent of the total energy demand. This is further supported by other incentives to attract investments, including FITs, AD, RPO for solar, and various tax exemptions.

India ranks fourth in solar installations with an installed capacity of 4.5 GW, and it is likely to move up to the third place in a year. However, it still needs to increase the momentum from 1-2 GW per year to 16 GW in FY19, and further to 17.5 GW per year in FY21 and FY22, in order to achieve its proposed INDC target of 100 GW solar power capacity by 2022. This would need an investment of $14-15 billion per year for solar alone and will require significant FDI.

Finally, it is pertinent for a populous and developing country such as India to focus on integrating the complete value chain across the solar sector. India needs to attract investment in the manufacturing sector. The Government of India has already been providing a slew of incentives under the MSIPS scheme and is also planning to add additional incentives to compete with China, especially since the current cost of production in India is around 30-40 per cent than in China.

Make hay while the sun shines

Solar energy is turning out to be the sunshine sector in India. However, India needs to recalibrate as there are a number of hurdles. Lending rates are still substantially higher as compared to developed world, and banks are unwilling to fund solar projects.

A number of structural changes could be implemented quickly such as a simplified land acquisition process and regulatory changes what would allow open access in the renewable energy sector right up to domestic consumer level without any cross subsidy surcharge.

The proposals discussed here will change the face of solar energy sector, leading to rapid investments in distribution projects, and hopefully, make the new solar dream for India come true.

(Chandan Mishra is Director, PwC India and Sandeep Kumar Mohanty is Principal consultant Power & Utilities, PwC India)