In parts I
of this special feature, Sarosh Bana identified the primary issues impacting the renewable energy market in India. The author wraps up this series with a discussion on the impact of renewable energy tariffs.
Indian solar tariffs have plunged over 40 per cent over the past four years, and for the first time have attained grid parity. When the first tender for solar PV power was opened in 2010, the lowest tariff was Rs10.85 (18 cents) per kWh, and it dropped to Rs7.49 (13 cents) the following year, when new bids were opened. Tariff for the JNNSM Phase II batch I tender floated by MNRE’s Solar Energy Corporation of India (SECI) was fixed at Rs5.45 (9.2 cents) per kWh for those bidders opting for the least VGF and at Rs4.75 (8 cents) for those availing of the AD benefit. Tariffs for solar CSP have averaged Rs12-13 (20-22 cents) per kWh.
The JNNSM Phase II tender signalled the heightening investor interest in Indian solar when 68 bids were received from 58 developers, both domestic and foreign, earlier this year for 122 projects of a cumulative capacity of 2,170 MW, oversubscribing almost three times the allocation target of 750 MW. Of these, 36 projects with a capacity of 700 MW were bid for under the Domestic Content Requirement (DCR) and the remaining 86 projects of 1,470 MW, under the open category. DCR obliges developers to use locally made equipment, whereas the open category has no such restriction.
The lowest bid under DCR was for Rs1.35 crore (US$228,814) by Swelect Energy Systems
for 10 MW and the highest was Rs2.49 crore (US$422,034) by IL&FS Renewables, also for 10 MW. The lowest and highest VGF sought for projects outside DCR were Rs1.7 million (US$28,814) by Gujarat Power Corporation Ltd
(for 10 MW) and Rs2.49 crore (US$422,034) by Madhav Infra
(also for 10 MW). The highest bid under the non-DCR category was Rs2.45 crore (US$415,254) by Tata Power Solar
. Under this category, power purchase agreements (PPAs) will be signed with 15 project developers for 24 projects totalling 375 MW.
Ajay Goel, CEO of Bangalore-based Tata Power Solar, explains that VGF helps bridge the gap between the dictated project rate and that incurred by the developer, pushing solar providers to quote the lowest rate, irrespective of the quality of delivery. Coupled with accelerated depreciation, this makes the developer recover costs early in the cycle, leaving no incentive for his plant to perform in the long run.
Contending discrimination against US exports, Washington has taken India’s DCR issue to the World Trade Organisation (WTO). Maintaining that its solar
programme is WTO-compliant, India’s Commerce ministry stresses that India needs to create domestic manufacturing capacities, or else it will end up importing forever. It notes that the programme involves huge subsidies and public money should not be used to finance imports. Though JNNSM mandates DCR, it is only for crystalline PV technology and not for wafer, or thin film, PV technology. Thin film accounts for close to 60 per cent of the panels installed in India, though they have a mere 14 per cent share globally.
Chandra Bhushan, deputy director general of CSE and head of its RE Unit, says the US has used loopholes in JNNSM as well as climate finance to the advantage of its manufacturers who have gone on to sell highly subsidised solar panels to India. “This has rendered Indian solar manufacturing companies uncompetitive, with 80 per cent of them in a state of forced closure and debt restructuring with no orders forthcoming, while American manufacturers are getting orders from Indian solar power developers,” he explains. “The US has been able to do so by using the climate ‘fast start financing’, a US$30 billion fund set up under the United Nations Framework Convention on Climate Change (UNFCC) in 2009 for helping developing countries deal with climate change impacts.”
Bhushan notes that the US Exim Bank and Overseas Private Investment Corporation (OPIC) have been extending low-interest (3 per cent) loans to Indian solar developers on the condition that they buy equipment, solar panels and cells from American companies. (note: Indian bank loans have interest rates of 14 per cent or more.) CSE cites that about half of all solar modules installed under JNNSM have been manufactured by US companies.
“Interestingly, the US has imposed anti-dumping duties on solar equipment imported from China
because of alleged subsidies Beijing is giving to its solar manufacturers, but is itself doing the same in India by subsidising loans for buying American equipment!” argues Kushal Yadav, CSE RE lead.
According to “Investor appetite and private investments in India’s RE sector have distinctly increased over the last one or two years,” says Venkataraman Rajaraman, director of infrastructure and project finance at Fitch Group’s India Ratings & Research, in Chennai. “Banks have been positive to fund wind energy projects, not necessarily because of the perception of better asset quality, but of the need to diversify their intra-sectoral investments after their lending to thermal energy turned sour.”
On financing for solar, Rajaraman sees contrarian views. He points out that initial equipment costs, as for imported solar panels, are funded through buyer’s credit through short-term forex loans tied up with the equipment supplier. “This gives the impression that financing for solar projects is difficult to obtain, but my personal interaction with banks reveals their interest,” he explained.
State agencies IREDA and Power Finance Corporation Ltd (PFC) have backed the industry as a stable market with assured off-take and no marketing challenges. As capital costs in India are also among the lowest, the country is emerging as a vibrant hub for the supply of towers, blades, generators and convertors.
Renewable energy projects also have the major share in India’s Clean Development Mechanism (CDM) projects, the country being a favoured destination for CDM projects and also a very active participant in CDM, using revenues of carbon credits to finance RE projects. Mahesh Makhija, director of business development (Renewables) atCLP India Pvt. Ltd, says wind accounted for 628 of the 1,469 CDM projects registered in India until February 2014. “India is next only to China, which led with 1,497 registered wind projects,” he notes. CDM projects are registered with UNFCCC and are eligible to receive CERs.
Renewable sources can fit in rather efficiently in a well-planned system. Many European countries efficiently operate their power systems with a much higher renewable energy penetration through coordinated generation planning, sophisticated forecasting tools, and better system operation techniques. In the Indian context, managing variability associated with renewable energy sources is no different than managing consumer demand which keeps varying throughout the day and also during the seasons.
Though conventional energy sources such as coal, gas and diesel provide greater control in terms of their usage and energy production, they are limited in availability and are not environment friendly. Renewable energy sources such as wind and solar are universal, limitless and are not adverse to the environment, advocates say. It is thus helpful to maintain a balance among different energy sources, based on their pros and cons. Using advanced technologies such as hybrid systems and cheap energy storages, renewable sources can operate with a high degree of flexibility and better control.
In that regard, observers say it is unfair to discriminate against renewable energy sources on the basis of low PLFs and high cost of production. Rather, one needs to take a holistic view on the advantages and disadvantages of increased penetration of renewable energy sources vis-à-vis continuing with the conventional sources of energy generation by comparing both on parameters such as energy security and independence, environmental effects and, most importantly, life-cycle costs of electricity generation.
Renewable energy is hence destined to take its place alongside coal and gas in India and penetrate ever deeper into the country. Its unexploited resource availability has the potential to sustain its growth for years to come. After all, the nation’s security — and that of its 1.2 billion people — depends on it.
ABOUT THE AUTHOR
Sarosh Bana is the executive editor of Business India. Launched in 1978, the magazine provides the complete picture on Indian business and the economy. Covering includes in-depth and analytical articles focusing on different areas of interest and a variety of subjects which have a bearing on the mainstream of business.