Drivers behind Indian solar growth

A leading solar sector expert analyses the factors behind India's renewables revolution for 'India Investment Journal'. From a miniscule 10MW energy generation capacity in 2010 to 8GW in 2016, is a giant leap that the Indian solar sector has successfully made. Reduction in costs and increased global demand for solar installation have played a major role in giving India a prominent place in global solar sector, but there are a few more components that have contributed to such revolutionary success. Below are some highlights of these growth drivers. Policies India receives nearly 3,000 hours of sunshine every year, which is equivalent to 5,000 trillion kWh of energy. To harness this energy, the Indian government seeks unison with private companies. To encourage them, it has issued various schemes, policies, and subsidies that are expected to enhance the growth of the Indian solar sector. The Beginning Energy development in India started with The Electricity Act, in 2003. It was the major policy document that drew focus on renewable energy development. It was supported by Jawaharlal Nehru National Solar Mission (JNNSM), which was launched in 2010. And it added specific targets to the solar development progress, offering a better understanding of investment requirement in the mix. The flurry of policies and support for solar industry quadrupled when Prime Minister Narendra Modi increased the previous 20GW by 2022 target of JNNSM to 100GW and raised Rs 150 billion capital subsidy as preliminary support.

Initiatives That Paved the Path The government presented policies to allow 100 per cent foreign direct investment under the automatic route and 74 per cent foreign equity participation in a joint venture, without any approval from the government of India. With these favourable policy framework utility companies calculated 13-15 per cent return on equity invested in Indian solar sector. The target of electrifying 18,452 un-electrified villages in the country initiated massive on and off-grid installations, attracting foreign investment. International Solar Alliance (ISA) has supported rapid solar growth, and gave Indian solar sector exposure, making it incredibly lucrative for investment. Viability gap funding policy for rooftop projects, supported these initiatives and established Indian solar sector as a lucrative market for investment in different branches. The Indian government also came into agreement with UK to commence and combine research on solar industry development. This venture is expected to yield high quality and high impact research outputs in Indian solar sector. Changes in Motion MNRE and Power Trading Corporation of India (PTC) are preparing to present policies to help states buy, sell, or trade renewable based power. Creating an environment for green energy demand and lead investors in. The Union Cabinet has also greenlit new power tariff policy under the Electricity Act, which will simplify and promote clean energy, help in setting rates, and ensure uninterrupted supply by FY 2021-22. Recent Initiatives That Enhanced Growth Mandating solar installation in government buildings, raising tax-free solar bonds, offering long tenure loans, and 'Solar Park' development for large scale solar implementation has increased India's solar generation capacity. Plus, the government is aggressively looking into green energy corridor development for easy power transmission, domestic manufacturing enhancement by establishing DCR quota for projects, and Net-metering to harness the true potential of solar industry. India's increasing growth rate (from 7.2 in 2014 to 7.5 in 2015) reaffirms the nation's potential for growth, even surpassing China in a few years. So, policies are clearly there, but to introduce nationwide socio-economic growth, India needs to gain self-reliance in the solar sector. In order to do so, more focus on domestic manufacturing is required. Seriously considering anti-dumping duties on solar modules and bringing back DCR would be helpful in strengthening domestic manufacturing. Investment Southern states like Rajasthan, Gujarat and Karnataka are taking the lead in solar development. They even have designed separate solar policies to maximise results. However, is it just the policies that are helping India to ramp up solar power generation to 100 GW by 2022 and initiating nation-wide solar deployment No, investment plays a major role in this growth too - 25GW of projects are under different stages of development and 35 new tenders with a cumulative capacity of 15.5GW have already been announced. In order to back this rapid growth, India needs a steady stream of investment. India's potential of generating solar energy has attracted $100 billion investment. Investors have already announced to invest (approx.) $37 billion for setting up solar plants in country. India's location near the equator, continuously increasing solar acceptance in the country to bridge the gap of energy deficit (suspected to grow more than 5.2 per cent at an average during next 10 years), feasible solar panel prices, low solar park construction costs, and lower financing costs has made the sector increasingly attractive to investors. The targeted 100GW capacity installation will require $100 billion investment ($1 billion per GW estimated). In this situation, exposure of foreign banks will help India greatly. The World Bank has already approved a $625 million loan for India's Grid Connected Rooftop Solar program. The International Finance Corporation (IFC) which is World Bank's corporate arm has helped India in developing 750-MW project in Rewa, Madhya Pradesh. Although, India is forging alliances to encourage foreign investment in the solar sector, plunging costs of solar energy in recent times is suspected to scare the investor's away. Industry leaders are saying that low solar energy pricing is bringing forth the question of ROI, and confusions about debt financing. Plus, there are few other issues including land availability, inexperienced promoters, power evacuation challenges, lack of efficient and established O&M etc. that needs to be addressed to protect investor's interest. There is also the need of a more aggressive plan to electrify rural areas of the country. Presently, all the developments are targeted towards major cities in India. Although, that is a wise move to gain investment and raise awareness, the country also needs an efficient plan in place to electrify India's unlit 18,452 villages (as of 1 April, 2015). The Right Time for Growth Solar energy can successfully bridge India's energy demand-supply gap in the future. But, there are a few challenges that need to be addresses to see the golden dawn. More support to the domestic manufacturer, creating industrial eco-space to lower the cost of production, developing an efficient financing infrastructure, investing in R&D and consumer awareness can overcome challenges in the solar sector and encourage mass adaptation of technology. In light of incoming investment, increasing fossil fuel prices, and decreasing module prices, India is standing at the most opportune moment that can lead its growth to great heights. The only thing the government needs to do is to make right choices. Joy Saxena is Executive Director - Finance for Vikram Solar, a Kolkata-headquartered solar energy company.