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Mission Improbable

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Finally, the government of india has opened the window to the sun. Having waited years for solar energy technologies to come up to scratch as utility-scale source of electricity, the government has come up with definite and ambitious targets, incentives, mandates and processes to jump start the solar power sector.
If all goes well, at least 20,000 megawatt (MW) of solar energy will be flowing through the national grid by 2022. However, for now, it is very much a leap of faith, as the solar power business is starting from scratch, and the technologies, manufacturing, costs and business models have a lot of evolving to do.
Currently, there are only two megawatt-size solar power plants in India — a 2-MW private plant in Punjab, belonging to Azure Power, and another 2-MW state-owned plant in West Bengal. Both started operating in late 2009 and largely cater to local needs. Also, both plants are based on photovoltaic (PV) technology, which collects and converts sun’s energy using crystalline silicon or thin film panels.
There is no plant with solar thermal technology yet, and the government is looking to get 60 per cent of its solar power feed from plants using this technology. Solar thermal power is made using mirrors to concentrate the sun on a heating device that generates steam to run turbines to make power.
 
THE SUNNY AND THE CLOUDY
The target set by the Solar Mission is too ambitious. The government has to sweat to make it a reality 
SUNNY
Big target: Installation of 1,100 MW grid-connected solar power by 2013; 4,000 MW by 2017; and 20,000 MW by 2022
 
Proven technologies such as solar thermal and photovoltaic for 1,000 MW of grid-connected utilities in Phase-I; only 100 MW from new technologies
 
NTPC Vidyut Vyapar Nigam (NVVN) to buy solar power and blend it with NTPC’s coal power to ensure a low average price to state electricity boards
 
Central Electricity Regulatory Commission (CERC) has kept the period for special solar power tariffs at 25 years
 
States have to buy at least 5 per cent power from renewable sources from 2010. States may have to buy at least 0.25 per cent solar power from 2010, going up to 3 per cent in 2022
 
CLOUDY
A start from scratch; present capacity is 4 MW, and actual output is only about 20 per cent of installed capacity with current technologies
 
No operational generation plant yet using solar thermal technology, which has to deliver 60 per cent of the 1,000 MW
 
NVVN’s involvement is limited to the first phase. Its purchase is capped at 1,000 MW installed solar power capacity — only about 200 MW output
 
CERC will review the tariff annually, which makes financial forecasting difficult for investors
 
No utility-scale solar power project is likely to come up before mid-2011. Only a few solar power companies have obtained power purchase commitments from state power distribution utilities
Moreover, the plant and equipment manufacturing is still small. Currently, the aggregate PV modules panel capacity is about 700 MW, while production of thermal solar equipment is negligible. Importing plant and equipment from the US, Europe or Japan is still costly. In fact, it is the capital cost that makes solar power prohibitively expensive compared to not only coal power, but also wind power.
 
The Central Electricity Regulatory Commission (CERC) has set the norm of per-megawatt capital cost for PV solar at Rs 17 crore, and for solar thermal at Rs 13 crore, for 2009-10, compared to Rs 5.15 crore for wind power. The capital cost for coal power at present hovers around Rs 4 crore per megawatt.
Hence, CERC’s feed-in tariff for PV power for 2009-10 is Rs 18.44 per kilowatt hour (kWh), and for solar thermal power it is Rs 13.4. These rates are 6-9 times higher than coal power and about three to five times higher than wind power. Seemingly, such rates would require significant central subsidy for solar power use, but the government has ensured that the profligate state electricity boards bear the burden.
 
See, No Subsidies!
The minister at the helm of the Ministry of New and Renewable Energy (MNRE), Farooq Abdullah, owes it to his counterpart at the Ministry of Power (MoP) for allowing solar power to piggyback on coal power and nullify the need for subsidies. The states that want to draw more than their allocated quota of power from the central public sector company, National Thermal Power Corporation (NTPC), have to buy 1 MW of solar power to buy 1 MW of coal power from its power trading subsidiary, NTPC Vidyut Vyapar Nigam (NVVN). In doing so, they will be paying about Rs 5 per kWh for the blended power, while they pay anything between Rs 3-7 for their unallocated coal power, depending on the extent of their need for extra power.
Helpfully, from the subsidy perspective, the solar power yield per megawatt of installed capacity is still rather low — CERC benchmarks are 190 kWh for PV and 230 kWh for solar thermal — compared to coal’s 850 kWh. So, the states will buy only 190 kWh at Rs 18.44 per kWh and 230 Kwh at Rs 13.45 per kWh for nearly a full megawatt of coal power at Rs 3 per kWh. Moreover, the states’ obligation to buy solar power from the Centre over the next three years is limited to 1,000 MW, which translates into only about 200 MW output.
In any case, according to MNRE scientist B.M.S. Bist, the mission parameters will be reviewed after the first phase gets over in March 2013, and the numbers could be reset taking into account the progress in technologies and the drop in costs. Importantly, the CERC tariff for solar power will be reviewed each year.
 
TOUGH TASK AHEAD: Renewable energy minister Farooq Abdullah faces a challenging task. In India, solar technologies are still evolving and there is no proven business model to attract investment
Sunny Investors
Despite annual review of tariff by CERC and its stiff capital cost norm, prospective investors are not daunted. “If the government was to allow high rates for long periods, solar power adoption itself will get stymied,” says Pradeep Khanna, managing director of the Delhi-based Maharishi Renewable Energy. “The stiff norms are making the developers push down the cost of solar power.” Khanna plans to set up two solar thermal power plants of 50 MW each, but he is struggling to bring down the capital cost below Rs 20 crore per megawatt.
Gurgaon-based Acme group, which is rather gung ho on solar power, plans to halve the capital cost of solar thermal plants in India once the installations reach the threshold of 500 MW. It plans to manufacture entire plant and equipment in India itself then. The company plans to install 160 MW on its own over the next couple of years. Its first plant of 10 MW is scheduled to come up near Bikaner this June, costing Rs 17 crore per MW.
“As we implement three more units of 50 MW each, we will be able to indigenise more and lower the cost to Rs 15 crore per MW,” says Acme managing director, Manoj Upadhyay. The company has already found a willing buyer for 50 MW solar power in one of Delhi’s distribution companies, BSES. Upadhyay hopes to close a similar deal with the other one, New Delhi Power. The third unit will cater to Haryana and Rajasthan electricity boards.
Moser Baer Photovoltaic, which exports PV modules, is pleased that the domestic market has opened up. “This is happening when the costs have fallen by almost 50 per cent since a year ago,” says the company’s CFO, Yogesh Mathur. Still, the per-megawatt capital cost of PV power at Rs 20 crore is above the CERC norm of Rs 17 crore. Mathur expects the cost to drop as solar generation scales up.
 
Notwithstanding the stiff challenge in terms of both the installation target and the cost levels, the vision of Solar Mission will excite investors, says Arvind Mahajan, partner, KPMG. “Everybody agrees that, at some stage, solar power will become cheaper and fossil fuel energy will become more expensive,” he says.
Already, according to Mahajan, in Germany solar power is beginning to remove the need for additional conventional power during peak load hours. That’s a sunny prospect indeed.
feroz(dot)ahmed(at)abp(dot)in
(This story was published in Businessworld Issue Dated 01-02-2010)