Frenzy on Solar Street

Solar power has had a slow start, but with increasing corporate interest, it might just make the 1,100 MW target by 2012

Published: Nov 26, 2010

For all the hoopla around solar energy, less than 2 MW of power gets produced in India by harnessing the sun. The first phase target of the Jawaharlal Nehru National Solar Mission (part of the National Action Plan on climate change flagged off by Prime Minister Manmohan Singh a year ago) is to commission 1,100 MW of solar power by 2012, gathering speed to reach 20,000 MW by 2020. This is a figure that sounds utopian to even the greenest energy evangelist. Most installed projects currently operate at below 20 percent of their capacity and funding by banks and financial institutions is slow.

But things are beginning to change. The combined impact of the policy changes on power tariffs and new state government interest in solar energy has brought a buzz to sun power in the past four to six months. Recent rounds of bidding for projects by the two government companies, Ireda (Indian renewable energy development agency) and NVVN (NTPC Vidyut Vyapar Nigam) have seen an overwhelming response. Bids opened at 9 a.m., and the Ireda Web site shows the list of the final 105 who made it, with their ‘timings’ (the time it took to load the application online) down to the milliseconds. The cut off (last company that made it to the list) is at 4 minutes, 20 seconds and 22 milliseconds.

“Bidding for the smaller projects of less than 2 MW in July, was like the buzzer round of Kaun Banega Crorepati,” says Anmol Singh Jaggi, director of Gensol consultants, which was among those who eventually won a project.  

A second round of much larger projects (5 MW and above) are to be awarded by the NVVN by the end of November. These are for 150 MW of solar photovoltaic power and 470 MW of solar-thermal power. Photovoltaics (PV) are arrays of cells containing a material that converts solar radiation into electricity directly, while solar thermal is a technology where solar energy is first converted to thermal energy (heat).

Solar power developers are competing hard for the projects on offer and the NVVN has received bids for generating 1,740 MW though it plans to allot only 150 MW. “Right now, it looks like there are a lot of people trying to become first movers in solar energy at any cost,’’ says Inderpreet Wadhwa, CEO of Azure power. Delhi-based Azure has partnered with North America’s largest solar developer SunEdison, to develop a 15 MW solar plant in Gujarat. It already has a project up at Punjab, and is among the few players focussed on solar energy.

Many bids are being made at costs per mega-watt that are far lower than the estimates by the CERC (central electricity regulatory commission). Moser Baer, for instance, which is among the most aggressive of the companies in the area, bid and won a project for MahaGenco (the Maharashtra government electricity generation company) at Rs. 12 crore per MW, while the CERC projection for the project was Rs. 17 crore per MW. Private equity firm Blackstone recently invested $300 million in Moser Baer Projects, the new power venture floated by the promoters of the optical storage device company.

Many companies have entered the fray lured by the stability of long term (30 year) returns at little recurring cost. The government has established a (indirect) subsidy mechanism by bundling expensive solar power with cheaper thermal energy. NVVN will bundle four units of traditional power with each unit of solar power to bring down the final cost to about Rs. 3.50 a unit. As the trading agency, NVVN will sell this (more expensive) power to spot buyers on the exchanges.

But what most players had not bargained for is stiff competition that is now expected in the bidding. The reverse bidding is likely to lead to a lot of bids at costs far lower than the CERC notified for 2010-2011. This was at Rs. 17.90 a unit for PV and Rs. 15.40 for CSP (concentrated solar power). Financial closure will be tough for the larger projects. Most of the financing is off balance sheet, based on the cash-flow of the project itself.

While private equity firms and multilateral funding agencies are keen to invest in solar power, conventional banks and financial institutions are much more wary. Like their thermal counterparts in the first wave of IPP development in the 1990s, financing is becoming a big barrier for the solar developers. Public sector banks and financial institutions say they have no way to assess the commercial viability of the projects, since there is no previous data available. They are also apprehensive about the way the power purchase agreements (PPA) are structured. The biggest uncertainty is about who will compensate for the shortfall if these plants fail to achieve minimum load factor of 20 percent promised in the PPA.

The Ministry of New and Renewable Energy (MNRE) is bringing together banks and developers to evolve new funding models. “We recognise the need for equity financing to promote solar power projects. If we find there is funding gap, we will recommend a dedicated equity fund to the government,” says Indian Renewable Energy Development Agency (IREDA) chairman and managing director Debashish Majumdar.

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Another problem, says R. Chandrasekhar, Global CEO of IT Power group, one of the oldest renewable power consultancies based in the UK, could be the shortage of water. “Solar power production, particularly solar-thermal power, requires large amount of water to keep the panels clean and to generate the power. Most areas where there is plenty of sun are usually those where water is not plentiful,’’ he says. While state governments have committed to providing the required quantities of water, their promises will be put to test during summer months. Solar projects will also have to look at storage capacity, so power generated can be stored and used as a base load instead of being used only to supply the peak demand. So far all solar projects are designed to operate for about six hours daily, to feed in to peak hour demand from the grid.

Despite the slow pace so far, all signs are that solar power is on the fast track now. The policy incentives by the government, combined with entrepreneurial interest in the projects, may just lead to the change that promoters of cleantech have been advocating for several years. Though progress is far from the speed of light, the next couple of years could well be the turning point. 

(This story appears in the 03 December, 2010 issue of Forbes India. You can buy our tablet version from Magzter.com. To visit our Archives, click here.)

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  • Suvendu

    Really appreciate this article but believe that 2 MW power being produced in india by Solar would be a wrong figure ,25 MW to 30 MW PV based power plants already been commisioned in india

    on Jan 7, 2011
  • Panchabuta

    Panchabuta, has come to understand from sources that as expected, a lot of developers have bid very aggressively and that discounts in excess of 25-30% from the proposed ceiling of the feed in tariffs were offered by developers for Solar PV project. The Solar Thermal side has also witnessed aggressive bidding with the first winning bid having a discount of 31% from the proposed ceiling tariff. The last project to be approved in the Solar Thermal side had a discount of about 20% from the ceiling tariff. Detailed analysis of the bidding, tariff discounts etc is discussed in detailed in Panchabuta, India focused blog on renewable energy and cleantech at: http://goo.gl/mfa1n

    on Nov 26, 2010
  • S J Vijay, Md, Salmon Leap India

    Yes, the cautious lenders amongst the Banks may still be hesitating. It is more because of the newness of Solar Power at utility scale in India and the current opinions of bankers is based on hear- says and impressions. The proactive ones among them are already building India Specific Solar Energy data and Expertise Banks. From our own experience of guiding them we know the same proactive ones among the Banks will lead and whip the cream off the Indian Solar opportunity. The traditional and less proactive ones will come in later for the bigger play with lesser returns. The most interesting outcome of the "Price Discovery" reverse auction could be PV power emerging more cost competitive than Solar Thermal. Wonder what that will do to the NSM targets and the existing distribution of capacities amongst these technologies. An inflection point for PV in India?? Turning Point and Solar energy progress at the speed of light in India? India just might surprise the skeptics. Remember the IT?

    on Nov 26, 2010
    • Panchabuta- Renewable

      Vijay, wonderful points and leaves one a lot to ponder with. The policy adaptation for the second phase and incorporating some of the learning into it will be a big thing. The launch of the REC market mechanism is a bit thing and with this the RPO should be do able. Specific solar and non solar targets and pricing is another great thing. Now the enforcement of that should happen. It seems to me that the bigger opportunities do lie in Solar in the offgrid applications like solar lanterns, solar water heaters, etc. A case in point would be the success of dlight taking about 8 months to ramp up from a million to two million families impacted and the scale they have been able to achieve. Panchabuta has discussed most of these topics in detail in its India focused blog on renewable energy and cleantech at: http://goo.gl/mfa1n

      on Nov 27, 2010
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