How India in a short period of time has become the cheapest producer of solar power

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Worldwide, renewable energy has established itself as the technology of choice for new power generation capacity and India’s recent status of lowest-cost producer of solar power further reflects an ongoing shift towards renewable power as the driver of global energy transformation. Recently an analysis by IRENA found that the costs for setting up solar PV projects have dropped by about 80 per cent in India between 2010 and 2018.

India’s solar story through its compelling business case is maximizing the falling renewable technology costs as the key to future energy decarbonisation. The country has realised that it is cheaper to build and operate solar farms than to run existing coal-fired power plants. Renewable energy also has significant environment benefits making it the single biggest driver to help us meet our carbon emission reduction targets in our fight against climate change. With India being a growing economy, power consumption is only going to rise, so adoption of alternate forms of energy is the ideal way forward to manage balance between economic growth and sustainable environment.

Having recognised this as early as 2010, the Government of the country has taken steps to ensure consistent growth in the segment. This in turn has helped the solar industry reach economies of scale in a short span of time, making India the cheapest producer of solar power. In 2010, the total installed solar capacity was 10 MW and in 2016, the installed capacity stood at 6000 MW – a steep climb of 600 times in just 6 years. As of March 2019, the total installed solar capacity stands at 30 GW, accounting for an increase of 5 times in 3 years. Today, solar has reached 30% of the 2022 target of 100 GW contributing 38% to the renewable energy mix. The numbers are a testament to the focused approach of the Government and the positive response from solar developers leading to exponential growth. Solar power consumers in India today enjoy better energy security by locking in the cost of solar electricity for a period of 25 years, thereby can hedge against variations in grid electricity prices, which are tied to fossil fuel costs.

India being the cheapest producer of solar energy is not a coincidence but a success story of the effective public private partnership (PPP) model. The growth of the sector can be accredited to the following:

1. Role of Government –

The specialised bodies formed by the Government of India like the Ministry of New and Renewable Energy (MNRE) and subsequently the Solar Energy Corporation of India (SECI) have played a pivotal role in helping India become one of the fastest adopter of solar energy. The journey of the country to become the 5 th largest solar installer in the world has been made possible by setting of aggressive targets and implementation of policies through streamlined efforts. When the National Solar Mission was launched in 2010, the cost of solar power was INR 17 per unit in comparison to a latest bid of INR 2.44 per unit. This has been made possible by competitive tariff-based bidding that SECI, State and Central Government have undertaken through tenders. The MNRE has also made efforts in promoting solar energy through various public awareness campaigns and events. According to the recent Bridge to India report, out of the 9.4 GW utility scale solar projects commissioned through Central Government tender, about 50% of the offtake came through SECI. In fact, we are witnessing that SECI is now playing an even more important role in facilitating state level tenders.

Even state governments have contributed to the accelerated growth of solar industry. Since electricity is a state subject and stable state government policies are critical to accelerate adoption. For example, Karnataka and Tamil Nadu promoted open access through concessional wheeling & banking facilities for solar. This made the two states the highest solar power generators in the country. Recently, Haryana and Uttar Pradesh are following similar policy frameworks to accelerate adoption in the commercial and Industrial segment. RPOs were imposed on State Discoms as well large power consumers to buy electricity generated by ‘green’ sources, or buy ‘renewable energy certificates (RECs)’to substitute the same. While these RPO obligations did help generate demand for solar energy but its weak implementation especially by state Discoms hasn’t had the desired effect that was envisaged.

2. Incentives and Policies –

The subsidies and incentives provided by the Government and Jawaharlal Nehru National Solar Mission (JNNSM) since 2010 have been instrumental in adoption of solar energy. The top segments that have seen rapid growth are the utility scale and open access solar farms coupled with steady growth of rooftop solar plants. Some of the key tax incentives that contributed to the growth are the Accelerated Depreciation Benefit and tax holiday announced under 80-1A in the initial years between 2010 and 2015, which provided a major relief to solar developers by offering necessary tax breaks. While Government subsidies up to 30% for all rooftop solar projects initially played a major role to develop the rooftop solar market, now it has been restricted to only to non-profit and government buildings. To propel the industry, the Government also allowed custom and excise duty benefits to ensure high growth of the sector. But recently with GST imposition, some of these benefits are not available and levying of safeguard duty has increased import cost on PV modules.

Most of these subsidies since 2017 have been reduced or discontinued since Government has applied the right mechanism by withdrawing subsidies when the cost of solar projects have seen consistent decline with improved performance and the industry eventually has become self-sustaining. The Government should now introduce subsidies to broaden customer base of solar energy adoption in India, especially to underserved sectors such as Agriculture, Residential and MSME. The aim should be that we move from Public Private Partnership (PPP) to People Public Private Partnership (PPPP) model.

3. Land Certainty –
Historically land acquisition has always been a problem in India and is a major reason for cost escalation in infrastructure projects. Since the cost of land constitutes about 7% of a large scale solar project, in 2016, the MNRE Solar Park Policy introduced guidelines that would lead state governments to identify suitable large tracts of land with appropriate insolation levels, and prioritise the use of government waste/non-agricultural land in order to speed up acquisition process for setting up solar parks. One of the probable reasons of the record low tariff of INR 2.44 was that the risk and uncertainty associated with land acquisition was completely erased from the project cost of large scale solar projects.

Due to the climatic condition of India with 240-300 sunny days in a year, land availability for solar generation is easily found. Most draught prone zones in rural India are arid with high radiation and are viable for setting up large solar parks. Hence, abundant land is available for non-agricultural activities like solar power generation helps in local employment generation.

4. Low cost of labour –India has the lowest cost of labour allowing solar industry to employ large number of people resulting in speedy project completion at the lowest cost. For example, the cost of labour in Middle East is 5 times higher than that in India. The solar industry has utilised the availability of affordable labour to not only offer lowest cost of power to consumers but also creating ample jobs in the process. So today solar projects can be constructed with scale and speed required to build power generation capacities to support our ambitions 5 trillion economic goal. A large solar plant for 500 MW capacity can be constructed within 18 months while a similar thermal or hydro plant might take 2-3 times more.

Construction of a solar plant requires only 20-30% high skilled manpower, and the rest are semi-skilled or unskilled labour, easily available and at affordable costs. This has been one the primary reasons why government of India has been focusing on renewable energy since the need of the hour is to create more unskilled or semis-skilled jobs to accelerate our economic growth. According to a recent report by Council on Energy, Environment and Water (CEEW), the Natural Resources Defense Council (NRDC) and the Skill Council for Green Jobs (SCGJ), in 2019 renewable energy workforce in India grew five times in past five years.

5. Price sensitivity –

It is no secret that India is a highly price sensitive market and for any industry to make significant footprint, price is a key indicator. This price sensitivity has helped the Indian solar market in two ways – The first being availability of key components like solar panels, inverters, junction boxes, etc. at much competitive prices than other countries; sometimes even from the same international vendors. This helped India achieve lower solar tariffs as compared to other countries. The second way the price sensitivity has helped, is that once solar tariffs dropped below grid electricity tariffs, there has been super quick adoption, which has furthered the economies of scale, diving prices of components even lower.

The growth story of the Indian solar market being the cheapest producer of power is in spite of challenges like absence of uniform & stable policies and high cost of capital compared other South Asian countries. The country needs a National Solar Policy that will remove bottle-necks at the state level and hasten further adoption. Also, reducing the present cost of borrowing from the currently levels of 10-11% can boost the industry further, urging developers to bid for and execute projects at lower costs.

In the coming years energy storage will play a key role in making Renewable Energy a firm source of power and further reducing the landed cost of renewable electricity. Additionally, with the advent of Electric Vehicles, using renewable energy in the charging infrastructure will further boost the growth of the industry. With the Government’s support, developers getting long term visibility in terms of project pipeline and actual off-takers witnessing value in adopting solar electricity, India is poised to secure its renewable future.

source- The Hindu