India’s Solar Race toward Next Decade

Buoyed by the quite impressive performance of India’s renewable energy sector and especially in the solar space in recent years, the Government of India took a daring move and revised its ambitious renewable energy targets from 175 GW to 227 GW by 2022.

Following the move, it also aimed to auction 40 GW of renewable energy projects every year for the next 10 years till 2028 which comprised of 30 GW of solar and 10 GW of wind energy, indicating huge potential for domestic manufacturers and developers.

Undoubtedly! This is the welcome step taken by the Indian Government in order to fulfil its dream of achieving sustainable development goals promised at the COP 21 Summit in Paris. To achieve such ambitious targets, the Government needs to work on war footing and to take some decisive actions such as it has finally took the call and imposed safeguard duty on solar imports from China PR and Malaysia for two years.

Now, the move has clear the clouds of uncertainty on solar imports which haunted the entire solar industry for a long time.

Besides, there are a few other hiccups and challenges such as transmission and grid etc. in the solar industry which, too, needs to be taken care of on priority basis to live the country’s solar dreams.

In my journey of exploring about the current scenario of solar space in India, its growth & development, hindrances related to the policies, and its future as per the government’s ambitious plans for the sector; a few among the wellknown industry veterans – Basant Jain, CEO, Mahindra Susten; P. Vinay Kumar, MD India Renewables, Brookfield Asset Management; Guru Inder Mohan Singh, Chief Operating Officer, Amplus Solar; and Maxson Lewis, MD, Magenta Power, discussed extensively about their expectations from the government in the near future as well as their concerns they hope will soon be addressed for the brighter future of solar in the country…

Government is mulling to auction 40 GW renewable energy including 30 GW for solar and 10 GW for wind every year till 2028. In your view, is the government’s target feasible?

Basant Jain

India has been adopting and implementing Solar exponentially and the installed capacity has grown YoY at approximately 98.5% and 130% from 2015-16 and 2017-18 respectively. However, looking at the aggressive 2028 plan, the 2017-18 installed solar capacity stands at 10 GW which is only 25% of required annual capacity of Governments 2028 plan. On a global outlook, only China has been able to install more than 15 GW annually and stands modest at 53 GW installation in FY2017.

Even when EPC companies like ours have scaled up their workforce to achieve more installation capacity in view of rising demand of PV installation, it is admittedly a welcome but aggressive target by the Government.

P. Vinay Kumar

It is often too easy to ridicule and be sceptical about the ambition and scale of the government’s audacious 40 GW bidding goal every year.

But look at the flip side of the macro picture. Renewables today are mainstream, and they are no longer the exotic fringe of the power sector. They form the core of the power sector today and probably eclipse the old workhorses viz., coal and gas soon. If we take this perspective and revisit this goal, it does not at all look ambitious.

But the key to achieving this, is to tackle transmission and Grid bottlenecks. The flagging interest, in the bids, of late has been largely attributed to the lack of clarity on the allocation transmission capacity and paucity thereof on the ISTS. This could play spoil sport, to the bidding goal, if not tackled on war footing.

Guru Inder Mohan Singh

Given the current state of affairs in the renewable energy sector and the challenging revised target of 227GW by 2022, the government has to focus on creating an enabling environment involving all stakeholders to actively participate and contribute towards achieving this goal.

An ecosystem of supportive policy and regulatory framework, increasing demand to match supply, improving financial stability of discoms and augmenting the transmission and distribution network to accommodate RE generation are some of the enablers that will help in pushing the capacity to meet the target. Maxson Lewis

At the outset, we are happy that the government has set target’s. Ambitious or not, these targets push for action on the ground and rightly so. To answer your question, 30 GW in a year would mean close to 80 MW of solar power plants going on stream daily, every day of the year for the next 10 years.

Even if we were to assume that installing these capacities is achievable, given the pace of increase in manufacturing capacities, the challenge to reaching this goal lies elsewhere – ‘Evacuation of Power’. Our current grid is incapable of handling even if half of the targeted capacities go online. This becomes especially serious on two counts:

1). Most solar plants are setup at remote locations and the lack of a grid connectivity makes the project unviable. Also, solar power generation on that scale does not have a shelf life, a day of generation lost means that production cannot be recovered, unlike conventional systems where you can save the fuel to be used later.

2). Secondly, even if available, the grid stability and availability is another critical issue since solar power evacuation is close knit with grid uptime.

What can be the roadblocks that Indian Government may face in achieving its renewable goals and what are your suggestions on this?

Basant Jain

The renewable energy industry faces an unusual degree of policy uncertainty. Tax reforms and solar trade cases have slowed wind and solar deal activity.

The latest recommendation of Safeguard duty by DGTR for period of two years has again left manufacturers specially in SEZ and developers in grey as the recommendation is open for inferences and does not come out very clear. Additionally, as renewable source of energy is not primary source of generation Government should indicate plans to tackle grid imbalance in view of aggressive renewable targets.

P. Vinay Kumar

Land, transmission and financial health of the discoms remain as the quint essentia bottlenecks. We can speed up capacity roll outs if government partners with private sector both on the land and transmission. WE need to incentivise private solar parks and speed up implementation of government solar parks. Solar parks tie up the land and transmission pieces in one go.

Land pooling and streamlining of Revenue land allotments to the sector will go a long way. Similar is the case of allotment of forest lands. Land conversion policies are patchy across the country. While states like AP and Telangana have deemed conversion provisions, many other states need to spruce up their land conversion procedures.

Also the current PPA model, which is purely tariff based needs to revisited. While it has been successful in driving tariffs down and bringing down the overall cost of power to the consumer, there is a now a need to review the PPA structure to incentivise other grid services that solar plants can offer like frequency regulation, peak shaving, capacity on demand etc., Unless we are able to create a market for Grid services that newer technologies like storage can offer, we may be lagging in making our Grids smarter and in making them capable of handling intermittent renewable power.

Unless we innovate on these and other technologies like CCS and nuclear — solar and wind will soon reach a point of “value deflation”, after which additional incremental solar/wind power added to the Grid will be unwelcome. It is necessary to plan for a future that does not invite value deflation.

The elephant in the room is the financial health of the discoms. While there are no easy answers to this, the time has come to deal with power subsidies in a transparent manner and grab the bull by its horns. It is necessary to move subsidies to the government’s balance sheet and free the power sector of this burdensome legacy.

Some suggestions from the Niti Aayog in the National Energy policy need to be heeded. As they put it, there is a case of migrating all power subsidies into the Direct Benefit Transfer (DBT) mode. All consumers, including agricultural ones need to pay the unsubsidised tariffs for power.

The subsidies can then be deployed in a targeted manner, through DBT or such other transparent mechanisms. We need the political will to tackle this, just as it has been done in the case of LPG subsidies. It is often lamented that since Power is a concurrent subject, reform is difficult. This is a false argument. If we can implement GST (taxes are a concurrent subject), we can do this in Power too. We need a GST type reform zeal and action in the power sector to tackle the issues.

Guru Inder Mohan Singh

RE in India specifically wind and solar have been experiencing an exponential growth and will add significant capacity if the momentum is maintained. However, certain recent developments such as anti-dumping duty and safe guard duty in solar, record low tariffs in wind and shift in focus from wind to solar tend to dampen the spirit of the sector and creates doubt on long term viability of the sector.

India has set up an ambitious target and it can only be achieved if all the stakeholders work together towards the common goal in a conducive environment enabled by a systematic policy and regulatory framework.

Maxson Lewis

Like we mentioned earlier, achieving these targets require that the government look at this target and the green energy intention with a macro view. We can use this solar initiative to drive a revamp in our power infrastructure. Also, if these capacities come upstream, we will need to plan for the ‘Duck curve’ which will hit the grid in 2-3 years from now.

Another challenge which will need to be addressed is the clarity on the safeguard duties on imported panels – this has a direct impact on the economics of setting up projects on those targeted scales.

As recently, the Power and New & Renewable Energy Minister asked states to curb the losses incurred by Discoms. What steps do you feel should be taken by the states in this regard?

Basant Jain

A good way to curb losses can be with implementation of technology like automated energy auditing software which can provide accurate measurement of line losses. Also peak sharing can be introduced by virtue of tariff for all consumers not only limiting to industrial consumers.

P. Vinay Kumar

Technical losses require deployment of equipment and technology. Recent APDRP schemes have shown the way how capex incentives can be tied to loss reduction. It has worked well in some states and less so in some. There are also deep learnings that these schemes have thrown up over a period of time, which can be used to come up with innovative and discom centric mechanisms for reducing technical losses. Loss reduction should be a national goal. We need to reach global levels here.

Countries like South Korea have shown how this is possible. There are examples that abound and we can emulate and tailor them to uniquely Indian conditions. The State Gencos and the Transmission Utilities all over the country play big brother to their Discoms. This does not seem to be helping. There is a case which can be made out for empowering discoms to handle their own affairs with effective and light touch oversight by the STUs and Gencos.

Commercial losses require administrative will, political support with a dose of technology. The prescriptions are well known.

Guru Inder Mohan Singh

Financial viability of distribution companies is a major concern and would hamper the growth of RE in the country. Hence, definitive measures are needed to help discoms recover and become financially stable. UDAY scheme has really helped discoms reduce their losses by almost 50% in FY-18 by reining in the cost of electricity generation at state owned power plants, tariff hikes and digitising the billing and collection process.

In this regard following recommendations might be helpful in order to improve the financial health of discoms and keep the market attractive for investors.

• Effective implementation of UDAY scheme
• Bringing in operational efficiencies which will bring down costs
• Tapping into RE which is cheaper than conventional power which will bring down APPC (average power purchase cost)
• Technical improvements to curb power thefts to reduce AT&C losses

Maxson Lewis

AT&C losses have been a bane which the governments have been trying to address for decades now. Positive steps have been taken and we have come a long way from the time when the AT&C losses were higher than amount accounted and paid for.

But truly solving this issue requires a technical and importantly a socio-political angle to it. Technical solutions like Smart metering, Pre-paid meters and upgradation of the distribution network are the easier part to solve and implement. The socio-political interventions will require political will power and implementation of the rule of the land for erring parties.

Accountability at the state levels was helped by the trifurcation of the DISCOMS, but I believe somewhere in between we have not forced the accountability with the same intent with which the trifurcation was done.

As renewable installations surge in India, no. of trade disputes affecting solar too climbed. In your opinion, what are the issues to be resolved on priority?

Basant Jain

A uniform and clear net metering policy needs to be implemented to avoid any future probable disputes. To have a better demand and supply management, all energy meters to have a common platform and an automated and transparent metering system.

P. Vinay Kumar

Trade disputes surrounding solar are common across the world and are not unique to India. The recent imposition of antidumping duties and previous instances where this has been done in the US and Europe evidence this. It is only natural, as the world’s energy sector is going through a massive transition to clean and renewable energy. This is a reality we need to live it.

Government needs to understand that while the sector can deal with tariffs, dumping investigations, WTO compliances etc., and all the things that a rapid energy transition can throw at the sector, what the sector cannot deal with is – uncertainty, especially long periods of indecisiveness and drawn out investigations of trade disputes. Trade disputes needs to be resolved swiftly and decisively.

The inordinately long time taken by the government recently in handling the Customs classification dispute on solar panels, and the ongoing safeguard and antidumping investigations leave much to be desired. After years of experience in trade facing public policy, we still need to get the basics right. It is not much consequence whether a levy is fair or unfair, what does matter is the speed and clarity with which disputes are resolved, and how long term stability can be achieved in public policy. Policy stability is important and our fondness for constant tinkering needs curbing.

Guru Inder Mohan Singh

The solar sector needs to stabilise in terms of consolidation and disputes affecting the sector so that capacity addition can be an efficient and smooth process. The recent developments has created a stir and doubt in the mind of developers and investors alike and government must provide clarity on the following issues to keep the general sentiment optimistic.

• Pass through of additional duty such as the recent safeguard duty.
• Implementation of anti-dumping duty which keeps coming and going.

India has highly challenging target to achieve and such developments create uncertainty in the minds of the developer, questions the viability of ongoing projects and might dampen investor interests.

Maxson Lewis

Undoubtedly, the disputes are bound to increase in a fast industry with a lot of entrants whose intents are purely economic. The entry barriers being low, we find a lot of layers between the lead agency working on the project and the actual agency working on the ground delivering the installation.

There are only a few good installers of repute who can take up and execute project end to end. However, most projects are given out on the basis of the one who can quote lowest, which effectively is driven by the depth of the pockets involved, and not a view of the technical capabilities.

Clarity on rules regarding land usage for solar installations is another challenge that need to be addressed.Our view is that one big set of disputes lie with the obligation of the authorities who are supposed to make the payments for the power generated.

Large number of unpaid bills for power generated is an issue which is directly hitting the business cases negatively and projects are turning into NPAs. Indiscriminate PPAs signed with a short term view to win projects are coming back to haunt the roost. Our prediction is this will be one of the biggest issues impacting the solar industry in a few months, not years