STRAIGHT FROM THE SUN- Assessing the practicality of the national solar mission
Science fiction induced dreams that scientists will find a way to provide everyone with limitless energy at practically no cost and no pollution. Climate change fears have imparted a new sense of urgency to getting alternative energy sources operational on a much larger scale and reducing dependence on the polluting or carbon- and methane-producing energy sources now in use. This has led to the surge of interest and investment in renewable energy, from the sun, wind, sea waves, biological and human wastes, hydrogen, and so forth. However, their direct costs are far higher per unit of energy than existing hydro, coal, gas and nuclear energy sources.
In spite of the fact that India is the lowest polluter from energy generation, in absolute and per capita terms and in relation to the gross domestic product, the Western world is putting the heat on India to reduce its dependence on coal. India has few economical choices. While much gas has been discovered in recent months, lack of clarity in government policies on usage, costs, tariffs, and ownership has prevented much use of this non-polluting fuel for generating power. The potential for hydro-electricity is limited and located mostly in strategically vulnerable parts of India. Nuclear energy is a good alternative but it will take many years to become important in our energy mix, and at higher cost than coal and gas.
India is now paying greater attention to renewable energy, especially solar, of which India has great potential. The government has a national solar energy mission with an initial capacity target of 22 gigawatts by 2022. The feed-in tariff is to be Rs 17.50 per megawatt for 20 years. Distribution utilities will pay Rs 5.50 and the central government will pay the balance. The cost will be Rs 176,000 crore, which is beyond the finance ministry’s resources, and the target is likely to be reduced to 4,000 MW, at a cost to government of Rs 90,000 crore over 20 years. The capacity addition comprises large photovoltaic and solar thermal power plants and smaller rooftop PV systems, two GW of off-grid distributed solar plants, 20 million square metres of solar collectors for low temperature applications, and 20 million solar lighting systems for rural areas. Prayas Energy Group estimates the subsidy cost at Rs 82,000 crore. In addition to these direct subsidies, other indirect incentives are low interest loans, and exemption of custom and excise duties on certain capital equipment, materials and components.
Around 60 per cent of India lives in villages and is without reliable power. Distributed power generated locally and controlled by local communities, not supplied from a grid from miles away, is an important answer. Yet, the national solar mission proposes spending vast sums on grid-connected solar energy.
The Energy and Resources Institute scenario estimates that, at an annual GDP growth of nine per cent, these solar energy targets are a small fraction of energy requirements. Solar energy will, despite large government support, not make even a small dent in our coal-based energy generation and the cost will be high. Investing in proven and economically viable solar technologies, like rooftop panels, will be quicker and more cost-effective.
State governments have laid down the percentages to be procured from renewable energy, from three per cent in Kerala to 14 per cent in Andhra Pradesh and Tamil Nadu. But the actual generation is minuscule, and in only three states. Grid-connected solar energy has so far been a non-starter. The budget speech for 2010-11 announced “concessional customs duty of five per cent to machinery, instruments, equipment and appliances required for the initial setting up of photovoltaic and solar thermal power generating units”. There is also exemption from central excise duty. These concessions must be withdrawn when Indian technology has developed.
The national solar mission allocates up to 1,000 MW of centrally unallocated power to states that have new solar generation capacity. The cost of solar power of the developer is Rs 13 per kilowatt hour. The NTPC power is around two rupees per kWh. The average cost will come down to an acceptable Rs 4.75 per kWh. This is close to and at times even below the cost of power bought in the market exchanges. However, this scheme can at best be a limited solution. Unallocated power is limited and has been used for priority sectors and to support severely power-short states. The government will lose the needed flexibility in using it. Further, unallocated power could surely be put to better use than subsidizing expensive grid connected solar power.
The Central Electricity Regulatory Commission proposes to issue renewable energy certificates to renewable energy developers. They can trade the RECs to others who are short of the quota of renewable energy set for them in each state. This will provide an additional income to renewable energy developers. It could reduce the cost of solar energy. However, clarity is still required on how and when the REC can be issued since the issuing state has to first meet its own renewable energy quota. The state electricity regulatory commission’s regulations and the recognition of RECs as valid instruments for discharging mandatory obligations are awaited.
Just as many high-net worth individuals and profitable businesses added wind generation capacity when they were allowed 80 per cent depreciation, solar energy must also get this benefit. Such an incentive should apply to capacity creation and something similar devised for actual generation of power. Such incentives for solar capacity creation and generation could boost both.
The imperative, however, is to lower the costs for solar power, both thermal and photovoltaic. This will come through new technologies, cheaper financing, economies of scale, and fiscal incentives. Assistance in acquiring enough land at affordable cost, availability of water at affordable costs, a transmission network that can evacuate power to the grid and payment security to the seller are also needed.
India today does little work on solar technologies but there is considerable development work in the United States of America and in Europe on substituting expensive semiconductor material with a cheap optical system. Other advanced technologies include low-cost mechanics, optics for concentration of solar radiation, central tower technologies, and dish Stirling solar chimney technology. Access to these developments at low cost, if not for free, is essential for India to move speedily ahead on solar energy to substitute for the use of coal. Technology access at affordable costs from the developed world is crucial.
Apart from encouraging research and development into technologies and cost reduction of solar energy, other requirements to promote it are accelerated depreciation, more flexible debt equity ratios, and lower interest rates (to be cross-subsidized by other lending). Costs of solar panels and photovoltaics have already fallen drastically, though they are still expensive compared to conventional power. Scale will bring costs down further. The object of fiscal and other incentives must be to rapidly scale up production and use so that cost reduction becomes possible.
The 2010 budget has made coal thermal more expensive, raising power costs by two-and-a-half to three paisa per unit). The development of power markets through the exchanges has brought power prices closer to market prices. As coal thermal rises in price, solar energy might become more feasible.
But grid-connected solar energy today is very expensive. Perhaps India should concentrate on solar panels, solar lighting and distributed solar power. The national solar mission might be better focused on existing proven technologies and on research and development.