The Role of Solar Energy in India’s Energy Security

Mukul Asher
Siddharth Gupt

The Context

Solar is an important source of renewable energy. Given India’s major dependence on imported fossil fuel for its energy needs, increasing the share of renewable energy is a sound diversification strategy, as well as potentially significant contributor to India’s goal of environment sustainability, preserving natural capital.

As Indian economy expands (The 2015 GDP at current exchange rates was USD 2.3 trillion) and at assumed nominal growth rate, (real plus inflation rate), of 12% per year, its GDP will be USD 4.6 trillion by 2022. As there is a positive relationship between GDP level and energy consumption, India’s absolute need for energy will increase significantly. So for energy security, and preservation of natural capital reducing energy needs per unit of GDP and enhancing share of renewable energy have become national imperatives.

Goals

India’s diplomatic efforts are also focussed on diversifying its energy options and with expanding its economic and strategic space. On April 23, 2016, India signed the Paris Climate Act and announced plans to increase renewable power capacity to 175 GW (4 times the current capacity) by 2022. India seeks to add 100 GW of solar (photovoltaic) capacity, 60 GWs of wind power, 10 GWs of biomass and 5 GWs of small hydro projects.

It aims to source around two-fifths of its electricity from renewable and low-carbon energy sources and to reduce its emissions intensity, i.e. ratio of carbon emissions per unit of GDP, by around a third by 2030.

Initiatives

(i) In partnership with France, India has taken a leading role in forming the International Solar Alliance (ISA), with over one hundred members, to harness the potential of solar power and to facilitate global investments in this sector. The ISA will be based                         in Gurugram (formerly Gurgaon) in Haryana, India. India has contributed USD 30 million, the ISA aims to raise USD 400 million from membership fees and international agencies. This will be leveraged to generate investments in solar industry globally from many sources [1].

Due to its proximity to the Equator, India has a good potential to generate solar power, with about 300 clear, sunny days in a year. Theoretically calculated solar energy incidence on its land area alone is about 5,000 trillion kilowatt-hours (kWh) per year. The solar energy available in a year exceeds the possible energy output of all fossil fuel energy reserves domestically available in India [2].

The National Institute of Solar Energy has also estimated India’s solar power generation potential at 749 GW which is much more than the present total installed capacity of about 300 GW from all sources of energy, renewable and non-renewable [3]. It should however be stressed that only a small fraction of potential solar capacity can be realised in practice. Intra-energy source pricing, particularly between solar and wind power, would have a significant role in the relative share contributed by the solar energy in India’s energy production and consumption.

(ii) National Solar Mission (NSM)

The Jawaharlal Nehru National Solar Mission (JNNSM) was launched on the January 11, 2010. The mission initially set a target of deploying 20 GW, but the Prime Minister Narendra Modi led government, which was entrusted with the governance responsibilities as a result of May 2014 general elections, set the target of 100 GW of grid connected solar power by 2022. The new solar target of 100 GW is expected to abate over 170 million tonnes of CO₂ over its life cycle and 1.5 Million Metric Tons per year which is equivalent to replacement of 50000 cars on road. The target will translate intoAnnual Clean Energy Generation of 1.67 billion units per 1000 MW [4]. It will facilitate India’s commitment towards reducing its emission intensity per unit of GDP by around one-third by 2030.

It also aims to reduce the cost of solar power generation, achieving grid tariff parity by 2022 in the country through (i) long term policy; (ii) large scale deployment goals; (iii) outcome oriented R&D; and (iv) domestic production of critical raw materials, components and products.

As of March 31^st 2014, India’s total installed capacity of Solar Power was 2,632 MW and the present cumulative installed grid connected solar power capacity is 7,568 MW (2.54% of total installed capacity) with rooftop capacity of 740 MW [5]. The Ministry of New and Renewable Energy recently reported that India added 6,937 MW of grid-connected renewable energy (Solar, Wind, Biomass, and Small Hydro) capacity in FY 2015–16. Additionally, 176 MW of distributed renewable energy capacity was added [6]. The government has set an ambitious target of total 12,000 MW including 4800 MW of rooftop solar to be achieved in the FY year 2016-17.

It is encouraging that India’s large domestic companies are making significant investments in solar energy. Thus, Indian Oil Corporation is planning to build 1 GW solar farm in Madhya Pradesh; and ONGC (Oil and Natural Gas Corporation), NTPC (National Thermal Power Corporation) and Tata Power are planning to invest in renewable energy for business reasons[7]. Tata Power Solar is building export capabilities, while planning to expand its domestic market share. India’s largest wind turbine producer is also establishing solar power capabilities. Many foreign financial and other organizations, such as Japan’s Softbank Corporation, are also planning to invest in the solar sector in India[8].

Implementation strategy for NSM

The total investment in setting up 100 GW will be around INR 6000 Billion (about USD 100 billion). In the first phase, the Government of India is providing INR 150.5 billion as capital subsidy to promote solar capacity addition in the country. This capital subsidy will be provided for Rooftop Solar projects in various cities and towns; for Viability Gap Funding (VGF) based projects to be developed through the Solar Energy Corporation of India (SECI) and; for decentralized generation through small solar projects. The Ministry of New and Renewable Energy (MNRE) intends to achieve the target of 100 GW under two schemes of 40 GW Rooftop and 60 GW through Large & Medium Scale Grid Connected Solar Power Projects. [4]. Some of the provisions designed to support the target of 100 GW of Solar Power by 2022 are briefly states below:

1. Accelerated Depreciation:For profit making enterprises installing rooftop solar systems, maximum 80% of total investment can be claimed as depreciation in the first year (Accelerated Depreciation will reduce to maximum of 40% from April 2017). It allows significant decrease in tax to be paid in Year 1 for profit making companies. This policy had been a key instrument in the success of wind sector, where almost 70% of projects laid on Accelerated depreciation.
2. Capital Subsidies:India’s Cabinet Committee on Economic Affairs (CCEA) allocated INR 50 billion (USD 750 million) funding for 30% capital subsidy for rooftop solar installationsof up to 500 kW. The capital subsidy of 30% will be provided for general category States/UTs and 70% for special category States i.e., North-Eastern States including Sikkim, Uttarakhand, Himachal Pradesh, Jammu & Kashmir, Lakshadweep and Andaman & Nicobar Islands. The subsidy is restricted to residential, government, social and institutional segments. The government projects that this provision is likely to lead to total rooftop capacity of 4,200 MW. There is no subsidy provision for commercial and industrial establishments, since they are already eligible for other benefits such as accelerated depreciation, custom duty concessions, excise duty exemptions and tax holidays.
3. Renewable Energy Certificates: Renewable Energy Certificate (REC) mechanism is a market based instrument to promote renewable energy and facilitate compliance of renewable purchase obligations (RPO). It is aimed at addressing the mismatch between availability of renewable energy resources and the requirement of the obligated entities to meet the renewable purchase obligation (RPO).

One Renewable Energy Certificate (REC) is treated as equivalent to 1 MWh. There are two categories of RECs, viz., solar RECs and non-solar RECs. Solar RECs are issued to eligible entities for generation of electricity based on solar as renewable energy source, and non-solar RECs are issued by state agencies to eligible entities for generation of electricity based on renewable energy sources other than solar.  REC would be exchanged only in the Central Electricity Regulatory Commission (CERC) approved power exchanges.Almost 20,083 solar RECs were sold in the month of May, 2016 at an average clearing price of INR 3500 [9].

4. Net Metering Incentives:In a net-metering arrangement, the focus is primarily on self-consumption of electricity generation by the consumer. The excess/surplus is either sold to or banked with the local utility. Net metering arrangements, thus, combine elements of captive consumption and exchange of power with the utility.Net metering incentives depend on two aspects – whether the net meter is installed and the other is the incentive policy of the utility company. If there is a net metering incentive policy in the state and if there is a net meter on the rooftop, then financial incentives for the power generated can be availed. For example in Punjab, 208 plants (Domestic: 144, Institutional: 46, industrial: 18) are installed under net metering policy of state government with total capacity of 5.5 MW and the financial incentives released for these projects cost around INR 1.8 crores [10].
5. Assured Power Purchase Agreement (PPA):The power distribution and purchase companies owned by state and central governments guarantee the purchase of solar power as and when it is produced. The PPAs offer high price equal to that ofpeak power on demand for the solar power, which is usually secondary power or negativeload and an intermittent energy source on daily basis.
6. Viable Gap Funding (VGF): VGF means a grant to support infrastructure projects that are economically justified from a social or national perspective but fall short of commercial financial viability. The VGF amount is set at INR 1.25 crore per MW for domestic content based projects and INR 1 crore per MW for open category. For bidding for the projects, the government sets a reference price, over and above which the companies would bid for viability gap funding (VGF) from the government.

The solar power thus produced will be sold to the purchasing Discoms/ State utilities/ bulk consumers at a pre-determined tariff of INR 5 per unit, as determined by MNRE based on the prevailing marketing conditions, with a trading margin of 7 paisa per unit by the Solar Energy Corporation of India (SECI). The estimated requirement of funds to provide VGF for 5,000 MW capacity solar projects is estimated to be INR 50.5 billion (INR 1crore per MW). This includes handling charges to Solar Energy Corporation of India (SECI) at 1% of the total grant disposed and INR 500 crore for payment security mechanism for all three VGF schemes of 750 MW, 2000 MW and 5000 MW.

The key indicator of the effectiveness of the above provisions is the number of firms or intends entities which are using the above initiatives, i.e. the utilization rate of the provisions. More robust and timely data concerning this rate needs to be publicly made available by the relevant government organizations for deeper analysis. A separate National Solar dashboard, such as the one developed National UJALA dashboard for Unnat Jyoti by Affordable LEDs for All (UJALA) program [11], with real time information on the progress towards solar energy goals merits urgent consideration.

[1] http://mnre.gov.in/file-manager/UserFiles/ISA-Working-Paper.pdf, “Working Paper on International Solar Alliance (ISA)”, MNRE(accessed on 21/7/2016).

[2]http://solar.missionenergy.org/ (accessed on 21/7/2016)

[3] http://mnre.gov.in/file-manager/UserFiles/Statewise-Solar-Potential-NISE.pdf, “State wise Estimated Solar Power Potential in the Country”, Ministry of New & Renewable Energy (Solar R&D Division) on 22/2/2014, (accessed on 21/7/2016)

[4] http://pib.nic.in/newsite/PrintRelease.aspx?relid=122566, “Revision of cumulative targets under National Solar Mission from 20 GW by 2021-22 to 100 GW”, Press Information Bureau Government of India on 17-June-2015 (accessed on 21/7/2016)

[5]  Kumar, Solar Energy Corporation of India (SECI), “Solar Power in India” at Annual Conference of Solar Power in India on 5^th July, 2016 at Hyatt Regency, Delhi

[6] http://mnre.gov.in/file-manager/UserFiles/Tentative-State-wise-break-up-of-Renewable-Power-by-2022.pdf, “Tentative State-wise break-up of Renewable Power target to be achieved by the year 2022”, Posted on 30.03.2015 (accessed on 21/7/2016)

[7] http://www.livemint.com/Industry/n6JGIUiAK3dBZHvUxWprWO/Narendra-Modi-lures-Indias-top-fossil-fuel-companies-to-bac.html, “Narendra Modi lures India’s top fossil fuel companies to back solar boom”, Live Mint on 22^nd July, 2016 (accessed on 21/7/2016)

[8] http://www.livemint.com/Home-Page/gV4ucPd83M4Zc9yr6l6NPO/Wind-energy-sector-feels-the-heat-as-solar-steals-limelight.html, “Wind energy sector feels the heat as solar steals limelight”, Live Mint on 17^th August, 2016 (accessed on 21/8/2016)

[9] http://www.iexindia.com/marketdata/recdata.aspx, REC Data at Indian Energy Exchange (IEX) (accessed on 21/7/2016)

[10] Singh, Punjab Energy Development Agency (PEDA), “Presentation on Projects and Program” at Annual Conference of Solar Power in India on 5^th July, 2016 at Hyatt Regency, Delhi

[11] http://pib.nic.in/newsite/PrintRelease.aspx?relid=142271, “Government walks the talk on Climate Change, Distributes over 10 Crore Led Bulbs under Ujala”, Press Information Bureau, Government of India, Ministry of Power on 26-April-2016 (accessed on 21/7/2016)

(To be concluded in October 2016 Issue)

(Mukul Asher is Professorial Fellow, National University of Singapore, and Distinguished Fellow, Dr. Syama Prasad Mookerjee Research Foundation (SPMRF) & Siddharth Gupta is Research Analyst, Power Sector, Global Village Foundation (GVF), Delhi and can be reached at [email protected])