Ever since the new government was sworn in, India has been making all the right noises about its ambitions for solar power. Both Prime Minister Modi, and the Minister for New and Renewable Energy, Mr. Goyal, seem determined to achieve an ambitious target of 100 GW by 2020.
After the headline items have been absorbed and expectations have risen, it is now time for delivery. They have their work cut out for them. It cannot be a straightforward process as the goal is so ambitious, the market environment is complex and the technologies changing. However, it needs to be much more thought through than it is at present
Last week, in a run-up to the RE Invest India conference to be held in Delhi in February, a tweet from the official RE-Invest 2015 handle for the first time published a year-by-year road map on how the government intends to ramp up solar capacity.
This plan shows a very quick initial ramp up from the current 1 GW per year market size. In the upcoming financial year, the government wants to install 7 GW, of which 3 GW is to be of rooftop solar. That is a 100-fold increase from the current total rooftop capacity. In the year after that, India is to be a 18 GW solar market. No country has ever added 18 GW of solar in a year.
According to the BRIDGE TO INDIA analysis, an un-incentivized rooftop solar market would add 1.5 GW by 2018. In the road map, the government is planning to add around 20 GW by the same time. Achieving this will need a substantial policy push. As of now, we have little idea about what that might be. The only substantial announcement so far has been a plan to provide an interest rate subsidy by using around EUR 1 bn of funds from the German KfW. However, even this has not yet been formalised and it would take at least a year to become operational. The government has also been tinkering with the subsidy mechanism (refer) but that too doesn't seem to be adding up to any larger plan.
The most active market segment at present is utility scale capacity addition through the solar parks model. Yet this, too, is not without roadblocks. There is still some confusion on what parks are ready for the first 3,000 MW of allocations to be auctioned by March 2015. The guidelines for allocations have been changed multiple times in the past weeks, as the situation changed on the ground due to land, infrastructure and funding challenges (refer). International developmental banks have been asked to finance these parks, but there is still not enough clarity on the business models and on how this could work from a lender’s (and investor’s) perspective. Under the current conditions, many investors might just decide to give this opportunity a pass.
BRIDGE TO INDIA continues to believe that India can achieve its ambitious solar targets, but it will need to rapidly step up its policy planning and implementation. What India actually wants to do, is to significantly shift its future energy mix towards renewables. That is strategically sound, but definitely not business as usual. It requires an expanded and improved institutional infrastructure to support a complex, new policy process: an excellently staffed "Central New Energy Command". That should be the starting point.
Even with this in place, a build-up as rapid as anticipated will be a stretch. It just takes time to fine-tune the details of a successful policy. Long delays have plagued Indian policy making in solar and other areas in the past. Given the strong economic fundamentals behind solar market growth in India, the goal could more easily be reached with a slower initial ramp up and larger additions towards 2020.
In the current policy environment, and given the time pressures created by this road map, we see the danger of a knee-jerk reaction: if the market is not quick enough to react, then the government will simply push large projects through directly, using a select group of public and private companies, whose decision-making calculus includes factors not related to the solar opportunity at hand. This will undermine competition and slow down the fall of solar costs. It might lead to a faster capacity addition in the short term, but carries the risk of the market stalling. For solar to be the big success in India that it can, it needs a wide spectrum of innovative players (including start-ups and international companies), a predictable policy framework and a large range of financing options. More