India’s Solar Mission is making good progress for solar PV but not for solar thermal
Gireesh Shrimali is an Assistant Professor of Energy Economics and Business at the Monterey Institute of International Studies and a Fellow at Climate Policy Initiative.
In 2010, India set an ambitious target to develop 20,000 MW of solar energy by 2022.
This target, implemented through the Jawaharlal Nehru National Solar Mission, called the Solar Mission hereafter, was to be achieved in three phases: Phase 1 by early 2013; Phase 2 by 2017; and Phase 3 by 2022. The Phase 1 was to be implemented in two batches: Batch 1 with capacity targets for solar PV and solar thermal; and Batch 2 with a capacity target for solar PV only.
As of June 2013, it appears that the Solar Mission has been moderately successful in deploying solar PV. Based on metrics developed in a recent paper with Vijay Nekkalapudi (submitted to Energy Policy), “How Effective Has India’s Solar Mission Been in Reaching Its Deployment Targets,” where we looked into the effectiveness of the Solar Mission in achieving its targets and offer suggestions for improving its design, the performance of the Solar Mission has been 8.4 on a 10 point scale.
However, the Solar Mission has failed in deploying the 500 MW targeted capacity for solar thermal by March 2013: As of June 2013, approximately none had come online. This, along with other issues, such as the cost of debt, translates to real concerns over whether the Solar Mission is on track to meet its ambitious targets – in particular, as related to solar thermal.
We found that the Solar Mission’s success in deploying solar PV can mainly be attributed to the following: low technology risk, low developer risk, and low off-take risk. While the first has been mostly due to the nature of solar PV and the magnitude of experience with that technology that already exists in India and elsewhere, the remaining two factors are partly connected with successful elements of the Solar Mission.
For example, the developer risk of Solar Mission projects is low and is reducing over time. The Solar Mission reduced participation by non-serious players by incorporating a bid–bond (i.e., a bank deposit) that penalized delays in commissioning. Batch 1 received 343 applications amounting to 5,000 MW, whereas Batch 2 received only 152 applications amounting 1,900 MW. Although fewer projects bid under Batch 2, the average project size was much higher, and it appears that only serious, well-qualified developers are staying in.
Additionally, the off-take risk was low for Solar Mission projects, and this is connected with the fact that all the projects under Phase 1 have a 25-year power purchase agreement signed with Vidyut Vyapar Nigam (NVVN), the power trading arm of National Thermal Power Corporation (NTPC), which has a market capitalization of USD 35 Billion and net worth over USD 11.4 Billion. Thus, the power purchase agreement enjoys a strong credit rating and bankability, enabling these projects to secure funding.
Further, we found that the Solar Mission has been successful in reducing the cost of electricity from solar PV. A reverse auction mechanism, which requires project developers to bid down from a pre-determined tariff, when combined with rapidly falling solar PV module prices, brought down the delivered cost of electricity from solar PV by more than half in three years.
Thus, for solar PV, India should continue using the elements of policy that have made the Solar Mission successful so far – i.e., a reverse auction mechanism, combined with bid-bonds; and a strong, credit-worthy off-taker, such as NVVN.
On the other hand, when it came to solar thermal, there have been multiple challenges in getting these projects off ground in India. Our analysis shows that this is primarily related to technology, including construction, risk. Parabolic trough technology, the most dominant solar thermal technology, with an installed global capacity of barely 100 MW by 2012, has only 5.5 MW installed in India. Further, these large projects require a lot of land, with good direct normal irradiation and access to water as well as human resources, and all of these have contributed to delays.
If India wishes to improve on this experience by helping to mitigate technology risk associated with solar thermal, one option is to promote some pilot projects for solar thermal so as to comprehensively assess risks associated with this technology in India. Another is to ensure that the plants have adequate information on solar resources as well as adequate access to resources, such as land and water. These measures could help ensure that India reaches its targets for solar thermal technology in a timely manner.