Solar power is one of the most promising options for India to meet its growing electricity demand. While the construction of further fossil fuel power plants is slowing due to lower domestic coal production than expected and the high cost of fuel imports, installations of solar plants are on the rise.

As discussed in a CPI blog, the Government of India’s National Solar Mission, started in 2010, has achieved targets for promoting solar photovoltaic (PV), having seen 660 MW deployed by January 2014. However, plans to deploy concentrated solar power (CSP) – a less mature and currently more expensive alternative with key technological advantages that allow it to deliver power reliably and when it is needed – did not meet with the same success. Over the same period, the government tendered 500 MW of CSP but successful bidders have only installed 10% of this deployment target to date.

In the coming days, however, the National Solar Mission takes an important step forward in its CSP efforts, when the 100MW Rajasthan Sun Technique CSP plant – the largest CSP plant built so far in India and the largest worldwide using linear Fresnel technology – is connected to the grid. In a recent CPI case study, financed by the Climate Investment Funds Admin Unit, Climate Policy Initiative examined this plant to understand why this project was implemented, while others under the National Solar Mission are still delayed. Some of our key findings include:

• The Government of India’s measures, including awarding a subsidized power purchase agreement (PPA) and payment security scheme through a competitive reverse auction, were essential to getting the Rajasthan plant built but they were not enough to deploy CSP at the desired scale. Indeed, the only winning bidders able to build CSP plants at the low tariffs that resulted from the competitive bidding process were those that had financially strong private stakeholders and were able to source public debt. The 100MW Rajasthan Sun Technique CSP plant, for instance, benefitted from USD 280mn of long-term foreign public debt, a project developer both willing to take risks to establish itself in the Indian CSP market and willing and able to accept low returns, and a technology provider that contributed comprehensive warrantees.
• India’s CSP policy kept costs to the public low but it will need adjustment to increase the certainty and speed of deployment and meet the country’s ambition to establish a national solar industry. Strong competition among project developers resulted in several submitting bids at prices that put them among the cheapest CSP tariffs worldwide (see also our previous paper on the global CSP landscape). However, project delays, possible cancellations, and difficulties in sourcing technologies and financing experienced by several of these developers – due in part to the challenge of building at such low tariffs – meant India was unable to meet its CSP targets and capitalize more fully on learning-by-doing, establishment of local supply chains, and investments in basic infrastructure, as developed during the implementation of projects like Rajasthan Sun Technique.

If a reverse auctioning scheme is used in India for future scale up of CSP, the design could be substantially improved and the Indian government could increase the likelihood of timely project implementation by:

• Including stricter qualification requirements for bidders in terms of CSP experience and financial strength
• Setting out more realistic timelines for bidding
• Making reliable on-site solar irradiation data available
• Allowing sufficient time for construction but also then enforcing penalties more strongly for delayed projects

With the 100MW Rajasthan Sun Technique plant commissioning, Indian CSP policy takes an important step forward but there is still a way to go before large scale up of the technology allows the country to balance the cheaper but fluctuating solar PV and wind power with more reliable CSP plants.