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World’s Largest Linear Fresnel Concentrated Solar Power (CSP) Plant in India among Cheapest Internationally but Policy Needs Adjustment to Deliver Wider Goals

March 11, 2014

– The first ever linear Fresnel CSP plant in India and the largest in the world was made possible by a subsidized power tariff backed by the central government, international public debt with longer maturities, and the risk taking of private sector actors looking to establish themselves in a promising solar market.
– Indian CSP policy delivered well on price but less well on deployment; Rajasthan Sun Technique is only the second plant to be built under India’s National Solar Mission
– If reverse auctioning is used to scale-up CSP in India, improvements to the policy design could improve the likelihood that successful bidders build plants.
– Stimulating local private investment and implementing tools to hedge currency exchange risks associated with foreign debt are two ways to help ensure that CSP achieves cheaper financing for significant further deployment in the future.

India expects to see the commissioning of the 100MW Rajasthan Sun Technique concentrated solar power (CSP) plant, developed by Reliance Power, in the coming weeks. Climate Policy Initiative’s new case study, “The Role of Public Finance in CSP: Rajasthan Sun Technique,” finds that while the plant looks set to deliver some of the cheapest CSP power worldwide, India’s CSP policy as a whole has fallen short of its goals.

Rajasthan Sun Technique to deliver cheap CSP power but its model may not be replicable
Tendered under phase one of India’s National Solar Mission, the Rajasthan Sun Technique plant cost 43% less than other linear Fresnel plants and up to 67% less than other large CSP plants worldwide. These investment costs translated into an electricity price of 11.97 rupees /kWh — 22% lower than the Indian government’s CSP reference tariff set before the bidding (around 23 USD cents/kWh when the financing for the project was closed). With locally manufactured components making up 61-71% of the plant according to CPI estimates, it also demonstrated the technology’s promise for meeting another of the Indian government’s goals: creating a CSP industry.

While the Government of India’s choice of a competitive reverse auction bidding process enabled it to drive down the cost of CSP power to among the lowest levels seen internationally, it may also have encouraged project developers to bid too low as financing and policy-related challenges faced by developers mean most plants are unlikely to be built. The study notes that only three projects of the seven tendered under the first phase of the India’s National Solar Mission are built or under construction and each of these three projects received long-term public debt and had financially strong developers, allowing them to take on much of the risk associated with building such innovative plants.

“The Rajasthan Sun Technique will be built at remarkably low cost,” said Barbara Buchner, Senior Director at Climate Policy Initiative. “However, our analysis shows that many developers will be unwilling or unable to take on the level of risk that Reliance did in this instance. Scaling up CSP in India will require additional international and domestic support if the Indian government is to realize its ambitions of becoming a global solar leader.”

Scaling up CSP deployment
Climate Policy Initiative suggests the following policy adjustments to help India meet its CSP goals:

– If reverse auctioning is used for future scale-up of CSP in India, its design can be improved to increase the chances that winning bidders actually implement their projects through improving data on the available solar resource at the time of bidding, more realistic timelines for submitting bids and constructing plants, stricter enforcement of penalties for missing deadlines, and strengthening requirements for participating in the bidding.

– In the long-term, scale up of CSP in the country will require a shift to domestic investments, as development bank and export credit financing is limited. Policymakers can stimulate this transition by providing low-cost local public debt, building capacity at private banks, using credit enhancement tools, and setting up pilot projects for innovative technologies to improve investor confidence.

– Foreign debt is necessary for technology development in India in the medium term. Climate Policy Initiative analysis suggests there are policy approaches that could reduce its cost. Even though foreign debt is cheaper than local debt, hedging the currency exchange risk cancels out most of the cost advantage. Policymakers can address this by, for example, reducing foreign exchange risks by providing revenues partially in hard currency.

This case study from Climate Policy Initiative is the second in a series of six studies on CSP. A further four papers will be released in the coming months.

To read more visit: www.ClimatePolicyInitiative.org.

Climate Policy Initiative is a team of analysts and advisors that works to improve the most important energy and land use policies around the world, with a particular focus on finance. CPI works in places that provide the most potential for policy impact including Brazil, China, Europe, India, Indonesia, and the United States.

Contact

U.S. – Ruby Barcklay, +1 510 612 5180, ruby@cpisf.org
Europe – Dan Storey, +39 041 270 0475, dan.storey@cpivenice.org