GUEST BLOG: FIT and 20-GW National Solar Mission lose value in India

by Bhupesh Trivedi

Here is another game-changer in India. Feed-in-tariffs and the ambitious government-sponsored 20-GW National Solar Mission (NSM) have lost value in India.

Across the country, the existing conventional power cost ranges from Rs 7 to Rs 12 per unit for industrial and commercial users, against the new solar power benchmark price of Rs 7-7.50 per unit at which companies won bid under different government policies in the recent months.

It is obvious that a solar power project developer in India is losing money by selling power to the government at prices of Rs 7-7.50 per unit through a power purchase agreement (PPA) that is mutually obligatory for a period of 25 years.

Instead, it makes a lot more sense for an investor or a project developer to shun 25-year-long (PPAs) with governments and use the ‘Open Access’ system to sell power to industrial and commercial users directly. Such users are paying more than Rs 7.00 per unit for existing erratic power supply and will be keen to pay more for reliable supply. Developers can exercise an option too to raise the cost of power supplied at regular intervals over the supposed lifespan of 25 years of the power project.

That surely raises questions on the significance and value of various state governments’ policies as well as the ambitious National Solar Mission of the central (federal) government of India. If the state governments’ policies and the NSM have to remain significant, the price offered by the government to solar power project developers will have to be become variable over the entire duration of the PPA. If not, it would surely be a losing proposition for a solar power project developer/investor to commit power at such low rates for the next 25 years.

The ‘Open Access’ system enables any power producer to sell power to any user across the country through the national grid, by bearing costs of transmission and distribution losses as well as wheeling and banking charges. These costs may weigh on the profitability of the power project for now. But, committed higher billings over the next few years could provide much higher returns, compared to fixed rates provided under the PPAs with different governments.

The success of the ‘Open Access’ system will also depend on the condition of “minimum committed load” that makes an industrial user to pay a minimum bill amount every month to the local distribution company, irrespective of how much of conventional power was consumed.

But, different regulations in the country have already cleared the way for other precedents where large industrial units set up gas or coal-based captive power plants. A similar arrangement for solar power will ensure that the end consumers and solar power project developers will be able to build mutually-profitable relationships.
At the other end, while the state government policies were expected to boost the solar power sector in the country, the captive or end-user segment offers a much larger market of at least 25,000 MW over the next 5-7 years.

Even if the benchmark solar PV power project cost falls from the current Rs 9 crore to Rs 7 crore, it promises to be a market with a value of Rs 175,000 crore (about US$ 35 billion).

The rules of the game in India have surprisingly changed even though the total installed solar power generation capacity in the country has not crossed 1,000 MW, against state and national governments’ targeted capacities exceeding 30,000 MW over the next decade.

If all solar power project developers were to go for the ‘Open Access’ system, one would wonder about the fate of different state governments’ policies and the national government’s National Solar Mission.

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Bhupesh Trivedi is the CEO of Mumbai-based boutique solar energy consulting company REECODE Energy Solutions. He has assisted his clients with setting up MW-size solar power plants as well as solar engineering companies to dovetail their products and services for the growing market in India. He has spoken at various national and international events and writes regularly for various media. He can be reached through bhupesh@reecode.in and +91-9324246639      .

2012: The transition year for solar energy

Photovoltaic solar energy is at a turning point in its young history.
It will be the year in which:
- China will grow into a global leading top 3 PV market.
- The German market will continue to grow and prosper despite strong FiT decreases.
- The Belgian people will discover that it is still very attractive to invest in PV despite the reduction in certificate price and disappearance of the tax advantage.
- The Dutch market will start a strong growth because there are no incentives available and the government has no role to play anymore.
- A sunny climate and growing economy (India, China, Chile, Brazil, Turkey, etc.) will be more important than incentives in terms of market growth.
- ‘Diesel parity’ (solar + storage is cheaper than diesel-generated power) has been reached in major markets such as India.
- Spain will reach grid parity for residential PV systems – and this without any incentives, as the government will increase energy prices.
- Italy reached grid parity for residential applications because energy prices are already high, there is an abundance of sunshine and the business infrastructure is in place.
- Solar energy storage will become a serious topic since solar energy is too cheap to simply supply back to the grid at the time of production.
- In India, more projects will be developed for other reasons than being stimulated by the National Solar Mission.
- Japan is closing down nuclear plants and is ready to invest in renewables and massive solar application.
- Investors discover that, by replacing modules after 25 years, a solar power plant is the best and most secure investment, generating increasing cash flows for more than 50 years.
- Middle East countries find out that it makes more sense to use solar PV for domestic electricity production and sell the expensive oil.
- Europe will build more new solar power capacity than any other electricity generation technology.
- South Africa will set the trend as the gateway for solar application on the African continent.
- The development of the world’s first 1000 MW single PV project will kick off.
- The market will change for residential customers from ‘Solar is interesting from an investment perspective benefiting from incentives’ to ‘Solar is interesting as it saves money on your energy bill.’
- Not only will modules become cheaper once again, but inverters as well due to industry developments and competition from China.

Furthermore, the industry will discover that future market development is not dependent on new technology developments, but on the transition towards new and smart business models. Indeed, the "winner" in terms of the Internet was not the inventor of the technical Internet technology, but the smart guys from Google who used that technology to offer new services based on it. In 2012, don’t look for the new solar module types and technology improvements – but rather  watch the companies that offer you free solar modules on your roof and energy at a price below current grid prices.