(ADPnews) – Sep 14, 2010 – The stage is set for India to embark on its ambitious mission to deploy 20,000 MW of solar power by 2022 but putting these plans into practice may turn out to be tougher than it looks.
By Julia Komitova
The Jawaharlal Nehru National Solar Mission (JNNSM) aims to catapult energy-hungry India into the top of the world’s renewable energy league. However, new guidelines imposing a stringent domestic-content requirement for the first phase now threaten to pour cold water on plans by a gaggle of companies to cash in on the INR 850 billion (USD 18bn/EUR 14bn) to INR 10.5 trillion initiative. Meanwhile, Indian banks are questioning the bankability of solar power purchase agreements (PPAs), prompting a shake-up of the government’s funding plans.
The JNNSM initiative aims to set up an enabling environment for solar technology penetration in India at both centralised and decentralised level. Money has been earmarked for incentives for production and installation as well as research and development, and the plan offers financial incentives and tax holidays for utilities. It envisions three phases starting with 1-1.5 GW by 2012 along with steps to drive down production costs of solar panels and spur on domestic manufacturing.
During the initiative's first phase, the government targets to commission 1,100 MW of grid solar power and 200 MW capacity of off-grid solar capacity by 2013 utilising both solar thermal and photovoltaic (PV) technologies. But foreign developers that had been gunning to take a piece of the pie hit an unexpected hurdle after the guidelines for the selection of new grid-connected solar projects showed they will be locked out of the game. While foreign developers will be welcome to help India fulfill its plans to become a major solar manufacturing powerhouse competing with China, they are “expected to procure their project components from domestic manufacturers as far as possible”, and will not be allowed to use foreign-made modules by 2011 and cells by 2012. Each company -- including affiliates and subsidiaries -- will be only allowed to submit one project application, a requirement aimed at ensuring that more firms come onboard. To allow for easier grid integration, PV projects must have a capacity of 5 MW, whereas solar thermal facilities should range between 5 MW and 100 MW.
The industry has cautioned that the stiff local-content provision set by the Ministry of New and Renewable Energy may prove to be detrimental to India’s solar ambitions as domestic manufacturers are primarily focused on exports.
“From some of the preliminary efforts that we have made most of the [Indian] suppliers don’t have products available for sale in the domestic market since they are already committed to exports,” Inderpreet Wadhwa, chief executive of project developer Azure Solar, told news outfit Recharge in August, adding that Indian module makers refuse to commit anything for domestic delivery in 2010.
India currently makes less than 2% of the world’s solar modules, nearly all of which are shipped to the European market. To add fuel to the flames, Indian module makers are highly reliant on imported components such as polysilicon wafers.
Wadhwa further noted that prices could present another challenge for domestic manufacturers as they are higher than “what the international markets offer.”
Finance does looks set to pose challenges for Indian solar power companies as banks are growing reluctant to back projects as they consider power purchase agreements (PPAs) to be unbankable. According to local newspaper Business Standard, Indian lenders have urged the national government to restructure the PPAs that currently provide for a trader PPA with NTPC Vyapar Vidyut Nigam (NVVN), the nodal agency for purchase and sale of power under JNNSM's Phase I. It then passes on the risk of default by state distribution companies (discoms) to the developer.
State Bank of India (BOM:500112), or SBI, Bank of India (BOM:532149) and Central Bank of India (BOM:532885) have all demanded from the Centre -- India's national government -- to consider a three-party PPA between the project developer, the state utility and the Reserve Bank of India (RBI) to ensure bankability.
The government appears to be genuinely concerned about the potential funding difficulties developers will be faced with. It said recently that it is weighing up options to set up an equity fund for promoting renewable energy projects with major focus on solar energy.
"If we find there is funding gap, we will recommend a dedicated equity fund to the government," Indian Renewable Energy Development Agency (IREDA) chairman and managing director Debashish Majumdar said on August 30.
According to plans, NVVN will purchase solar power generated by independent solar power producers, at rates fixed by the Central Electricity Regulatory Commission (CERC) and for a period of 25 years. For 2010-11, the CERC has fixed the rate of INR. 17.91 per unit for PV and INR 15.31 per unit for solar thermal power projects. The rates will be applicable for solar PV projects commissioned by March 2012 and solar thermal projects commissioned by March 2013.
Despite the potential roadblocks, the JNNSM has already ignited robust interest from both domestic and foreign manufacturers. Stock market-headed solar photovoltaic (PV) cells maker Indosolar Ltd this month unwrapped plans to scale up production capacity to 260 MW by 2011 from the current 160 MW. The expansion will be bankrolled by the proceeds from its upcoming initial public offering (IPO), which it hopes will fetch INR 3.6 billion.
A key objective of the JNNSM scheme is helping India carve out a place on the world’s solar manufacturing landscape. Plans call for a 4-5 GW equivalent of installed capacity by 2020, including setting up of dedicated manufacturing capacities for polysilicon material to annually make about 2 GW capacity of solar cells. At the moment, India has a PV module manufacturing capacity of just about 700 MW.
Foreign manufacturers have clearly demonstrated their commitment to help deliver on this bold target. To illustrate this, German engineering giant Siemens (ETR:SIE) earlier this month snipped the curtains on its second Indian office, in the Indian state of Gujarat, with a view to further expand its business in the country. Earlier this year Tata BP Solar, a joint venture between global energy firm BP Solar and Indian utility Tata Power (BOM:500400), inaugurated a new production line at its solar cell factory in Bangalore as it gears for an upturn in domestic demand. The ramp-up brought the company’s production capacity to 84 MW, up 61%, to come closer to its annual module output of 125 MW.
Other firms are also seeking to cash in on India’s solar ambitions. UAE-based solar startup Mulk Renewable Energy in April closed its first commercial contract to roll up a utility-scale solar-thermal power plant near Bangalore.
India’s solar PV market expanded by 20% in 2008 to reach 36 MW in annual installations. But this is only a fraction of its total clean power capacity of 16.8 GW.
(INR 1.0 = USD 0.022/EUR 0.017)
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