Energy Policy

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Solar Energy Policy of India: A Comparative Analysis

Public Policy: Assessed Essay

Submitted by: Avishek Singh Roll 113 PGDM Finance Avishek Singh

PGDM Finance

2011-13

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Table of Contents Introduction ............................................................................................................................................ 5 Review of Solar Energy Markets, Economies & Policies World-Over ..................................................... 5 Technology .............................................................................................................................................. 6 Solar Photovoltaic ............................................................................................................................... 7 Solar Thermal ...................................................................................................................................... 7 Solar Power: Grid & Off-Grid .................................................................................................................. 7 Grid Interactive Solar Energy .............................................................................................................. 7 Off Grid................................................................................................................................................ 7 Key policy incentives globally used are:.............................................................................................. 8 Policy Mix .......................................................................................................................................... 10 Germany: the World leader in Solar Energy ......................................................................................... 11 China: Solar Energy Policies .................................................................................................................. 11 India: Policies at the Central & State level ............................................................................................ 12 India’s Unique Proposition................................................................................................................ 12 Current Status ....................................................................................................................................... 13 Installed Capacity .................................................................................................................................. 13 Grid Connected Power ...................................................................................................................... 14 Off-Grid Power .................................................................................................................................. 15 Solar Power in Gujarat ...................................................................................................................... 15 Solar power in Rajasthan .................................................................................................................. 16 Solar power in Maharashtra ............................................................................................................. 16 Jawaharlal Nehru National Solar Mission ............................................................................................. 16 Timeline............................................................................................................................................. 16 Important incentives by Central Government for promotion of renewable energy ........................ 19 Feed-In tariff ..................................................................................................................................... 19 Renewable Energy Certificates ......................................................................................................... 20 State Policies ......................................................................................................................................... 20 Gujarat .............................................................................................................................................. 20 Karnataka .......................................................................................................................................... 21 Rajasthan........................................................................................................................................... 21 Haryana ............................................................................................................................................. 22 Punjab ............................................................................................................................................... 22 Challenges and Opportunities............................................................................................................... 23

Avishek Singh

PGDM Finance

2011-13

3 Comparative analysis of the policies adopted ...................................................................................... 23 Conclusion ............................................................................................................................................. 24

Avishek Singh

PGDM Finance

2011-13

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2011-13

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Introduction The energy policy of India is largely defined by the country's burgeoning energy deficit and increased focus on developing alternative sources of energy, particularly nuclear, solar and wind energy. About 70% of India's energy generation capacity is from fossil fuels, with coal accounting for 40% of India's total energy consumption followed by crude oil and natural gas at 24% and 6% respectively. India is largely dependent on fossil fuel imports to meet its energy demands — by 2030, India's dependence on energy imports is expected to exceed 53% of the country's total energy consumption. In 2009-10, the country imported 159.26 million tonnes of crude oil which amount to 80% of its domestic crude oil consumption and 31% of the country's total imports are oil imports. The growth of electricity generation in India has been hindered by domestic coal shortages and as a consequence, India's coal imports for electricity generation increased by 18% in 2010. Due to rapid economic expansion, India has one of the world's fastest growing energy markets and is expected to be the second-largest contributor to the increase in global energy demand by 2035, accounting for 18% of the rise in global energy consumption. Given India's growing energy demands and limited domestic fossil fuel reserves, the country has ambitious plans to expand its renewable and nuclear power industries. India is densely populated and has high solar insolation, an ideal combination for using solar power in India. India is already a leader in wind power generation. In the solar energy sector, some large projects have been proposed, and a 35,000 km2 area of the Thar Desert has been set aside for solar power projects, sufficient to generate 700 GW to 2,100 GW. In July 2009, India unveiled a US$19 billion plan to produce 20 GW of solar power by 2020. Under the plan, the use of solar-powered equipment and applications would be made compulsory in all government buildings, as well as hospitals and hotels. On 18 November 2009, it was reported that India was ready to launch its National Solar Mission under the National Action Plan on Climate Change, with plans to generate 1,000 MW of power by 2013. According to a 2011 report by GTM Research and Bridge, India is facing a perfect storm of factors that will drive solar photovoltaic (PV) adoption at a "furious pace over the next five years and beyond". The falling price of PV panels, mostly from China but also from the U.S., has coincided with the growing cost of grid power in India. Government support and ample solar resources have also helped to increase solar adoption, but perhaps the biggest factor has been need. India, "as a growing economy with a surging middle class, is now facing a severe electricity deficit that often runs between 10 and 13 percent of daily need".

Review of Solar Energy Markets, Economies & Policies World-Over The costs of solar energy technologies have dropped substantially over the last 30 years. For example, the cost of high power band solar modules has decreased from about $27,000/kW in

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2011-13

6 1982 to about $4,000/kW in 2006; the installed cost of a PV system declined from $16,000/kW in 1992 to around $6,000/kW in 2008. Theoretically, solar energy has resource potential that far exceeds the entire global energy demand. Despite this technical potential and the recent growth of the market, the contribution of solar energy to the global energy supply mix is still negligible. Besides the economic disadvantage, solar energy technologies face a number of technological, financial and institutional barriers that further constrain their large-scale deployment. Policy instruments introduced to address these barriers include feed in tariffs (FIT), tax credits, capital subsidies and grants, renewable energy portfolio standards (RPS) with specified standards for solar energy, public investments and other financial incentives. While FIT played an instrumental role in Germany and Spain, a mix of policy portfolios that includes federal tax credits, subsidies and rebates, RPS, net metering and renewable energy certificates (REC) facilitated solar energy market growth in the United States.

By and large solar energy technologies are not yet cost-competitive with conventional energy commodities at either the wholesale or retail levels. Therefore, any significant deployment of solar energy under current technological and energy price conditions will not occur without major policy incentives. A large number of governments have decided to increase solar energy development, using a range of fiscal, regulatory, market and other instruments. In fact, the strong growth in solar energy markets, notably those for grid-connected solar PV and solar thermal water heating, has been driven by the sustained implementation of policy instruments in Europe, the United States and some developing countries to induce or require increased use of solar power.

Technology Before beginning with our analysis of various policies affecting the growth of solar energy in different markets worldwide, it is imperative that we familiarize ourselves with some key technical terms frequently used. The solar energy can be harnessed in two predominant ways:

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2011-13

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Solar Photovoltaic Solar photovoltaic (SPV) cells convert solar radiation (sunlight) into electricity. A solar cell is a semiconducting device made of silicon and/or other materials, which, when exposed to sunlight, generates electricity. Solar cells are connected in series and parallel combinations to form modules that provide the required power.  

Crystalline Silicon solar cells (C-Si): Monocrystalline and Polycrystalline Thin-film solar cells: Amorphous Silicon Solar cells (A-Si), CIGS, CdTe

PV modules are manufactured by assembling the solar cells after stringing, tabbing and providing other interconnections.

Solar Thermal Solar Thermal Power systems, also known as Concentrating Solar Power systems, use concentrated solar radiation as a high temperature energy source to produce electricity using thermal route. High temperature solar energy collectors are basically of three types:   

Parabolic trough system: at the receiver can reach 400° C and produce steam for generating electricity. Power tower system: The reflected rays of the sun are always aimed at the receiver, where temperatures well above 1000° C can be reached. Parabolic dish systems: Parabolic dish systems can reach 1000° C at the receiver, and achieve the highest efficiencies for converting solar energy to electricity.

Solar Power: Grid & Off-Grid Grid Interactive Solar Energy Grid interactive solar energy is derived from solar photovoltaic cells and CSP Plants on a large scale. The grid connection is chosen due to following reasons:     

Solar Energy is available throughout the day which is the peak load demand time Solar energy conversion equipments have longer life and need lesser maintenance and hence provide higher energy infrastructure security Low running costs & grid tie-up capital returns (Net Metering) Unlike conventional thermal power generation from coal, they do not cause pollution and generate clean power Abundance of free solar energy throughout all parts of world (although gradually decreasing from equatorial, tropical, sub-tropical and polar regions). Can be utilized almost everywhere

Off Grid While, the areas with easier grid access are utilizing grid connectivity, the places where utility power is scant or too expensive to bring, have no choice but to opt for their own generation. They generate power from a diverse range of small local generators using both fossil fuels (diesel, gas) and locally available renewable energy technologies (solar PV, wind, small hydro, biomass, etc.) with or without

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PGDM Finance

2011-13

8 its own storage (batteries). This is known as off-grid electricity. Remote power systems are installed for the following reasons:      

Desire to use renewable - environmentally safe, pollution free Combining various generating options available- hybrid power generation Desire for independence from the unreliable, fault prone and interrupted grid connection Available storage and back-up options No overhead wires- no transmission loss Varied applications and products: Lighting, Communication Systems, Cooking, Heating, Pumping, Small scale industry utilization etc.

Here it becomes essential to stress that the development of solar energy has differed in geographically smaller developed countries and the large under-developed and developing economies. The larger countries are already very well connected to the power grids. Hence, there the entire focus is on developing the grid interactive systems. Countries like India and China, on the other hand, have focussed a lot on off-grid distributed applications of solar energy.

Key policy incentives globally used are: Here the various policy measures used globally have been enumerated. Its important to understand how each measure is different in terms of implementation and its affect on the State’s finances. Feed-in tariffs: Feed-in-tariff (FIT) refers to a premium payment to new and renewable energy technologies which are relatively expensive or thus not competitive with conventional technologies for electricity generation. This policy has been implemented in more than 75 jurisdictions around the world as of early 2010, including in Australia, EU countries, Brazil, Canada, China, Iran, Israel, the Republic of Korea, Singapore, South Africa, Switzerland, the Canadian Province of Ontario and some states in the United States. FIT has played a major role in boosting solar energy in countries like Germany and Italy, which are currently leading the world in solar energy market growth. Investment tax credits: Different types of investment tax credits have been implemented in several jurisdictions around the world to support solar energy. In the United States, for example, the federal government provides an energy investment tax credit for solar energy investments by businesses equal to 30% of expenditures on equipment to generate electricity, to heat or cool and on hybrid solar lighting systems. Besides the investment tax credit, the US federal government provides an accelerated cost-recovery system through depreciation deductions: solar energy technologies are classified as five-year property. Investment tax credits schemes are criticized for their impacts on government revenues. Direct subsidies: Direct subsidies (versus tax credits) are a primary instrument to support solar energy development in most countries. The subsidy could be investment grants or capacity payments, soft loans (e.g., interest subsidies), or output or production based payments. In India, capital subsidies initially used, were funded either through donor or government funds. Solar hot water systems, solar cooking systems and concentrating solar cookers receive capital subsidies of, respectively, Rs. 1,500, Rs. 1,250 and Rs.2000 per square meter. The primary reliance on capital subsidies was criticized because it incentivized capacity and not necessarily production.

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2011-13

9 Renewable energy portfolio: Many countries, particularly developed countries, have set penetration targets for renewable energy in total electricity supply mix at the national or state/provincial levels. To meet the targets, electricity suppliers (e.g., utilities, distributors) are required to have certain percentage of their electricity supply coming from renewable energy sources. These standards are commonly known as renewable energy portfolio standards (RPS). Favorable financing: In India, the Shell Foundation worked with two leading banks in India, viz. Canara Bank and Syndicate Bank, to develop renewable energy financing. This initiative helped the banks put in place an interest rate subsidy, marketing support and vendor qualification process. Using the wide network of their branches, the interest subsidies were made available in over 2,000 branch offices in the two states of Kerala and Karnataka. Within two and half years, the programs had financed nearly 16,000 solar home systems, and the subsidies were gradually being phased out. In Bangladesh, the Rural Electrification and Renewable Energy Development Project established microcredit financed facilities that resulted in the installation of over 970,000 solar-home systems (SHS) between 2003 and May 2011.Whereas in 2003 all sales of PV home systems were on a cash and carry basis, by 2006, 50% of sales were financed. Public investment: One of the main drivers of solar energy development in developing countries continues to be direct public investment. Many developing countries host a number of government and/or donor-funded projects to support solar energy under their rural electrification programs. The rapid development of the PV industry and market in China is mainly due to government support, implemented through a number of rural electrification programs. National and local levels programs for rural electrification were the major driving force for solar PV market expansion in China in the late 1990s and early 2000s. Developing countries initiated programs with the help of bilateral and multilateral donor agencies are mainly facilitating solar energy development in developing countries. For example, the World Bank has launched a rural power project in the Philippines, aimed at the installation of 135,000 solar systems; totaling 9 MW installed capacity. Net metering: Net metering is the system where households and commercial establishments are allowed to sell excess electricity they generate from their solar systems to the grid. It has been implemented in Australia, Canada, United States and some European countries including Denmark, Italy and Spain. In the US, for example, most net metering programs are limited to renewable energy facilities up to 10 kW. In California it could reach up to 1 MW. In Canada, it goes up to 100 kW in Prince Edward Island and 500 kW in Ontario. Other government regulatory provisions: In many countries, governments have introduced laws mandating transmission companies and electricity utilities to provide transmission or purchase electricity generated from renewable energy technologies, including solar. In January 2006, China, for example, issued the Renewable Energy Law, mandating utility companies to purchase “in full amounts” renewable energy generated electricity within their domains at a price that includes production cost plus a reasonable profit. The extra cost incurred by the utility will be shared throughout the overall power grid (GOC, 2005). Similarly, in Germany, all renewable energy generators are guaranteed to have priority access to the grid. Electric utilities are mandated to purchase 100% of a grid -connected PV system’s output, regardless of whether the system is customer-sited or not.

Avishek Singh

PGDM Finance

2011-13

10 Government regulations mandating installation of solar thermal systems is the main policy driver for the development of solar thermal applications in many countries (e.g., Spain, Israel). Israel has had a solar water heating obligation for new construction in place since the 1980s. In China, the Renewable Energy Law requires the government to formulate policies that guide the integration of solar water heaters (SWH) and buildings; real estate developers to provide provisions for solar energy utilization; and residents in existing buildings to install qualified solar energy systems if it does not affect building quality and safety (GOC, 2005). In regions with high solar radiation, hot water intensive public buildings (such as schools and hospitals) and commercial buildings (such as hotels and restaurants) will be gradually mandated for SWH installation. New buildings will need to reserve space for future SWH installation and piping (NDRC, 2008). At provincial and local levels, the governments have issued various policies for SWH promotion; for instance, Jiangsu, Gansu and Shenzhen require buildings of less than 12 floors to be equipped with solar water heaters.

Policy Mix The policy landscape for solar energy is complex with a broad range of policy instruments driving market growth. The rapid market growth of solar energy in Germany and Spain could be attributed to the feed-in-tariff systems that guarantee attractive returns on investment along with the regulatory requirements mandating 100% grid access and power purchase. On the other hand, federal and state incentives, along with regulatory mechanisms such as RPS, get credit for the rapid deployment of solar energy in the United States. In both markets, the policy landscape is in a transitional phase. The rapid growth of the grid-connected PV and CSP market is largely attributed to a policy suite that guarantees attractive returns on investment, along with regulatory requirements such as grid connectivity and power purchase commitments required to motivate investments. While FITs played an instrumental role in Germany and Italy, a mix of policy portfolios that includes federal tax credits, subsidies and rebates, RPS, net metering and renewable energy certificates (REC ) facilitated solar energy market growth in the United States. The capital subsidy was the predominant policy instrument early on in India, but a mix of policy instruments, such as, subsidies, fiscal incentives, preferential tariffs, market mechanisms and legislation, were encouraged later for the deployment of solar energy. For instance, in 2004-05, the subsidy for the solar photovoltaic program varied between 50% and as high as 90% for the special category states and islands. Similarly, the subsidy for solar photovoltaic water pumping was Rs. 100/W and as much as Rs. 135/W in the special category states. The growing role of private finance has reduced the role of fiscal policy drivers in the overall financing mix for solar power, and capital subsidies have been ratcheted down substantially, except in exceptional cases such as „remote villages and hamlets‟. India now relies on a mix of mechanisms including various tax and generation-based incentives, renewable purchase obligations, capital subsidies and accelerated depreciation. Yet, the accumulation of incentive programs and the failure to coordinate them is thought to hinder the development of renewable energy resources in India as it results in unnecessary delays and conflicts.

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PGDM Finance

2011-13

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Germany: the World leader in Solar Energy Renewable energy technologies have deployed rapidly in Germany since 1990 largely as a result of energy policies adopted by the German government and the European Union. For example, installed wind capacity has grown by more than 2000% since 1990, biomass by more than 500%, and solar photovoltaic installations by more than 15,000%. While the 1990 baseline for each of these technology areas was very low, the steady rise of renewable energy in Germany is noteworthy nonetheless. Since 2007 the nation has accounted for 30 to 50 percent of the planet's annual solar PV capacity. Cumulative installed solar capacity is roughly 25 GW and the government is targeting 66 GW by 2030. Germany has relied on a combination of five primary policy instruments for the promotion of renewable energy: -

Direct investment in R&D Direct subsidies Government-sponsored loans Tax allowances Feed-in tariffs

Over the past two decades, Germany’s approach toward renewable energy has shifted from a focus on publicly-financed R&D toward policies promoting application and implementation of new technologies in the market place. The policy recipe behind this golden success is called a feed-in tariff and its basic premise is that anyone can become a renewable energy producer. Under a feed-in tariff, electric grid operators are required to buy all renewable electricity under a long-term contract, and to offer a price for the renewable electricity that provides a modest return on investment. The feed-in tariff is Germany’s complete energy policy recipe because it’s an incentive for generating renewable energy, but also has a democratizing effect – broadening the source and ownership of energy production.

China: Solar Energy Policies China has set ambitious targets for developing its non-hydropower renewable energy resources with a major push of laws, policies, and incentives in the last few years. Solar power is definitely an important CO2 mitigation option at the present and in the long-term. In 2005, the National People’s Congress has passed The Renewable Energy Law. The law was designed to “promote the development and utilization of renewable energy, improve the energy structure, diversify energy supplies, safeguard energy security, protect the environment, and realize the sustainable development of the economy and society.” Some of the salient features of policies in this regard are: 

All PV electric power should be purchased by Power Company, and which should provide enough grid-connect service

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2011-13

12   

The electrovalence is established more than conventional price in order to encourage the development of solar energy, the benefits of investor should be ensured The central government gives some allowances to the renewable resources industry The central government encourages the renewable resources DG (distributed generation) in order to improve the electric power serves of no electric power supply region, and the early investment and medium-term maintenance are afforded by central government

Policies for encouraging renewable energy in China are largely driven by the central government, and enacted through national and provincial and local government programs. China led the world in 2009 in renewable energy investment, spending $34.6 billion, with the United States second in clean energy spending, investing $18.6 billion. Financial support for renewable energy in China involves subsidies, tax policies, pricing mechanisms, and a reward scheme for green production. Subsidy support is extended to overhead costs of programs (i.e., administrative, operational, and other expenses for government renewable energy agencies), renewable energy technology research and development, and provincial or local electrification projects. Tax incentives can come from the central or local governments, and can be technology specific. Pricing for renewable energy is not standardized, and is set by contracts negotiated between projects and utilities.

India: Policies at the Central & State level

India’s Unique Proposition India is uniquely placed with several favourable factors that contribute towards a healthy ecosystem for the solar power industry. 

Economic Value: The generation of solar electricity coincides with the normal peak demand during daylight hours in most places, thus mitigating peak energy costs, brings total energy bills down, and obviates the need to build as much additional generation and transmission capacity as would be the case without PV.



Geographical Location: India being a tropical country receives adequate solar radiation for 300 days, amounting to 3,000 hours of sunshine equivalent to over 5,000 trillion kWh. Almost all the regions receive 4-7 kWh of solar radiation per sq metres with about 2,300– 3,200 sunshine hours/year, depending upon the location. Potential areas for setting up solar power plant can be analyzed using Solar irradiation map of India.



Power Shortage: Electricity losses in India during transmission and distribution have been extremely high over the years and this reached a worst proportion of about 24.7% during 2010-11. India is in a pressing need to tide over a peak power shortfall of 13% by reducing losses due to theft. Theft of electricity, common in most parts of urban India, amounts to 1.5% of India’s GDP. Due to shortage of electricity, power cuts are common throughout India and this has adversely affected the country’s economic growth.

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PGDM Finance

2011-13

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Current Status With about 300 clear, sunny days in a year, India's theoretical solar power reception, on only its land area, is about 5000 Petawatt-hours per year (PWh/yr) (i.e. 5000 trillion kWh/yr or about 600 TW). The daily average solar energy incident over India varies from 4 to 7 kWh/m2 with about 1500–2000 sunshine hours per year (depending upon location), which is far more than current total energy consumption. For example, assuming the efficiency of PV modules were as low as 10%, this would still be a thousand times greater than the domestic electricity demand projected for 2015. Solar Energy: Installed Capacity Source

Cumulative Capacity (numbers)

Rural / Semi Urban Biogas Plants 42,77,000 SPV Street Lighting System

1,21,634

SPV Home Lighting System

6,19,428

SPV Lanterns

8,13,380

SPV Pumps

7,495

Solar Cookers

6,64,000

Installed Capacity The amount of solar energy produced in India in 2007 was less than 1% of the total energy demand. The grid-interactive solar power as of December 2010 was merely 10 MW. Government-funded solar energy in India only accounted for approximately 6.4 MW-yr of power as of 2005. However, India is ranked number one in terms of solar energy production per watt installed, with an insolation of 1,700 to 1,900 kilowatt hours per kilowatt peak (kWh/KWp). 25.1 MW was added in 2010 and 468.3 MW in 2011. By May 2012 the installed grid connected photovoltaic’s had increased to over 979 MW, and India expects to install an additional 10,000 MW by 2017 and a total of 20,000 MW by 2022.

Avishek Singh

PGDM Finance

2011-13

14 Current Projects (includes both- installed and under installation projects) S.No

State

Photovoltaic Capacity (MW)

Solar Thermal Capacity (MW)

1.

Rajasthan

43

400

2.

Gujarat

722

45

3.

Maharashtra

133

-

4.

Karnataka

10

-

5.

Andhra Pradesh

20.5

-

6.

Uttarakhand

4

-

7.

Punjab

5

-

8.

Haryana

7.8

-

9.

Uttar Pradesh

11

-

10.

Jharkhand

16

-

11.

Chhattisgarh

4

-

12.

Madhya Pradesh

7.25

-

13.

Odisha

11

-

14.

Tamil Nadu

12

-

1006.55

445

TOTAL

Grid Connected Power India is endowed with vast solar energy potential. About 5,000 trillion kWh per year energy is incident over India’s land area with most parts receiving 4-7 kWh per sq. m per day. Hence both technology routes for conversion of solar radiation into heat and electricity, namely, solar thermal and solar photovoltaics, can effectively be harnessed providing huge scalability for solar in India. Solar also provides the ability to generate power on a distributed basis and enables rapid capacity addition with short lead times. Off-grid decentralized and low-temperature applications will be advantageous from a rural electrification perspective and meeting other energy needs for power and heating and cooling in both rural and urban areas. From an energy security perspective, solar is the most secure of all sources, since it is abundantly available. Theoretically, a small fraction of the total incident solar energy (if captured effectively) can meet the entire country’s power requirements. It is also clear that given the large proportion of poor and energy un-served population in the country, every effort needs to be made to exploit the relatively abundant sources of energy available to the

Avishek Singh

PGDM Finance

2011-13

15 country. While, today, domestic coal based power generation is the cheapest electricity source, future scenarios suggest that this could well change.

Off-Grid Power Solar energy technologies are ideally suited to distributed applications, and they have substantial potential to provide a reliable and secure energy supply as an alternative to grid extension or as a supplement to grid-provided power. Over 400 million people in India, including 47.5% of those living in India’s rural areas, still had no access to electricity. Because of the remoteness of much of India’s un-electrified population, solar energy can offer an economically viable means of providing connections to these groups. Some of the solar energy technologies that are used in villages and rural areas as decentralized systems are: -

Solar street lighting system Solar lanterns and solar home lighting system Solar water heating systems Solar cookers Stand-alone solar power generators Akshay Urja/Aditya Solar Shops

Solar water heating systems have helped in demand side management of electricity in various cities and towns during peak hours. Standalone roof top SPV systems are getting popular for day time diesel abatement in areas where power cuts are very high.

Solar Power in Gujarat Gujarat has been a leader in solar power generation and contributes 2/3rd of the 900 MW of photovoltaics in the country. The State has commissioned Asia’s biggest solar park at Charanka village. The park is already generating 214 MW solar power out of its total planned capacity of 500 MW. The park has been functioning on a multi-developers and multi-beneficiaries paradigm and has been awarded for being the most innovative and environment-friendly project by the CII. With a view to make Gandhinagar a solar city, the State government has launched a roof-top solar power generation scheme. Under this scheme, the State plans to generate five megawatt of solar power by putting solar panels on about 50 state government buildings and on 500 private buildings. The State has also a plan to emulate this project in Rajkot, Surat, Bhavnagar and Vadodara in 201213. The State plans to generate solar power by putting solar panels on the Narmada canal branches. As a part of this scheme, the State has already commissioned a one megawatt solar plant on a branch of the Narmada Canal near Chandrasan area of Anand taluka. This also helps by stopping 90,000 liter water/year of the Narmada River from evaporating.

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PGDM Finance

2011-13

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Solar power in Rajasthan Next to Gujarat, Rajasthan is India's sunniest state, and many solar projects have been proposed. The 40 MW photovoltaic Dhirubhai Ambani Solar Park was completed in April 2012. A 250 MW compact linear fresnel reflector (CLFR) plant is under construction, consisting of two 125 MW sections.

Solar power in Maharashtra The Shri Sai Baba Sansthan Trust has world's largest solar steam system. It was constructed at the Shirdi shrine at an estimated cost of Rs.1.33 crore, Rs.58.4 lakh of which was paid as a subsidy by the renewable energy ministry. The system is used to cook 50,000 meals per day for pilgrims visiting the shrine, resulting in annual savings of 100,000 kg of cooking gas and has been designed to generate steam for cooking even in the absence of electricity to run the feed water pump for circulating water in the system. The project to install and commission the system was completed in seven months and the system has a design life of 25 years.

Jawaharlal Nehru National Solar Mission The objective of the National Solar Mission is to establish India as a global leader in solar energy, by creating the policy conditions for its diffusion across the country as quickly as possible. The immediate aim of the Mission is to focus on setting up an enabling environment for solar technology penetration in the country both at a centralized and decentralized level. The first phase (up to 2013) will focus on capturing of the low hanging options in solar thermal; on promoting off-grid systems to serve populations without access to commercial energy and modest capacity addition in grid-based systems. In the second phase, after taking into account the experience of the initial years, capacity will be aggressively ramped up to create conditions for up scaled and competitive solar energy penetration in the country.

Timeline The Mission will adopt a 3-phase approach: 1. Phase 1: Spanning the remaining period of the 11th Plan and first year of the 12th Plan (up to 2012-13) 2. Phase 2: The remaining 4 years of the 12th Plan (2013–17) 3. Phase 3: The 13th Plan (2017–22) At the end of each plan, and mid-term during the 12th and 13th Plans, there will be an evaluation of progress, review of capacity and targets for subsequent phases, based on emerging cost and technology trends, both domestic and global. The aim would be to protect Government from subsidy exposure in case expected cost reduction does not materialize or is more rapid than expected.

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PGDM Finance

2011-13

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Solar project developers (SPDs) can enter into a power purchase agreement (PPA) with the National Thermal Power Corporation’s (NTPC’s) subsidiary NTPC Vidyut Vyapar Nigam (NVVN), which has been designated as the nodal agency. These PPAs will follow CERC-determined tariffs for a period of twenty-five years. The Ministry of Power shall allocate equivalent megawatt capacity (not exceeding 1,000 MW for Phase 1, including capacity under migration guidelines) from the unallocated quota of the central stations at a rate determined by the CERC. The power from the SPDs will be bundled with this and sold to the distribution companies (DISCOMs at CERC-determined tariffs. This is referred to as the Bundling Scheme in these guidelines. In essence, this is analogous to a cross-subsidy mechanism. This mechanism will hold for all solar plants set up before March 2013 and connected to 33 KV and over. The tariff determination criteria for PPA are:     

Return on equity Interest on loan capital Depreciation Interest on working capital Operational & maintenance expenses

Tariff will be 25 year period. The Central government’s approach to renewable energy is quite clear as it targets for at least 10% of grid-connected power to come from renewable sources by 2012; which indicates an increasing push for clean energy. In addition to the Electricity Act, 2003 and policies outlined above, the central government has provided several specific renewable energy incentives. These are predominantly fiscal incentives, including direct and indirect tax benefits, renewable energy financing and

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PGDM Finance

2011-13

19 guidelines for solar feed-in tariffs. For the purpose of all these fiscal incentives as well as the monitoring of projects, the ministry of new and renewable energy along with IREDA remains the nodal agency.

Important incentives by Central Government for promotion of renewable energy Direct Tax Benefits  

Accelerated depreciation Tax Holiday: 10 year tax holiday

Indirect Tax benefits  

Specified renewable energy devices (including Solar Energy) and equipment can obtain excise duty exemptions or concessions. Equipment for solar photovoltaic and solar thermal and power generation plant and machinery enjoy a reduction in customs duty

Foreign Direct Investment    

Foreign investors can enter into a JV with an Indian partner for financial and/or technical collaboration Proposals for up to 100 per cent foreign equity participation in a JV qualify for an automatic route Government encourages foreign investors to set up projects on Build, Own and Operate (BOO) basis

Apart from these in direct benefits and incentives include:    

Industrial clearances are not required for setting-up a renewable energy industry No clearance is required from central electricity authority (CEA)for generation projects up to Rs 1 billion. Soft loans are available through IREDA for renewable energy equipment manufacturing The project can also enjoy various incentives under Semi-conductor Policy 2007, as silicon used in STP & SPV power plants is a semiconductor.

Feed-In tariff The GBI guidelines have provisions requiring IREDA to pay eligible solar photovoltaic power (SPV) generators a maximum of Rs. 12 per kWh providing they were commissioned prior to 31 December 2009. Photovoltaic projects commissioned after this date will receive a maximum of Rs. 11.40 per kWh. Solar thermal projects (STP) will receive a feed-in tariff of Rs. 10 per kWh. This incentive amount would be in addition to the power purchase rate negotiated with the purchaser of the power. The total amount paid to the generator (power tariff plus incentive payment) would be no more than Rs. 15 per kWh for solar photovoltaic plants (SPV) or Rs. 13 per kWh for solar thermal plants (STP). This GBI scheme will be available to all qualified developer for a maximum period of 10 years from the date of approval provided that the utility continues to purchase power from that grid interactive solar power project. GBI schemes for SPV & STP power generation is a welcome step

Avishek Singh

PGDM Finance

2011-13

20 towards creating a competitive regime among member states and indicates some progress toward harnessing solar power. Nevertheless, the scheme is available to only a total capacity of 50 MW and that also to a max of 10 MW in one state. Due to technological deficiency, the cost associated with such power makes it uneconomical; hence such scheme only serves the superficial purpose.

Renewable Energy Certificates Renewable energy certificates (RECs) and Renewable Energy Purchase Obligation (RPOs) are two policy measures instituted to accelerate the adoption of solar power. Rationale for RECs: The State Electricity Regulatory Commissions (SERCs) are mandated to set the RPOs for each state. However, due to the heterogeneity in the availability of renewable energy sources across states, the minimum percentage varies significantly. In the absence of an REC, there is no incentive for utilities to purchase RE power beyond the stipulated RPO. Policy Framework  

The National Tariff Policy 2006 requires SERCs to allocate a minimum percentage of the power purchased by distribution utilities to be sourced from renewables CERC regulation on RECs, January 2010, provides a framework to institutionalize RECs

Principle of RECs Renewable Energy power has two components: plain electricity and the ‘green’ nature of the generation. RECs separate the green aspect of it (1 REC is equivalent to 1 MWh). A Renewable Energy power generator can choose to sell the power to the local utility at normal tariff and sell the REC separately. RECs can be used by other state utilities toward their RPOs

State Policies Electricity is a subject matter of concurrent list, both state and centre has legislative and regulatory power. Many states had formulated respective policies to attract investment and promote generation of renewable energy. In general the leading & favorable states for generation of renewable energy are Karnataka, Tamilnadu, Maharashtra, Gujarat, Haryana, Punjab, West Bengal and Rajasthan. As different states in India have different levels of development & market friendliness and as the scenario keeps changing constantly, it becomes very important to choose a right state for solar power generation. The study of policies of five different states undertaken here are nevertheless champions in generation of renewable energy in last 10 years. Gujarat is the leading state which had prepared an exclusive policy for generation of solar power. It is also expected that in the near future many states will follow:

Gujarat The state is endowed with a high solar radiation levels i.e. approx. 5.6 kWh/m2/day with 300 days of clear sun in a year with conducive arid condition and minimal sun tracking, especially in the barren wasteland areas. The renewable energy policy introduced in this state is the first of its kind, created exclusively for harnessing solar energy. Salient features of Gujarat’s Solar Power Policy 2009 are:

Avishek Singh

PGDM Finance

2011-13

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To mitigate the adverse impact of climate change; it restricts use of any form of fossil fuel in Solar Power Projects. Exemption from payment of electricity duty Exemption from demand cut Imposes penalty for non-fulfilling power purchase obligation on distribution licensee

Karnataka Karnataka is a model state in the field of harnessing renewable energy in India. It is leading in the area of green energy as till March 2009; total installed capacity from renewable sources has reached up to 2400 MW. The reason behind Karnataka being a hot spot for renewable energy investor is its initiative towards formulating & concretizing comprehensive legal, financial and administrative framework for this sector. Karnataka has formulated a new renewable energy policy-2009 which will remain in force till 2014 or until superseded or modified. The new policy vision is to harness green and clean renewable energy sources in the state for environment benefits and energy security. Karnataka receives relatively a high solar radiation levels i.e. approx. 5.5 kWh/m2/day with more than 300 days; which make it an attractive destination for development of solar energy. Salient features of Karnataka renewable energy policy 2009 are:  

  

Creation of special fund for renewable energy by levying special cess on consumers Land inventory of surplus and unused land will be undertaken district wise and will be provided for renewable energy projects in and accordance to section 71 of the Land Revenue Act to KREDL Various statutory clearances within 90 days and 120 days in case of forest land State govt. to procure 20% of the total renewable energy in the state subject to KERC guidelines Exemptions from Entry Tax and VAT

Besides all these provisions, the Solar Karnataka program which focuses on rural solar energy program sets out diff. approaches and policies based on stand-alone system:   

A target of setting up 25000 solar roof tops of 5 to 10 KW with net metering Use of rural solar technologies like Solar PV/ Solar wind hybrid system based on stand -alone systems Mandatory use of solar water heating systems – Local body by-laws to be amended

Rajasthan Rajasthan is one of the first states to kick-start the solar based power projects. Recognizing the potential of solar energy, government of Rajasthan had promoted setting up of the Mathania Integrated solar combined cycle power project in the early Nineties. However, the said project did not materialize due to various factors. Nevertheless, the recent shift in policy and regulatory framework in the power sector has brought the development of renewable energy agenda to the forefront. Salient features of the State’s 2004 policy:

Avishek Singh

PGDM Finance

2011-13

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   

Renewable purchase obligation- for the state of Rajasthan has been kept at 12% maximum & 9.5 % as minimum of total energy consumption by Discoms from non- conventional energy sources by 2011-12 as per Rajasthan Electricity Regulatory Commission (RERC’s) order dated 29th Sept. 2006 No grid connectivity charges shall be paid by solar power plants up to total installed capacity of 50 MW in the state Exemption from electricity duty at the rate of50% for a period of 7 years from commercial operation date for its captive use or for sale to a third party Mechanism of single window clearance on proposals received for developing the power plants based on renewable energy sources Allotment of govt. land on concessional rates viz., 10% of DLC rates

Haryana Haryana is one of the states which has the potential of becoming the next renewable energy power house (especially in case of solar energy). It receives an average of approx. 5.8 kWh/m2/day solar radiation with more than 320 clear sunny days in a year. The state has formulated a policy for promoting generation of electricity through renewable energy sources -2005. Salient features of the State’s 2005 policy are: 

  

The nodal agency i.e. Haryana renewable energy development agency (HREDA) shall function as a single window clearing agency for facilitating renewable energy projects in the state Grid interfacing will be undertaken by the power producer as per specification and requirements of the utilities at its own cost Renewable Purchase Obligation– 10% of the total consumption of energy Exemptions from electricity duty and local development tax

Punjab Punjab one of the more highly developed and prosperous state of India is also a leader in harnessing renewable energy from various sources. Recently, it has given a major thrust to the power generation from solar energy. Punjab had formulated a New and Renewable source of energy policy -2006 (hereinafter; NRSE) to develop and promote renewable energy technologies. Salient features of the State’s 2006 policy are:    

Govt. land will be provided on nominal lease rent of Rs. 1/m2 for a period of 33 years VAT levied at the rate of 4% Single window clearance for all NRSE projects within a period of 60 days Exemptions on Octroi and Electricity duty

In comparison to other states, Punjab receives a relatively lower amount of solar radiation. But what makes it an attractive destination to all the developers is the sound existing policy with regard to land allotment, project clearance and fiscal incentive provided to them.

Avishek Singh

PGDM Finance

2011-13

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Challenges and Opportunities Land is a scarce resource in India and per capita land availability is low. Dedication of land area for exclusive installation of solar arrays might have to compete with other necessities that require land. The amount of land required for utility-scale solar power plants—currently approximately 1 km2 for every 20–60 megawatts (MW) generated—could pose a strain on India's available land resource. The architecture more suitable for most of India would be a highly distributed set of individual rooftop power generation systems, all connected via a local grid. However, erecting such an infrastructure, which does not enjoy the economies of scale possible in mass, utility-scale, solar panel deployment, needs the market price of solar technology deployment to substantially decline, so that it attracts the individual and average family size household consumer. That might be possible in the future, because PV is projected to continue its current cost reductions for the next decades and be able to compete with fossil fuel. India should adopt a policy of developing solar power as a dominant component of the renewable energy mix, since being a densely populated region in the sunny tropical belt; the subcontinent has the ideal combination of both high solar insolation and therefore a big potential consumer base density. In one of the analyzed scenarios, India can make renewable resources such as solar the backbone of its economy by 2050, reining in its long-term carbon emissions without compromising its economic growth potential.

Comparative analysis of the policies adopted Countries Germany, Spain

USA

India

Earlier Policy Mix Feed-in Tariff(FIT) and Regulatory requirement mandating 100% grid access and power purchase Renewable energy portfolio , Net metering, Tax Credit grants Capital subsidy

New Policy Direction FIT level being reduced

Upfront incentives being shifted towards performance based incentives Mix of various tax and generation based incentives, renewable purchase obligations, capital subsidies and accelerated depreciation

The table above summarizes the policies predominantly followed in the respective countries. India initially adopted a policy of direct subsidy. This method is ineffective in the sense it places the entire burden of development on the already thin resources of the government. On the other hand, a market-based policy, especially of Germany, Spain and Italy has led to a revolution in solar energy sector in those countries. Recently, Germany created a world record by producing 22GW of solar energy. Prime reason for this magnificent success has been the policy of feed-in tariff that has encouraged rapid scaling up of solar power utilities in Germany. This, coupled with the everincreasing fossil fuel costs, has encouraged many commercial ventures into this field. US has relied more on the policy of Renewable Portfolio System to change its energy mix. Several states like Avishek Singh

PGDM Finance

2011-13

24 Florida have led from the front in enacting policy measures granting tax concessions for solar power utilities. However, the policy mix of RPS and tax grants have not led to significant alterations in the energy mix. This has recently led to the adoption of highly successful European model of feed-in tariffs. India, post the implementation of JNNSM, has changed its policy by creating more market based policies. Thus, there has been a mix of capital subsidies, feed-in tariffs, and tax exemptions. Several states like Gujarat have led from the front in initiating their own model of solar energy policies with varying degree of success.

Conclusion Solar energy technology is a rapidly evolving technology. Costs are coming down rapidly because of technological advancements, learning effect and economies of scale. Still, the predominant push for adoption of solar power has come from fiscal policy measures and not commercial reasons. Several countries are still trying to figure out the best policy mix for developing this sector. India has set ambitious targets for the development of solar energy sector and has implemented various policy measures in this regard. A lot has been adopted from the success of German policies. In spite of the challenges, the inevitable spike in fossil fuel prices will lead to the eventual adoption of solar energy worldwide.

Avishek Singh

PGDM Finance

2011-13