India National Solar Mission … Democracy at Work!
The Government of India had announced the launch of Jawaharlal Nehru National Solar Mission and the first phase of the mission is under implementation. One of the key targets in the first phase is to have 1,000MW of grid connected photovoltaics (PV) by 2013.
The government has come up with an innovative scheme of combining the solar power with unallocated power (of approximately 4000MW) and trading the power at a market-based tariff. Since the unallocated power cost is less and the solar tariff is projected to be anywhere from Rs15 to Rs18 high, the average cost to the end user is still within the market-based tariff. The government is in the process of formulating guidelines for the farms and the current proposal is targeting 500MW of solar PV and 500MW of solar thermal. The rules as stated also appear to allow for substituting one technology with the other in the event that implementation is not taken up in either.
One of the challenges the government is grappling with is the issue of local content for the solar modules with representations from several groups –
- Developers/global manufacturers with no manufacturing in India advocating for open sourcing - procuring modules from anywhere globally
- Module manufacturers who would like to procure cells globally but prefer requirement of modules made in India
- Cell/module manufacturers who would like the requirement of both cells and modules made in India.
While the government is keen on encouraging manufacturing locally and building an entire local ecosystem, it also wants to see this local ecosystem globally competitive. Given there are no barriers to setting up local manufacturing except time, the government seems inclined to give some time to allow for global companies to set up manufacturing locally in India and have broader competition in the market place. This would be the best approach to develop a local ecosystem as well as achieve global cost benchmarks.
Another issue is the tariff itself. With application orders of a magnitude higher than the planned allocation of 1000MW, the government is trying to develop a system of reverse auction that would reduce the tariff on a market basis. One concern with the reverse auction system is the issue of quality of the modules and possibility of a developer procuring low quality modules priced to an extent that the risk lies primarily with the banks funding the project, and equity risk is nil, and he/she aggressively bids in the reverse auction. No clear guidelines have been articulated to address this particular concern.
One of the limitations of the Solar Mission is the pre-allocation requirement and inability of any firm to be able to do projects in the 100 MW scale and expect to receive the FiTs, as in Europe where there is no cap. Due to the existence of the cap, the scale of the projects is diluted to 25MW or less given the number of bidders interested in the Solar Farm initiative and is to some extent counter productive.
While funding limits the extent to which government can absorb higher capacity, one proposal currently under active consideration deserves expediting to grow the market more quickly. This relates to the Renewable Energy Standards, which require power companies to procure a certain percentage of power from renewable sources. There is active effort and a proposal also includes a carve-out for individual streams of renewables with a target for PV to be 0.25% of the power generated. Ideally, this should be a mandate for the generation companies with the capital and the ability to pay, and should be enforced strictly. This would enable growth in the PV sector and would address some of the scale limitations with the Solar Mission policy.
Applied Materials has been active in promoting the adoption of solar and is an active participant in many of the forums organized by the government. In fact, during his recent visit to India, Mike Splinter, our Chairman and CEO, met with Dr. Farooq Abdullah, Minister for New and Renewable Energy, Mr. Sushil Kumar Shinde, Minister for Power, and Montek Singh Ahluwalia, Deputy Chairman of the Planning Commission. Mike emphasized the need to promote PV, develop local ecosystems and jobs from the Solar Mission initiatives, as well as the need for access to lower-cost financing to support both manufacturers and developers. The message from the Ministers was one of strong commitment to developing the PV industry in India and ensuring a complete supply chain with local innovation and research and development.
While the final policy is awaited, I certainly hope the national interests are considered and the strength of the varying lobbies does not dictate the outcome. We have a democratic system like the United States … and what shapes the final guidelines for phase 1 of Solar Farms remains uncertain.