Putting the “Green” in Green Energy: Indian Government Approves Fund in Support of Ambitious Solar Electricity Targets

solar power plant

A utility-scale solar plant, similar to those India will install to meet its Solar Mission targets

Earlier this month, the Indian Union Cabinet chaired by Prime Minister Manmohan Singh approved a fund of 4.86 billion rupees (roughly $108 million) for the Ministry of New and Renewable Energy (MNRE) in support of India’s National Solar Mission. This financial commitment is the latest step in support of India’s ambitious efforts to dramatically ramp up domestic solar electricity capacity.

MNRE announced the National Solar Mission in 2009 as one of eight missions under India’s 2008 National Action Plan on Climate Change (NAPCC). The Solar Mission sets an overall goal of reaching 20,000 megawatts (MW) of grid-connected solar capacity by 2022 (enough to power 20 million Indian homes), with interim targets of 1,000 MW by 2013 and an additional 3,000 MW by 2017. One of MNRE’s aims in establishing the shorter-term targets is to achieve economy-of-scale cost reductions consistent with the dramatic increase in solar installations, so that solar generation will be competitive with overall grid prices in India by the 2022 target date.

The Solar Mission targets are widely recognized as a bold policy-driven acceleration of renewable deployment, especially considering India’s limited existing solar capacity. In 2009, India had 6 MW of grid-connected solar capacity, only 0.004 percent of its 150 gigawatt (GW) total capacity. For comparison, Germany is the world’s leader in installed solar capacity, reaching a total of 17,000 MW at the end of last year. Other countries continue to lag in solar installations. For example 2009 U.S. solar thermal and photovoltaic (PV) capacity was 603 MW, just 0.06 percent of its more than 1,000 GW total capacity.

Under the Solar Mission, India’s largest utility, NTPC, will buy electricity from solar project developers and sell it to utility companies. The money from the new fund will go toward setting up a Solar Payment Security Account that would be available to MNRE in case state-run utilities default on payments to NTPC. The fund provides NTPC and power developers with a secure investment climate by protecting them against financial risk associated with investing in solar energy.

India’s Central Regulatory Electricity Commission has already established other measures in support of Solar Mission Goals. These include feed-in tariffs for solar power that start at 40 cents per kilowatt-hour (kWh) for grid-connected PV electricity, and 29 cents per kWh for concentrated solar power (CSP). The preferential tariffs will remain in place for 25 years and decline over time. The Electricity Commission also set a renewable purchasing obligation (RPO) which mandates utilities to purchase 0.25 percent of electricity from solar in the first phase of the Mission through 2013, increasing to 3 percent by 2022. Utilities would be required to buy solar electricity at feed-in tariff rates from NTPC to meet the RPO, but solar sales would be bundled with thermal electricity generation to bring the average price below 10 cents per kWh. This compares to a cost of about 5.7 cents per kWh for Indian coal generation.

In addition to the support measures described above, in March of this year the Government of India began considering an import ban on equipment for Solar Mission projects. The proposed import ban comes in response to a relatively weak showing by Indian solar equipment producers in the first round of bidding under the Solar Mission. Domestic Indian solar equipment producers won 704 MW worth of projects, just 30 percent of total approved capacity. The remaining 70 percent of project capacity from the first round is based on imported equipment, mostly from Chinese firms.

Critics question whether India will be able to meet its ambitious solar capacity goals with only domestic equipment production. In addition, an official from the Office of the U.S. Trade Representative claimed that import restrictions will discourage investors from developing solar projects in India. On the other side of the debate, supporters of the import ban say that it would keep the benefits of India’s Solar Mission within the country by building a strong renewable energy manufacturing base and creating domestic jobs.

India’s progress in implementing its Solar Mission displays a strong commitment to investing in a clean energy future. This dedication is even more impressive in the face of the country’s need to extend access to electricity services to the hundreds of millions of rural inhabitants who currently lack it, and to address persistent poverty alleviation challenges. India can serve as an example to other developing nations looking to move down a low-carbon development path, but also to countries like the U.S. which could expand manufacturing and create lasting jobs by implementing their own robust renewable energy policies.

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