Notes on a framework for a National Solar Mission by Sunita Narain, Centre for Science and Environment, May 2009.
1. Objective: The objective of the mission has to be to bring about cost reduction to achieve grid parity in solar technologies. This, in fact, is a global mission as the cost of solar is the single biggest obstacle to its large-scale deployment. Yet, it is also well know that the penetration of solar technology cannot happen without a steep learning curve – in which large amounts of solar technology is deployed at higher costs and little experience, so that it can create conditions for diminishing costs with increased experience. We should make it clear that this is the objective of our mission. But that it will come at a high cost – both financial costs and costs of technology innovation. However, the Indian Solar Mission is being created to build the conditions for this massive deployment and learning so that the entire world can benefit.
2. Target: The mission should make it clear that it is for this reason that we have set our sights high, in terms of generation capacity. We have ambitious targets – perhaps the most ambitious in the world – to realize this global objective. The solar generation capacity targets should be maintained – 20,000 mw by 2020; 100,000 mw by 2030; 200,000 mw by 2050.
3. Funding: However, the mission paper, must be much more explicit in building a viable framework for funding of solar energy.
a. We cannot assume that the cost of solar energy will decrease so sharply as given in figure 1 of the paper. This assumes that the cost of generation from solar technologies will reduce by roughly 9 per cent every year – going from Rs 16.50/kwhr to Rs 2.5/kwhr in 20 years. The Mission document projects that the likely parity of solar power tariff with grid tariff will be achieved during 2017-2020. This is a definitely a desirable scenario, but it is also an unlikely scenario, as of now. The source and assumptions made in this scenario are not clear and need to be checked. I have seen a reference to a similar figure in the McKinsey Report on India, but even that report does not explain how it can assume an average tariff of Rs 5-6 kwhr for our solar programme.
b. I would suggest that the Indian solar mission should elaborate that we are working towards this scenario of rapid learning and cost reductions, but that we cannot base our programme and its economics on this assumption. There is no guarantee that this cost reduction will happen. In fact, we will be taking a huge risk, if we use this technology-learning scenario to estimate our financials for the future.
c. We also need to check our financial estimates (see Annex III of the paper). This table spells out the financial requirement over the next 31 years. According to it the total incentive for 18,000 mw (check why 18,000 mw and not 20,000 mw) by 2020 (11 years) will be Rs 82,000 crore. We know that the global best plant load factor is 25 per cent (in fact it would be prudent to plan for 20%) of installed capacity. If the proposed subsidy of Rs 82,000 crore is computed against this generation target then it comes to an average subsidy of Rs 1-1.50/kwhr, which looks unlikely and completely unrealistic. In this way we will end up grossly underestimating our costs. Worse, the budget assigned for the mission will get expended without meeting its objectives. Clearly, we must rework our costs to reflect the true costs of the solar transition.
d. The Mission document (first draft) had cited that the current price for solar power is between Rs 17-19 kwhr. This is comparable to the costs across the world: France, which has recently revised its feed-in tariff pays 42 c/kwhr (roughly Rs 20/kwhr); Greece 50-75 c/kwhr (Rs 25-35/kwhr). If we take the generation cost at Rs 17-19 kwhr and the amount that the power utilities can pay – Rs 3.50/kwhr, then the costs, which will have to be paid by the Centre/state to subsidy solar energy will be Rs 14-15.50/kwhr. We will have to estimate our subsidy bill based on this tariff support. The objective to bring down cost through deployment will require high costs at the initial stage.
e. The question then is can we afford this bill? If not, what are the options to reach the stated objective of meeting the solar energy generation capacity with our financial resources and capabilities?
f. The affordability of power is critical and must be discussed in the Mission document. It is also important to explain that already the cost of energy/power in India is high (perhaps the highest in the world), which makes the cost of economic growth also high. In this situation, clearly, our capacity to use expensive power will be limited.
4. Funding framework: The mission must set out the framework for financing this transition. The financial burden cannot be under-estimated as it is clear that no country in the world has reached these targets, because of costs. The ‘pain’ of the transition must be clearly spelled out, with our determination to achieve it. The following options can be discussed/explored:
a. Indian government sets up the policy-enabling framework, to support manufacture of technology (as already detailed in national mission document).
b. Indian government will set a target for solar hot water heaters and will make the necessary policy changes to meet this target, including making the introduction mandatory and enabling certification and measurement; The Solar Mission sets a target of 20 million sq meters (China target for 2020 is 50 million sq meters). The capital cost of this deployment will be paid by millions of households in the country and will spur huge investment and innovation in this segment.
c. Indian government will fully finance the decentralized off-grid applications for rural areas. This is a leapfrog solution as these areas as not connected to the grid and people are energy deprived, which is not acceptable. This is also area where the market will not work, as people cannot pay the capital costs. The Solar Mission sets a target of 3000 mw by 2020. This domestic financial spend will create conditions for deployment of commercial systems as well.
d. Indian government will create the enabling framework – preferential feed-in tariff and net-metering for roof-top PV (captive and grid connected) systems. However, it will only initiate and fund an inception programme for roof-top PV – 500 mw out of the target of 3000 mw by 2020. The domestic target should spur investment in this area and global financing.
e. Indian government will also create the enabling framework – preferential feed-in tariffs, renewable energy portfolio and measurement tools – for utility solar power – PV and CSP. It will initiate and fund an inception programme in this sector – 5000 mw out of the targeted 12000 mw. It will also fast-track this programme so that deployment experiences can be gained quickly. The 5000 mw at current costs will be substantial investments for the government however this is being done with the aim to spur innovation and global investment.
Targets/domestic commitments and financial requirements to meet 20,000 mw target by 2020
5. Enabling management and regulatory framework: The Indian regulations provide for a renewable energy feed-in law, under which utilities are required to purchase a certain proportion of their energy needs from renewable sources. Currently, each state determines the renewable purchase obligation (RPO), which gives renewable producers preferential rates. The national guideline provides for 5 per cent of total demand of the state should be renewable. We should use the RPO framework to manage the introduction of solar energy. This will require mandating the RPO at the national level and perhaps even increasing it to 10 per cent by 2020; allowing for inter-state sale of renewable quotas; payment of Central/state preferential feed-in tariffs for early starters. We should also consider how we can incentivise early projects and also provide for declining subsidies over the 20-year period to improve efficiency.
6. Research framework: The Solar Mission document needs to expand its section on research and technology deployment. Currently, research on solar energy is disaggregated and ill-funded. We need a high-profile coordinated programme, with much higher levels of funding. The programme must come up with clear road map and funding directions of research and report publicly on its outcomes. For instance, the Pan-IIT mission to bring down costs of delivered solar power to Rs 9/kwhr should be supported and monitored.
7. Institutional framework: Creation of an autonomous Solar Energy Authority of India needs to be carefully planned so that it can ensure delivery. In the current proposal, the authority will manage the solar fund from the solar energy cess. However, if such a cess is not put in place, how will the authority manage and coordinate with the RPO framework? We must make the Authority accountable and give it a tough delivery schedule or it must be wound up.