India’s Prime Minister, Narendra Modi, made headlines last fall by announcing his ambition to install 100 gigawatts of solar power capacity—over 30 times more than India has now—by 2022. Skeptics noted Modi’s lack of a detailed plan and budget, but some well-capitalized industrial players have apparently caught Modi’s solar fever: at a renewable energy summit called by Modi last month he collected pledges for 166 gigawatts of solar projects.
At the New Delhi summit, renewables giants such as First Solar and SunEdison mixed for the first time with chief ministers from Indian states and top executives of Indian industrial conglomerates such as Adani Enterprises and the National Thermal Power Corporation, India’s largest power generator.
Tobias Engelmeier, founder of Bridge to India, a solar-market consultancy, says Modi’s ambition has “changed the conversation” about India’s solar potential. But what happens next, says Engelmeier, will depend only in part on what renewable energy strategy Modi can devise from within the central government. The ultimate driver could be India’s unmet demand for electricity. A quarter of India’s population is not connected to the power grid, and electricity supply is chronically short for those who are.
Modi told the New Delhi summit that India had to “make a quantum leap in energy production,” and he said solar could deliver with its rapid construction rates and crashing prices—from 20 rupees (32 cents) per kilowatt-hour to less than seven rupees over the last three years. “The government seems to really subscribe to the possibility that solar and renewables can transform India,” says Pashupathy Gopalan, president for the Asia-Pacific region for SunEdison, based in Belmont, California.
Gopalan, whose firm has installed about 200 megawatts of solar projects in India over the past five years, came to Modi’s summit with signed agreements to build 10 gigawatts of solar and wind power in the states of Karnataka and Rajasthan by 2020. SunEdison also struck a joint venture with Adani Enterprises to explore building a $4 billion silicon solar plant in Gujarat; the companies say they could make a final decision and begin construction later this year.
First Solar, which until last year was only a supplier of solar panels to India, pledged to develop five gigawatts of solar projects there by 2020.
In some Indian states, renewable energy can compete with fossil fuels even without the benefit of any subsidies, at least for commercial and industrial consumers, who pay the highest rates in India. In Mahareshtra, Engelmeier says, industrial firms normally pay 10 rupees or more per kilowatt-hour for grid power, but solar developers there are selling their power at a profit for eight rupees per kilowatt-hour.
Engelmeier’s firm reported in November 2014 that even rooftop installations, which cost more to install, now match or beat the grid rates for commercial and industrial consumers in one out of four Indian states, with rates of about eight rupees per kilowatt-hour.
Between 2012 and 2014, solar capacity increased from 461 megawatts to over three gigawatts in India, and Engelmeier projects that developers will add up to two more gigawatts this year.
An increasing number of states, including Rajasthan, Gujarat, and Andhra Pradesh, are leasing public lands for solar parks. This eliminates the need for solar developers to work through India’s complex land registries to support their own solar farm.
Power grid access is opening up in several states that have exempted solar projects from so-called “wheeling” charges. This means solar developers can identify commercial and industrial buyers for their power and send the power over the transmission grid for free. According to Gopalan, this can reduce the cost of power by 10 to 25 percent.
Still, hitting Modi’s target of 100 gigawatts of solar by 2022 will require more fundamental reform of the power sector. Solar power’s exemption from wheeling, for example, is likely to prompt a backlash by utilities desperate to retain their highest-paying clients. “The utilities are pretty averse to losing their good customers. I’m not clear about the political economy of how this is going to play out over the long term,” says Gireesh Shrimali, an energy economist at the Middlebury Institute of International Studies in Monterey, California, who has advised the Indian government on renewable energy policies.
However, distributed solar installations could actually help the utilities by reducing demand from their least profitable customers: Indian farmers who get free electricity to power irrigation pumps. This free power accounts for 20 percent of India’s electricity consumption and accounts for roughly $10 billion of the losses on utilities’ books, Gopalan says.
Solar is well suited to pumping, which is not adversely affected by its intermittent output. “With solar pumping for irrigation,” says Gopalan, “the electricity sector is going to get a big boost on its balance sheet.”
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