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Solar parks: Fulcrum to upscale grid connected solar capacity in India, Amit Kumar, Associate Director-GRID, Energy & Utilities, PricewaterhouseCoopers

An idea whose time, perhaps, has come. The development of solar power has gained prominence in the tropical country since the announcement of the National Action Plan on Climate Change (NAPCC) and subsequently, the Jawaharlal Nehru National Solar Mission (JNNSM) in 2008. Under the JNNSM, India has an ambitious plan to achieve 20 GW of grid-connected solar capacity by 2020, significantly higher than the minuscule 50-odd MW installed capacity prevailing now. But the journey to the accelerated up-scaling future would come with huge challenges in the realm of regulatory, financial and infrastructure.

To overcome the regulatory constraints, the government is currently formulating a stronger Renewable Purchase Obligation (RPO) regulation to ensure enforceability including possibility of introducing a National Solar RPO regulation instead of state level RPOs. Besides this, various states like Gujarat, Rajasthan and Karnataka have also announced state policies to incentivise solar power generation in their respective states.

NTPC Vidyut Vyapar Nigam Limited (NVVNL) has been appointed to ensure off take of the costly power from the solar projects under JNNSM. However, financial institutions are still sceptical about investing and perceive that solar projects have not been adequately tested in Indian conditions. Moreover, there is an urgent need to develop the necessary infrastructure required for operation and evacuation of power from the solar power projects.

Solar Advantage

Unlike small hydro, favourable sites for solar plants, based on the solar radiation data are typically found within close proximity to each other. This enables the creation of a special zone with GW sized solar capacities installed collectively by many independent solar power developers (SPDs). These special zones are known as solar parks. These parks would be developed by government agencies by initially acquiring land and obtaining necessary clearances. The agencies would then invite SPDs to set up their solar power plants in these areas.

The concept of solar parks has been gaining traction in India. The Ministry of New and Renewable Energy has also announced that 25 percent of the solar plants coming up in the next phase of JNNSM would be housed in solar parks. The parks are currently being planned in Gujarat (Charanaka), Rajasthan (Jodhpur and Jaisalmer) and Maharashtra. These zones could be instrumental in overcoming many of the infrastructural bottlenecks and financial challenges. It is pertinent to analyse how the solar parks could help overcome three major barriers - availability and cost of land, evacuation infrastructure and funding of solar projects.

Land Cost and Availability

The land cost around the transmission infrastructure and regions with high incident solar insolation has gone up considerably since the announcement of the JNNSM. This has even lead to CERC raising the land cost by 300 percent when determining the baseline capital cost. The SPD may face additional barriers in obtaining the necessary clearances and overcoming local opposition. The land with high solar insolation is available in remote and arid areas in India. The location increases the cost of power plant as additional infrastructure including access roads need to be constructed.

Likely scenario with Solar Parks

The government agencies would be responsible for acquiring the land required for the solar park. This could then be leased out to SPDs at a nominal cost over the life of the solar project, which could be 25 years. The government agencies would also obtain necessary clearance for solar plants in the park. Further, the cost of infrastructure required would reduce as it would be shared among the various SPDs.

Evacuation Infrastructure

With India's transmission infrastructure struggling to keep pace with the ever-increasing generation capacities, transmission would assume an important role in the roll out of JNNSM. In contrast to the state policies of Gujarat and Rajasthan, where the state transmission utilities (STU) are responsible for building the power evacuation infrastructure; under JNNSM, the SPD is responsible for the development of evacuation infrastructure up to the interconnection point.

Cheaper land is available further away from the transmission substations and thus involves substantial transmission infrastructure building costs. The ideal locations for solar plants, especially Solar PV, in India are arid areas, making it difficult for other conventional plants to be set up in the vicinity. A solar power plant generates power for around eight hours in a day (without storage), subsequently resulting in unutilised transmission line capacity for 67 percent of the time. Thus, considering solar plants would be generating for only 33 percent of the time, the payback period for solar transmission infrastructure would be thrice that of the conventional plant of similar capacity.

Since the time period for commissioning a solar project varies roughly from eight to 18 months, it would be difficult for the agencies to create the infrastructure required for such remote locations. Also, given that India's current transmission capacity is not sufficient to meet its generating capacity, more emphasis would be laid on creating transmission infrastructure, which provides the maximum benefit per rupee invested. The transmission infrastructure may also face other hurdles including forest clearance, Right of Way issues, river crossing, rail crossing, etc. Overcoming these would require co-ordination among various entities, which might further delay the creation of the necessary infrastructure.

The Likely scenario

The overall cost of the infrastructure would reduce as the solar parks would achieve economies of scale because the same network would be shared by multiple developers. The government agencies would obtain the necessary clearances beforehand for development of the evacuation infrastructure and transmission lines. In addition, they could also plan the commissioning of the transmission infrastructure to coincide with the commissioning of the first solar power plants in the park. The government agencies could also draw funds from the National Clean energy fund created by levying a clean energy cess on Indian as well as imported coal used in India at a nominal rate of Rs 0.50 per tonne to fund the evacuation infrastructure.

Besides, many multilateral and bilateral agencies might be interested in funding this infrastructure. Asian Development Bank, for example, is in talks with Gujarat government (GETCO) to fund the evacuation infrastructure for the Charanaka Solar Park.

Financial barriers

According to NVVNL, 29 of the 30 solar projects awarded under JNNSM Phase-I (Batch-I), have achieved financial closure. After having invested in the first batch of projects under JNNSM, many FIs are now sceptical about investing further in solar and have adopted a wait-and-watch policy. Besides, the present interest rates in India are very high, resulting in high working capital costs. This will reduce the profitability of solar projects.

Raising Capital

With a bit of imagination, the hurdles could be removed. The different SPDs in the solar park could form a Solar Park Finance Vehicle (SPFV). This SPFV can play a critical role in accessing the capital markets as they can reduce the overall risk profile of solar projects to an internationally acceptable level. The SPFVs would also bring the fund to a size, which is manageable and lucrative for both Indian and international banks.

The SPFV would have options to raise capital from many sources, which, otherwise, were not possible for individual plants. Ultimately, this would provide SPDs with access to cheaper finance to fund their projects.

The Catalysts

Solar Parks would bring in many responsibilities on the government agency setting up the solar park. It should make the life of SPDs easier.

Particulars Current Scenario Under Solar Park
Obtaining clearances SPD responsible Obtained by Park Developing Agency
Land Acquisition SPD responsible Acquired by Park Developing Agency
Clearance required for Evacuation Infrastructure SPD responsible Obtained by Park Developing Agency
Evacuation Infrastructure SPD responsible Constructed by Park Developing Agency
Evacuation Infrastructure cost SPD Park Developing Agency/ STU
Support Infrastructure cost SPD Park Developing Agency
Funding requirement SPD through conventional sources Capital markets and other sources available

Solar parks could help to overcome many of the obstacles faced by individual SPDs in India. The parks are likely to be the fulcrum for successful commissioning of 20 GW solar projects in the next decade.