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Sehgal in an interaction with InfralineEnergy's Sangeeta Tanwar shares his thoughts on a variety of issues ranging from the impact of the recent budget on solar power, hindrances that the solar sector faces in India to comparisons between solar in India and other global markets such as Europe, and Spain.
Renewable Energy Ministry has got a hike of 20 percent in the 2011 Budget amounting to Rs 1,212 crore. Is this enough to accelerate the pace of renewable energy in the country and specifically solar?
Any additional funding is always welcome. However, the Ministry of New and Renewable Energy (MNRE) is not only about solar. It is engaged in other renewable projects as well. Secondly, the way National Solar Mission programme is structured, it is being implemented through Ministry of Power, National Thermal Power Corporation (NTPC) or its subsidiary NVVN. There, the money comes from the state utilities, which will buy solar energy at blended rates through NVVN. Also, the state programmes in Gujarat and Rajasthan are going to be funded by the respective state governments. While one would always want more allocation, I don't think that's a major issue or big constraint, when it comes to developing solar in the country.
"Why off grid is so critical, because virtually half of our country has no access to grid. India's population is roughly 1.2 billion and nearly 500 million people have no access to grid at all. In such a scenario, the electricity produced, where it needs to be consumed becomes important."
One thing that MNRE might be looking forward to could be possibly deploying enhanced funds at its disposal for setting up large scale solar parks, where you acquire large tracts of land and develop the infrastructure and grid connectivity making it lot easier for power developers to develop these projects.
The other elements of the budget relate to reduction in import duty on solar components. It's a positive gesture, but a relatively smaller move compared to the overall CAPEX required in developing a solar project and getting it financed.
What is one big policy change that could have proved to be a big push for solar in the country?
In order to develop a solar project the developers need an attractive fixed tariff. The tariff that the government and Central Electricity Regulatory Commission (CERC) have developed is fair. The state governments' offers are decent and the CAPEX for developing a solar project is also more or less known since it's market driven. Now the biggest issue that developers face is getting debt financing for the project. The developers having committed their equity investment, which is about 30 per cent of the total project costs, have to still look for investment to the tune of
70 per cent, which has to be debt finance. But the Indian banks are not comfortable in loaning to solar projects.
In order to encourage the banks to invest in this sector, the government could have made solar a priority sector for lending. It would have meant that the banks were obligated to lend money to solar project developers at concessional rates of interest. This move would have helped the solar to grow in its initial stages of three to four years. This would not have made huge impact on financial aspect of the project, as we are talking of few 100 MW of power in next two to three years. However, the announcement would have influenced timely deliverables of these projects. Right now having success stories is important so as to inspire confidence among other people to go ahead and do larger scale of investment.
The Delhi government has come up with a Cabinet note for solar power units on rooftops of households in the Capital. How significant is this announcement going to be in promoting solar?
As a developer, the rooftop is not attractive for me. As a large scale business, I will be more interested in developing a 30-50 MW project as opposed to going after 5,000 different people and dealing with them for generating a few MWs of power. The current arrangement is more of a retail like situation, where you are attracting someone like myself, an individual, to buy solar equipment by providing concession. Measures such as these are small supplements compared to say extending major incentive of generating significant amount of solar energy through grid access in rural areas, where there is no electricity. Now doing this would amount to a quantum jump.
As far as rooftop solar is concerned, there is a technology issue as well. As long as you are consuming whatever you are generating it's fine. The problem arises if you have surplus energy and you wish to put it in grid. For doing this, there has to be bi-metering. But today the metering works only in one direction, where you use electricity and you are charged for it. However, what happens in western world is if you are putting electricity generated from your rooftop into grid, then it's measured and surplus energy is put into opposite direction to be utilised by other people.
How large is the scope of off-grid applications of solar power in India?
Why off grid is so critical, because virtually half of our country has no access to grid. India's population is roughly 1.2 billion and nearly 500 million people have no access to grid at all. In such a scenario, the electricity produced, where it needs to be consumed becomes important. For distributed power generation, our grid is also antiquated and inefficient as about 25 per cent of total power generated is lost in transmission and distribution.
"...Indian government has been justifiably more circumspect as compared to Spain when it comes to financing solar. For example, Spain went all out supporting solar by giving out pretty attractive tariffs, but when there was deluge of demand for putting up solar projects, the government was not able to honour those tariffs."
As per first phase of Jawaharlal Nehru National Solar Mission (JNNSM), about 1,000 MW of power is expected to come out from grid and 200 MW from off-grid. Now generating 200 MW of power is more important so that people can set up small scale distributed power plant on say rooftops generating as much as say 3 MW or 5 MW of power. It would serve the need of a small community or village.
What are the obstacles that need to be overcome to achieve grid-parity for solar power by 2022?
There are different views on the subject. If we are talking about grid parity in terms of what we are paying today, which is largely coal based generation then this grid parity will take long time to happen because solar is very expensive. If you take grid parity to mean what we pay during peak in summers, when there is substantial power shortage, then it can be achieved a lot sooner. Achieving grid parity also depends on your local cost of grid. For example, in case of Japan and California, where cost of electricity is fairly high because of high cost of the conventional energy there, the cost of solar has come down because of larger scale and innovation. So the grid parity in these places can be achieved a lot earlier, by 2016-2017.
In India, the power generation is largely coal based, which is cheapest form of electricity and it will be around much later say by 2020, when India will be able to reach grid parity. While talking about achieving grid parity, we need to factor in true cost of coal because as of now it's highly subsidised.
In fact, Indian government is trying to factor in this aspect by charging tax for coal extraction in the form of carbon tax since coal extraction has an environmental affect too. So, as the coal based energy generation goes up and solar power price goes down owing to scale and innovation, cheaper technologies in the country will move closer to achieving grid parity.
In order to achieve grid parity, the industry has to take steps alongside that the government is taking because that's the only way one would be building scale. In doing so, the industry will have learning curves including robust local manufacturing, Indian EPC players becoming more competent as we will no longer be depending on say US or German engineers who prove to be more expensive. As the industry grows and evolves, we will be effectively rebuilding value chain in India at lower cost-point.
How does Indian solar market compare with countries such as Italy and Spain which have taken to developing solar on a large scale?
If you are drawing parallels or comparisons, one of the things to see is climatically how conducive is our region as compared to other regions in terms of daylight and temperature. India is bit hotter than US and South West Europe.
There is also a lot of development in solar in Italy and Spain. The other element that can be looked at is how solar projects are being financed. Indian government has been little more circumspect as compared to Spain when it comes to financing solar. For example, Spain went all out supporting solar by giving out pretty attractive tariffs, but when there was deluge effect, the government was not able to honour those tariffs.
In comparison, the Indian Government has not really opened the tap completely for solar. Instead the government is going about it in a phased manner.
The other element is requiring local content in solar, which is just to protect local industry and ensuring that this step also leads to employment. Another important point is that the Indian government wants the entire value chain to be developed indigenously. This is to ensure that the profitability accrued at each step remains within the company and we are effectively not subsidising foreign company elsewhere by offering attractive tariff rates for the end product.
In India, the emphasis is mostly around grid connectivity, but for a country like Germany, the focus is more on rooftop. Again, relatively countries in Europe are smaller than India. We have plentiful of unused non-agricultural land largely in desert areas like Gujarat and Rajasthan that can be deployed for developing solar.
Since there is an intermediary to facilitate buying and selling of RECs, you don't have to have a point to point interaction. You could just make the deal with the exchange. Then there is this issue of longevity as well, since these certificates cannot be carried forward to next year."
Then in terms of technologies that can be used India proves to be quite conducive to thermal technology than PV which is the case for Europe. In terms of a choice between crystalline PV and thin-film - given the high temperature in India, the thin film might be more attractive because thin-film is much more efficient at high temperature. But again we are just starting out so it is a bit premature to make announcements before we have benefit of two to three year's experience and then we can compare apples to apples.
With an aim to boost domestic manufacturing of PV equipment, the government is considering mandatory usage of indigenously developed technology. A secondary opinion in the market is emerging which fears that this may result in the use of inferior and cheap technology. Do you see any contradiction between the two?
There are two aspects to this whole debate surrounding domestic manufacturing. As a project developer, I would ofcourse prefer to acquire components at the cheapest available prices, but wish to have the best possible quality of equipment so that it would at least last 25 years, which is the tenure of my PPA agreement with the government. So, naturally you would want to go with vendors, who have some sort of track record and bankability as opposed to a new vendor who does not have a track record.
On the other hand, it's not as if somebody out there is engaging in manufacturing for the first time. Before solar components-equipments get certified, they are tested and certified by international entities in labs. The issue is a little bit on the other side. I don't think it's the quality as such that we all are debating about although it would be a bit of concern to banks and lending institutions because they would like to see products having worked for sometime before lending to solar developers.
The second issue is of scale. If you have a large company producing say 1000 to 2000 MW of modules, you will have lower cost point compared to someone starting out with just 50 to 60 MW. The third factor that comes into play when we talk about local manufacturing is that of timeline. If the company is in India and has started off recently, it will take time before the company is in full production and before it has all the lines working full throttle for it.
The other aspect that needs to be considered is that the situation could lead to artificial price escalation within the country. Indian manufacturers would know then that developers will have no other option, but to buy from them.
Will Renewable Energy Certificates (RECs) and Renewable Purchase Obligation (RPO) help create a parallel market for renewable energy sources including solar in the country?
RECs are a work in progress. The utilities are mandated to have a certain portion of their total energy mix to come from renewable and specifically within the renewable energy, a fixed portion has to come from solar. For example, one utility is able to deliver the renewable mix that it was obligated to achieve from renewable and another is not in such a case, the second utility will be obligated to buy RECs which are given to utilities which have achieved the target.
Since there is an intermediary to facilitate buying and selling of RECs, you don't have to have a point to point interaction. You could just make the deal with the exchange. Then there is this issue of longevity as well, since these certificates cannot be carried forward to next year. Once they are tweaked and refined, RECs will become little more relevant in two to three years from now when percentage of renewable energy mix becomes little more considerable.
(InfralineEnergy thanks Pankaj Sehgal, Managing Director, Technology and Clean Tech. Investments, Sun Group for sharing his valuable insights with our readers. The column 'In Conversation', is a platform to engage experts from various sectors to share their views on the different transformations happening in the Indian energy sector.)