Clouds Cover the Sun : by et

Despite falling cost of solar power generation, it will survive on subsidies and peak at 7% of total power

The April 28, 2012, issue of The Economist has a story on India’s solar power and mentions Charanka village in Patan district, Gujarat . Solar energy can be converted into electricity, using photovoltaics, or can be converted into heat. (There are other technologies too, but those aren’t important yet.) So far, solar thermal, or heating, in India has essentially meant solar cookers and water heaters , though it needn’t stay that way.

Using concentrating solar power (CSP) technology, there are large solar thermal power plants in US and Spain, and Rajasthan (if not Haryana ) might have some soon. Since January 2010, we have had a Jawaharlal Nehru National Solar Mission (JNNSM). It is a separate matter that this is under the ministry of new and renewable energy, which is an incremental silo, not quite integrated into the ministry of power.

All new and renewable energy initiatives have, until recently , been cosmetic. There are missions because you want to be seen doing something for the environment, not because you are particularly serious. (This has changed a bit, but more on that later.) JNNSM has a target of 20,000 mw of grid-connected solar power by 2022, compared to around 1,000 mw now. That grid-connected qualification is important.

There are at least 50,000, if not more, villages that can never be connected through grids. It isn’t viable. Population sizes are small. Terrain is difficult and remote. For those, there are community-level or household-level off-grid solutions like stand-alone power plants, water-pumping and solar lighting . It doesn’t work quite that way in developed countries, where stuff is generally through the grid.

Off-grid also means you need to figure out what to do with surplus power, since it can’t be pumped out and storage isn’t easy. Eventually, with development and urbanisation, these backward areas will be integrated and mainstreamed. But till then, solar power drive is no different from other inclusion packages, including financial inclusion. We can’t give everyone access to banks, so let us try and work through business correspondents.

On-grid requires conversion from DC to AC since solar cells produce DC power, and separate metering (say, if solar power is drawn from a rooftop ). There are also the Electricity Act (2003), National Electricity Policy (2005), Tariff Policy, Indian Electricity Grid Code (2010), National Action Plan of Climate Change (2008) and recommendations of CEC and SEC. Consequently , there is a renewable purchase obligation. This isn’t only for solar energy and there are state-wise variations.

For instance, Tamil Nadu has a high level of renewable purchase obligation. Mandating something serves no purpose, unless it makes economic sense. That’s what has changed. When was solar power talked about first? Not now, but in 1860s, when people thought coal would run out. Coal didn’t run out and there was petroleum. So, we forgot about it till 1970s.

As India, we have begun to talk about it again now, because there is a balance of payments issue, power shortages are constraining growth, coal shortages are pervasive, imported coal is expensive and there is no natural gas. With growth and economic development and resultant demand , the price of conventional power has increased and will continue to do so. For solar power, there can be large fixed costs.

Let’s forget those and look at costs of generating power. JNNSM has three phases: Phase I (till 2012-13 ), Phase II (2013-17 ) and Phase III (2017-22 ). In Phase I, independent power producers were invited to bid and sign power purchase agreements through reverse auctions. In first round of bidding under Phase I, regardless of whether one is talking about solar photovoltaics or solar thermal, prices were a shade over . 10 per kWh.

With conventional power costs increasing to . 6 per kWh, we were headed towards grid parity — where prices of conventional and renewable power are identical — but weren’t there yet. We would get there by 2022, if not earlier. The second round of bidding under Phase II changed the timeline. Solar power was down to . 7.49 per kWh and we are already approaching grid parity. Scepticism is understandable. Is this — anything below . 10 per kWh — real and sustainable? Is it just a market entry device, driven by excess capacity abroad? Is it a scam?

The Gujarat model is different . Gujarat Power Corporation has been the nodal agency for solar power since 2009. In addition to individual initiatives , since 2010, there has been the Charanka solar park. Charanka has a capacity of 214 mw, and if one adds non-Charanka , Gujarat has solar projects with a total capacity of 968.50 mw. This is capacity. It doesn’t mean that projects have been commissioned yet. A little over 300 mw has been commissioned. A little less than 300 mw is ready and awaits transmission lines. But the key difference lies elsewhere, and not just in fast-track clearances in Gujarat . Grid-based solar power will be paid . 15 per kWh for the first 12 years and . 5 per kWh for subsequent 13 years, with a total span of 25 years. There are separate tariffs for delayed projects, but that isn’t pertinent.

In other words, unlike JNNSM bidding, there is a subsidy and this makes solar projects viable. What does this do to finances of the state utility and where does subsidy come from? These are related and, essentially, there is a green cess on generation of non-renewable energy. So, we come back to the basic question : how important will solar power ever be — it will probably taper off at around 7% of total energy — and will it ever be viable without a subsidy?