Can the Indian solar energy industry provide a solution to India’s energy challenge?
Just like hurried Indian taxi drivers sounding their horns as they vie for a place on the busy roads, Indian cell and module manufacturers are competing to secure their position in a field of more than 400 other players around the world. All these manufacturers are focusing on the European market. But, is there enough scope for them all? Or will they end up caught in the traffic jam of oversupply?
By Edwin Koot, solarplaza
New government measures will certainly be needed to make use of the enormous potential.
Indian energy facts
The Indian economy has the second-fastest rate of increase in GDP in the world – 7.1% in 2008. The country accounts for a third of the world's population without access to electricity. This situation persists despite several initiatives and policies to support poor households. Five different ministries have structurally handled the Indian energy sector, among them the Ministry of New and Renewable Energy. India is probably the only country in the world with a dedicated ministry for renewables. The country ranks sixth in the world in terms of total energy consumption and needs to accelerate development of the energy sector to meet its growth aspirations. Though rich in coal and abundantly endowed with renewable energy in the form of solar, wind, hydro and bio-energy, India has very small hydrocarbon reserves (0.4% of the world’s total). Being a net importer of energy, more than 35% of the country’s primary energy needs are ensured through import.
Unlimited potential for solar PV in India
On the other hand, India is a beautiful country with a surplus of some things: spicy food, people and hours of sunshine… Even the hours of sunshine in Spain can by no means compete with, for instance, the State of Rajasthan in India. This State, with between 1800 and 2200 hours of sun each year, is putting together a plan to develop at least 50 MW of PV power plants. And this is only the beginning. The potential for solar PV in Rajasthan, with its vast area of sunny desert, is infinite. And India has many more States with great potential. Gujarat, for example, where a 500 MW plan was commissioned recently. Of course, the full details have not yet been elaborated, but this is just how today’s more advanced markets, such as Germany, Spain and Italy, started out some years ago. Although the feed-in tariff proposed by the Indian national government is not particularly attractive (15 INR/kWh for 10 years), Indian PV project developers are queuing up. More than three gigawatts of proposals have been submitted. Clearly, many developers recognize the long term potential of this country with its ever increasing GDP.
India’s energy challenge
India needs more power – lots of it. Not only to cover its daily power shortfalls (several hours per day), but also to support its economic development. According to CEA, the peak demand in 2008 was 120 gigawatts of power, while only 98 gigawatts S could be supplied. According to an analysis by the Indian PV project developer Astonfield, quoting the President of India Energy Review, this deficit is likely to grow to 25 gigawatts by 2012. The targeted share of renewable energy is 24% for 2031, with the amount of solar energy increasing to 56 gigawatts of installed power.
These big numbers come to life when visiting India. Traffic constantly grinds to a halt with long lines of cars, scooters, taxis and tuk-tuks. Imagine if electrically powered transport were to start with scooters, like in China; imagine air conditioning becoming more widely spread; or think what it would be like if all of India’s population had access to the electricity grid or to autonomous energy systems. After all, the average electricity consumption in India is still among the lowest in the world at just 630 kWh per person per year, but this is expected to grow to 1000 kWh within five years…. Speaking of big numbers and energy consumption: every month 8-10 million new mobile phones are connected in India. This is an interesting market segment for solar PV as well: thousands of new GSM poles will be needed across the country.
Why India has not yet adopted solar on a large scale
The solar PV cell and module manufacturers based in India are focused on the European PV market. Why? Simply because the margins are better since these markets are supported by government subsidies and feed-in tariffs. The very limited support from the Indian government attracts only small family run factories providing inferior modules and undercutting the market price of certified modules. Some Indian manufacturers are even aiming to become energy utility and solar energy producers - but not in their home country... There is serious doubt among manufacturers that the Indian PV policy plans which have been announced will ever become reality. This should give the national government food for thought.
How to save the Indian PV industry…
Shadows are being cast over India’s PV cell and module manufacturers. Companies are currently investing in capacity expansion, while module prices on the global market are plummeting. The major Spanish market will lose more than 2.5 gigawatts of volume in 2009 due to cut backs in its support program. This serious fall in global demand for PV modules, and the rapid expansion of the more than 400 module manufacturers worldwide, is putting module prices under pressure. Oversupply, coupled with the global financial crisis, is hitting the solar industry hard. Banks are highly hesitant to finance new projects and developers are waiting for better returns in a climate of decreasing module prices. On top of that comes the worsened dollar-euro ratio. The result is that exports to Europe will collapse.
All this poses a serious threat to the export of Indian solar modules. Manufacturers already have many megawatts of high quality modules in stock. At the same time, their current investments in capacity expansion require high levels of cash. In maintaining their cash flow, they will encounter fierce competition with all the Chinese companies also desperate for cash flow. With only a tiny domestic market, around 2.5 MW in 2008, the Indian PV industry is in a dangerous position. It needs the funds for expansion, but lacks sufficient sales to Europe in a market climate of rapidly decreasing prices. As the PV market and industry matures, several market experts and analysts foresee a global consolidation in the PV industry. The Indian PV manufacturers could well become victims of this development.
What would really help is a stronger domestic market. That could propel India into a better position than China, where production of solar modules is now 99% dependent on export to Europe and the USA. To achieve this, India needs a strong PV industry lobby and platform. The Indian Semiconductor Association is picking up this role, representing several of the Indian PV manufacturers. Such a strong lobby could inform the government about the current delicate global market situation and what is needed to save its own solar industry. A strong domestic market could prevent Indian manufacturers from collapsing as competition in European markets increases. A pole position in the domestic market brings a clear advantage compared with foreign companies trying to find their way in this unique country.
Ways to support domestic market growth
An extension of the proposed feed-in tariff to more than the current 10 years, and higher rates, would be good first steps. The feed-in tariff presented does not currently promise a convincing ROI. That will make the risks too high for banks to provide financing. And project financing is nowadays the most crucial issue in getting projects moving.
Another possible solution to develop the Indian PV market is to set up, or stimulate, new solar funds to guarantee project financing. Banks are hesitant nowadays, and solar is not the first thing on their minds. Initial investments are too high in almost all Indian PV applications and projects. On the other hand, the returns are good and secured, and people are willing to pay interest of 10% or even more. So, a win-win scenario seems possible: with market development and good financial returns in exchange. This is the great thing about the Indian PV market. No investment subsidies are needed, so no government handout is required. Just the provision of financing will suffice. This could be either private or from the government (micro and macro financing). The benefits: saving its growing solar industry, bringing down power shortages, and all for an attractive return on investment. And the energy sector holds the key in accelerating economic growth in India. With the targeted GDP growth rate of 8%, energy requirements in India are expected to grow at around 6% per annum over the next few years, which is a four-fold increase over the next 25 years. It seems only a matter of time before the Indian PV market flourishes. India has the world’s biggest movie industry and “Slumdog Millionaire’’ cashed in eight Oscars. There is no reason why this country should not become big in solar too….