24 September 2015



Red tape clouds India’s PV promise

Author: Mike Stone, Solarplaza

Concerns have emerged over the impact of red tape on India’s ability to reach its ambitious target of 100 GW of solar by 2022.

“Often the developer or the engineering, procurement and construction contractor is facing different regulatory environments in the many states of India,” said Josef Eichhammer, vice president of project financing at IBC Solar.

This adds to complexity and risks. “More uniform regulations and procedures could further stimulate and accelerate investments in solar power plants in all states which have abundant solar resources,” he said.

Aside from the differences in legislation between states, solar entrepreneurs are often finding to their cost that India is a difficult country to do business in, with electricity generation having additional hurdles all of its own.

In terms of general bureaucracy, it takes a long time, around 30 days, to register a company. Meanwhile transportation and infrastructure can be patchy and unreliable.

And there is the issue with the palm-greasing needed to get things done, with the country at number 85 out of 175 on Transparency International’s Corruption Perception Index.

Regarding specific problems for solar entrepreneurs, the number-one bugbear seems to be land acquisition. Around five acres are needed for each megawatt.

In addition, project owners need to connect their plants to the grid, so transmission towers and other infrastructure have to be built.

Acquiring that land is often a problem because much of it is divided into small parcels, shared out among different individuals. So buying a large enough piece of land will involve negotiations with different landowners.

Once word gets around that a developer is buying land in a particular area, prices have a tendency to shoot up. It can also be unclear exactly who owns a parcel of land, with different family members making competing claims.

Eichhammer, a speaker at the Solarplaza Solar Project Development & Finance Tour India, thinks the solution to this and other obstacles can be found through the large solar parks that are being proposed and built with substantial government support.

Each Indian state has (or will have, if everything goes to plan) its own Solar Park Implementation Agency. These will be responsible for buying land and creating infrastructure on which individual projects can be built by developers.

However, there are already indications that these will be costly for the solar industry.

Parks have been announced for Andhra Pradesh, Rajasthan, Gujarat and Karnataka and, says analyst group Bridge To India, developers are already complaining about the costs and the fact they need to lease land and cannot actually purchase it.

“Most developers are of the opinion that they could have quoted lower tariffs had they been allowed to bid for projects outside the park,” claimed Bridge to India in a blog post.

Even if problems with the solar parks can be ironed out, Eichhammer highlights that there are differences between the nature of power purchase agreements (PPAs) in India and those that conform to international norms.

One problematic aspect is that PPAs are denominated in rupees, whereas payment in US dollars would lead to a more stable investment environment, said Eichhammer.

That said, the Indian administration is considering dollar tariffs to encourage foreign investors. Along with the creation of solar parks, this underscores the fact that the government is at least working hard to overcome barriers to entry.

And overall India remains one of the biggest solar markets in the world, on track to add more capacity this year even than Germany.

With Ernst & Young predicting a USD$100 billion spend on renewable energy over the next five years, investors and developers need to remember that while doing business in India can be challenging, the rewards are significant.

To find out more about the challenges and opportunities in the Indian market, sign up now for the Solar Project Development & Finance Tour India covering New Delhi and Hyderabad from October 5 to 9, 2015. 

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