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November 15, 2013

Solar power and energy security

Gujarat’s experience suggests that there is considerable merit in solar energy initiatives being integrated with overall energy policy rather than as stand-alone measures.

The technical potential of solar energy is enormous. For instance, the amount of solar energy reaching the earth’s surface in an hour is roughly equivalent to the world’s total energy consumption in a year. However, utilising this large resource base has long been constrained by the intermittent and diffuse nature of solar energy, and the slow pace of technological advancement to improve efficiency of solar cell modules and reducing other associated costs. Investment in solar energy research and policy initiatives worldwide is expected to bring down the costs of solar energy production to $50-60 per MWhr by 2020, which translate to INR 3 to 4 per kilowatt hour. At this threshold, solar energy could easily compete with most other current energy sources without subsidies.

solar

Economic growth requires corresponding increase in energy demand, though the extent of the increase can be mitigated by sensible energy conservation measures. As India’s GDP is projected to increase from around US$1.8 trillion in 2011 to around US$7 trillion by 2025, securing energy supplies has become an urgent national priority. India imports most (around 82 percent) of its oil requirement, and coal imports have been steadily increasing due to domestic production problems. Nearly two fifths of India’s gas supply by 2016 will be imported as expensive liquefied natural gas (LNG), along with uranium are expected to fuel planned nuclear reactors. As other countries aggressively pursue energy security, India will need to compete in a competent and strategic manner.

It is in the above context that Renewable Energy (RE) policies aimed at increasing the share of hydropower, biomass, solar, and wind acquires significance. Because of the constraints faced by large hydropower (due to social resistance) and biomass (due to competing demand from food production), recent policy initiatives have mainly focused on expanding solar and wind power generation. In particular, the abundance of solar radiance across India makes it a feasible component of energy mix for most states. With an average solar energy potential of about 5 kilowatt hour per square meter, India has a large potential to become a major producer of solar power with appropriate policy initiatives and commercial incentives.

India’s installed capacity of renewable electricity excluding large hydropower grew from 3.9 GW in 2002 to 27.3 GW in 2013, with wind power accounting for about 66 percent, small hydro 12 percent, biomass 13 percent, and solar power 5 percent respectively. The national solar energy mission “Jawaharlal Nehru National Solar Mission (JNNSM)” launched in 2010 has an ambitious target of deploying 22 GW of grid-connected solar power alone by 2022 which includes the world’s largest solar photovoltaic (PV) power plant planned to be built in Rajasthan. The 4000 MW “Ultra Mega Green Solar Power Project” plant will be spread over 23,000 acres and built near Jaipur by a consortium comprising union and state government entities.

To encourage the deployment of solar power plants, the union and state governments have incentives in the form of Renewable Energy Certificates (RECs) and Renewable Purchase Obligation (RPOs). RECs hope to address the imbalance created between availability of RE resources and state level RPO values fixed by State Energy Regulatory Commissions (SERCs).

Gujarat’s contribution in solar power is significant with a currently installed capacity of 852 MW, about two thirds of India’s total installed solar power capacity. Gujarat hosts an integrated solar park, which is currently the second largest solar photovoltaic (PV) power station in the world, with a power generation capacity of 600 MW covering 3000 acres in Charanka village. With a successful power supply model, Gujarat’s initiative could offer a possible method for integrating renewable and conventional thermal power to provide reliable and uninterrupted power supply.

Energy Security in Gujarat

Gujarat has pursued energy security in an integrated framework, recognising the need to use several energy sources without being over reliant on anyone of them. It has also calibrated demand and supply coherently, becoming a power surplus state in recent years. This gives the state an additional policy-induced competitive advantage.

From being a loss making company, the Gujarat State Electricity Board (GSEB) has managed to become commercially profitable through reorganisation of power generation companies and economically sensible policies. The newly organised Gujarat Energy Development Agency (GEDA) was revamped via Jyoti Gram Yojana (JGY) and ‘Kisan Heet Urja Shakti Yojana’ (KHUSY) with investments from state government and other distribution companies. The transmission and distribution losses were minimised through “dedicated feeder” systems and high voltage distribution systems, drastically reducing the power leakage and pilferage. These initiatives have contributed to making the power sector efficient, reliable and accessible, though there is room for improvement. This in turn has enhanced business confidence and quality of life of average rural and urban residents.

Solar Power Initiatives

GEDA introduced its solar power policy in 2009, a year before the national solar energy mission was launched. It used a fixed feed tariff mechanism rather than reverse bidding mechanism. For instance, solar photovoltaic (PV) projects commissioned before December 31, 2010 are required to operate with a tariff of INR13 per kWh for the first twelve years, and at INR 3 for the next thirteen years. This suggests that significant technological efficiencies are anticipated.

For solar thermal projects, each unit of electricity is priced at INR10 for the first 12 years. Subsequently, it would follow the same pricing of solar PV stated above for the next 13 years. Any projects commissioned between December 2010 and March 2014 are required to have a tariff that cost INR12 for solar PV generated power and INR 9 for power generated from solar thermal devices during the first 12 years.

The nominal prices for following years would remain the same as in the above  cases. These tariff rates are fixed by utility companies, and recent dialogues aim to reduce the tariff, since the plant owners could earn unanticipated profit as provisions appear to primarily benefit producers, particularly arising from lower capital costs and input prices internationally which were not forseen. Reduction in tariff is a clear indication of impending “grid parity” which is anticipated to be attained in 2016.

The solar projects are entitled to benefits under Clean Development Mechanism (CDM). In addition to the revenues from the feed-in-tariff (FIT) available for all solar projects in India, solar energy developers in Gujarat also participate in CDM and earn carbon credits and generate additional revenue using the power generated. While the additional revenue actually obtained is not significant, solar developers will have to share 50 percent of the revenue from CDM to the respective distribution companies with whom power purchase agreement is signed. More specialised companies are needed to reduce transactions costs of CDM benefits, and to deepen and broaden domestic carbon trading.

Gujarat’s proclivity to take advantage of relatively small but highly visible opportunities to improve energy security in general and solar power in particular is exemplified by the following. The first concerns the “rooftop solar power policy” for residential and commercial sector. The goal is to install around 60 MW of rooftop units across the state using advanced metering technologies. The units are expected to range from one kilowatt (KW) to 150 KW. Provision of a 40 percent subsidy (INR 32,000) per KW for up to 2 KW, and sales tax exemptions for procuring equipment for rooftop PV systems are expected to contribute to the viability of this initiative.

The second concerns installation of a 10 MW solar power system on Sardar Sarovar canal with a generation capacity of 16 million units.  This is expected to enhance transmission and distribution efficiencies, enable villagers along the canal to access electricity, spread energy awareness and generate skills based employment.

States such as Tamil Nadu have also pursued similar initiatives. Such diffusion should be welcome as it benefits the country.

Policy and Implications

There is potential for enhancing the share of solar energy in India’s energy mix. There is ample room for experimentation, and for taking advantage of the learning curve to make solar energy initiatives to progressively yield better outcomes. Scope for partnership between the Union and the State governments and between public and private sector organisations in different areas of solar energy sub-sector is significant, but will require appropriate policies, coordination and competence.

Gujarat’s experience suggests that there is considerable merit in solar energy initiatives being integrated with overall energy policy rather than as stand-alone measures. Thus, Gujarat’s reforms of state electricity organisations, making electricity accessible to agriculture sector and to rural sector, understanding of the needs of producers and consumers in the energy sector have preceded solar power initiatives.

Gujarat has also attempted to take into account the substitutability between different energy sources, and therefore the need for taking into relative prices of solar wind, bio-mass, fossil fuel based sources of energy. Technological changes in each of these areas, particularly in solar and wind energy, could lower costs in future and these need to be reflected in policy design.

International experience highlights the technological limitations of renewable energy sources like solar and wind and price distortions among alternative energy sources brought about by fiscal incentives design and political economy factors overriding economic and ecological considerations. India should take these lessons into account in pursuing RE policies.

The objective of renewable energy policy should be to attain economically efficient and strategically prudent mix of different energy sources not just currently but to meet future needs as well. Longer term time horizon and strategic planning are thus essential.

In pursuing the objective of enhancing the role of solar energy, the need for encouraging globally competitive manufacturing and technology capacities for intermediate inputs, and for complete solar plants should also be urgently addressed by the policymakers. It is not just what India is able to buy internationally but also what it can make and sell in the global market that would be an essential component of its energy security and strategic space.


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