Funding and Growing "Solar India"
Posted August 5, 2010
Recent studies from the United Nations, think tanks, and industry groups, confirm the tremendous potential and need for solar power in India. The Indian Government has established a short-term goal of 1,100 MW of new solar by 2013 and 20 GW by 2022 (see my June post on the new solar guidelines). When I was there early this summer, I experienced both abundant sunlight and persistent power shortages that make the case for solar energy obvious and compelling. The tougher question, which was repeatedly raised during my visit, is how does India plan to fund solar growth?
Later in June, the Indian Minister of New and Renewable Energy (MNRE) began to provide some answers. In expanding India’s Solar Mission, India has established a “bouquet of incentive instruments” for solar power system operators, financial institutions, state and local governments, utilities, NGOs, and entrepreneurs.
The Indian Government will provide:
- Capital Subsidies and Low-interest Loans: Off-grid and mini-grid systems will be eligible for capital subsidies of up to 30% and loans at 5% interest.
- Feed-in Tariffs: To incentivize the installation of 100 MW of roof-top and other small solar systems that will feed into the grid, Power Purchase Agreements (PPAs), guaranteed for 25 years, will be arranged between utilities and small producers with the government paying the price difference between solar and conventionally produced electricity.
- Migration/Bundling: Subsidized pricing for 1,000 MW of large-scale projects that “migrate” onto the grid will be established through PPAs and “bundling” of solar and conventionally generated electricity.
- Green Energy Bonds: Interest-bearing securities, similar to infrastructure bonds, will be issued by MNRE and IREDA (Indian Renewable Energy Development Agency) to raise funds for state and local solar initiatives.
India’s new solar guidelines seem to be spurring investments already. Large Indian corporations like Reliance, Moser Baer, and Tata Power are increasing domestic production of solar equipment and building large-scale solar farms. This past weekend, Hyderabad hosted one of India’s largest solar industry events, SolarCon bringing together PV companies and financiers. This week, US-based Suntech Power announced a huge solar deal with India-based Azure Power with plans to build several solar plants in India.
While these new financial measures are a start, much more will be needed to fund solar energy growth. At the Indian and U.S. CEO forum this summer, entrepreneurs called for collaboration on India’s Solar Mission as one of the deliverables to come out of President Obama’s planned trip to India in November. The forum discussed a new venture capital fund for clean energy technology projects in India, as noted by my colleague Shravya Reddy in her blog. While there is also a need for advances in photovoltaic and solar-thermal technologies that bring the price of solar on par with fossil fuels, such public-private financing partnerships are central to deploying large-scale solar energy projects in India.
(Co-authored by Almira Moronne, NRDC Intern)