30 Dec 09 The solar gold rush
The Jawaharlal Nehru National Solar Mission launched last month has set off a rush of applications for setting up solar power generation capacity in India. The high feed-in-tariff set by the government is the key attraction.
The policy announcement in end November appeared to have been timed to strengthen the Indian side at the negotiations at the Copenhagen summit. However, if the government does follow through on the implementation of the announced plan, it will be a huge positive for renewable energy in India.
The mission targets setting up of 20,000 MW solar capacity by 2022 in three phases. The first phase target of the Mission is 1,100 MW grid solar power capacity by March, 2013. An amount of Rs. 43.37 billion has been approved for implementation of the first phase of the Mission.
Power falls under the jurisdiction of the state governments in India. As per the National Tariff Policy of 2006, the State Electricity Regulatory Commissions need to fix a minimum percentage of energy to be purchased from renewable sources. This will now be modified to fix a percentage for solar power. Solar power purchase obligation is expected to start at 0.25% and go up to 3% by 2022. Modifications in several other legislations will also be required, in order to get the action going.
The Central Electricity Regulatory Commission has announced a tariff of Rs18.44 per unit for solar PV power and Rs13.45 per unit for solar thermal power for a period of 25 years. This is reported to be the highest feed-in-tariff rate anywhere in the world – one that will give very impressive IRRs to investors.
Technology is a big risk in solar power, as solar technologies are still evolving. Between silicon wafer based photovoltaics, thin film PVs, third generation technologies based on new materials and concentrated solar power, it is really not clear which ones will turn out to be winners in terms of cost and efficiency. The upside to the investors needs to be high enough to make the risk worthwhile.
This policy package seems to have hit a sweet spot with the investors. I hear on the grapevine, that there are literally hundreds of applications pouring in for setting up solar power capacity.