Bipin Trivedi aliens at dataone.in
Thu Nov 4 21:22:16 IST 2010




When his design didn't find takers nationally, Narendra Modi went local. A
few years ago, the Gujarat chief minister was at an international summit.
When a session on energy crisis cast light on solar power, Modi thought of
the Rann of Kutch in his home state, where the land was endless and the
sun's heat relentless. He wondered: could countries blessed with sunlight
form a solar alliance, led by India, to mainstream this promising source of

He wrote to Prime Minister Manmohan Singh, with a broad concept of such an
entity. He called it 'Sun-Son' - offspring of the sun. The Prime Minister's
Office acknowledged the proposal, but left it at that. So, Modi turned
inwards. He asked his trusted lieutenants, energy minister Saurabh Patel and
principal secretary S Jagdeesan, for a plan to turn the state into a hub in
solar power. 

The maiden expression of that vision came in January 2009, when Gujarat
became the first Indian state to launch a solar-power policy. Several states
followed suit. Like Gujarat, they also showed a long list of companies
interested in generating solar power. But, unlike them, Gujarat is following
through with an unmatched sense of purpose. 

This June, it signed power purchase agreements (PPAs) - an operational and
financial commitment from both the state and the developers - with 21
companies to generate 365 MW of solar power (See table: Gujarat's Solar
Push). At an estimated capital cost of Rs 15 crore per MW of solar capacity,
that's a likely investment of about Rs 5,500 crore. And supply is expected
to begin by December 2011. 

By all markers, Gujarat is the clear leader in solar power. Other states,
notably Tamil Nadu and Rajasthan, have installations or commitments of a
capacity in double digits. At an all-India level, the National Solar
Mission, launched by the Centre in November 2009, has set a target of 1,000
MW target for 2013. In other words, Gujarat is on its way to rolling out
one-third, probably more, of what the Centre is targeting for all of India
in the next three years. 

"Gujarat has the most aggressive plans," says Ratul Puri, executive
director, Moser Baer India , a sister company of which is setting up three
solar plants of 15 MW each in the state. The plans also have a big idea:
integrate solar into Gujarat's power ecosystem by simultaneously smoothening
both the demand and the supply sides. 

On the supply side, Gujarat is incentivising developers by announcing solar
tariffs for 25 years. The Gujarat Electricity Regulatory Commission (GERC),
the state distribution arm, has fixed tariffs for the two kinds of solar
technologies. And, many say, the rates are generous to developers. 

The first technology is photovoltaic (PV) cells. Here large, solar panels
made of silicon are erected on land in such a way that sunlight falls
directly on them, and gets converted into power. Solar producers in Gujarat
using the PV technology will get Rs 15 per unit for the first 12 years and
Rs 5 per unit from year 13 to year 25. By comparison, thermal and hydro cost
Rs 4-6 per unit. 

The second technology is solar-thermal power. Here, the sun's energy is used
to fire a steam turbine, and generate power. For solar-thermal producers,
GERC has fixed the tariff at Rs 11 per unit for the first 12 years and Rs 4
per unit from year 13 to year 25. "The long-term benefits far outweigh the
initial cost of setting up a plant," says Gujarat energy minister Saurabh

Both technologies have their pros and cons. The investment in solar thermal
is lower, which means a faster payback. But solar thermal needs greater
maintenance and is less effective in winters. By comparison, the PV cell
technology is quicker and easier to install. It's mostly a matter of
transporting the PV cells to the plant site and wiring them up. PV cells
have a long life - at least, 25 years - and their operating cost is lower
than solar-thermal. Of the 21 companies that have signed PPAs in Gujarat so
far, 20 have opted for PV technology. 

On the demand side, Gujarat is placing new conditions on companies that
generate and distribute power, which will nudge them towards solar. So,
power-distribution companies have been asked to source 5% of their energy
requirements for 2010-11 from renewable sources (3% in 2009-10). This will
increase to 6% in 2011-12 and 7% in 2012-13. Of this, solar will have to
account for 0.25%, 0.5% and 1%, respectively. An allocation of 0.25% means
an assured offtake of about one-fourth of the upcoming solar capacity. 

Similarly, power developers in Gujarat have been told that for every 10
units of energy they generate from non-renewable sources like coal, they
will have to generate one unit from renewable ones - in Gujarat, that means
solar, wind, bagasse and hydro. Given the total power capacity of 10,000 MW
in the state, that's about 1,000 MW from renewable sources. 

Of the four renewable sources, solar and wind are expected to account for a
lion's share. Gujarat has signed PPAs for about 1,000 MW of wind energy. "An
equal capacity is expected in solar," Anmol Singh Jaggi, director, Gensol
Consultants, an Ahmedabad-based consultancy that specialises in renewable
power. The state government is learnt to have received applications for
about 800 MW for the second round of solar PPAs, which are likely to be
signed this month. 

Developers are rushing to Gujarat because of the favourable terms it offers.
GERC has estimated the average cost of solar-power generation to be Rs 12.40
a unit, including a 14% margin. "The IRR (internal rate of return,
calculated for a 25-year operating cycle) works out to 19% from the first
year," says Ravi Surapaneni, vice-president, Solar Semiconductor, which is
setting up a 20 MW plant in the state. "Once you pay off your debt, you own
it at practically zero cost. It's like putting your money in a bank and
getting returns for perpetuity with great predictability." 

Sebastian Morris, an expert on energy, says Gujarat might be offering too
much to developers - at the expense of consumers and the state exchequer.
Disagreeing with Gujarat's approach to fix uniform tariffs, the professor at
the Indian Institute of Management, Ahmedabad, says the state should have
fixed the capacity it wanted to put onstream and asked companies to put in
tariff bids. "The per unit cost would have been a maximum of Rs 8-10 then,
instead of a high of Rs 15 at present." 

The increasing share of solar in Gujarat's power basket will increase the
purchase price for distribution companies - and, by extension, for
consumers. "In 2012, once solar enters the grid, consumers will have to pay
at least 7% more," says KK Bajaj, director of the Consumer Education and
Research Society (CERS), an Ahmedabad-based consumer forum. Morris also
expresses reservation over the 25-year commitment period. "A technology
should not outlive the tariff period," he says, expressing fears that India
may emerge as a dumping ground for old solar technologies. 

Meanwhile, companies have their own challenges to overcome, as they turn
their plans into plants. Solar plants based on PV cells - the technology of
choice - need a lot of land. Typically, it's five acres per MW - or the size
of five football fields. "Companies will have to get the land themselves,"
says energy minister Patel. "The state will only recommend places where
projects could come up." 

Moser Baer's Puri says land acquisition is "a challenge", but not as much
as, say, buying a coal mine or building a dam. "For solar, you are not
tagged to a site (unlike, say, a thermal plant, which has to be close to a
coal mine or a rail head). You can set it up on fallow, unused land." 

A majority of the projects are expected to come up in the districts of
Banaskantha, Mehsana, Patan and Surendranagar, which are largely dependent
on agriculture and trading. Industrial clusters in Bharuch and Kutch
districts are also in the mix. The department of energy and petrochemicals
is also chalking out a 'solar park scheme', which offers land and
connectivity to the grid. 

The next challenge is funding. "A 15 MW plant will cost about Rs 200 crore,
of which, about 60% is the cost of panels," says James V Abraham, MD & CEO,
SunBorne Energy Technologies, which is a setting up a 15 MW plant in Kutch. 

Venture capital (VC) funds and private equity funds are beginning to close
deals. For instance, VC fund Helion Venture Partners has invested an
undisclosed amount in Azure Power, a solar developer that is putting up 15
MW capacity in Gujarat. "Our sweet spot for investment will be $2-10 million
to get the companies started, which can then bring in large investors," says
Sanjeev Aggarwal, managing director, Helion. "We still have to see how the
Indian government makes debt available at lower interest rates." 

On the positive side, economies of scale and improvements in technology are
driving costs down. "There's been a 20% reduction in costs in the last two
years," says Rajiv Jain, associate director, government affairs, India
Semiconductor Association. At this rate, Abraham of SunBorne expects solar
to achieve 'grid parity' - cost the same as conventional sources of power -
in seven years. The pace of the movement towards parity will largely
determine whether, in its race to become a solar hub, Gujarat gave out more
than it needed to or could afford. For now, policymakers in the state are
busy counting megawatts and enjoying their time under the sun. 

What other states are doing 

Tamil Nadu 

Plans, Rajasthan has plenty - so far, 530 companies have registered with the
state's nodal renewable-energy agency to generate 13,000 MW of solar power.
But there's no policy yet. "It is expected soon," says state energy minister
Jitendra Singh. Meanwhile, the state has cleared 91 MW of projects, of
which, 66 MW is a migration to the National Solar Mission being funded and
managed by the Centre. 

Singh says the state is planning to create dedicated land-banks for solar
projects in districts like Barmer, Bikaner, Churu, Jaisalmer, Jalore,
Jodhpur and Nagaur. "We are offering land for solar projects at 10% of the
district-level committee rates." In the first phase, the list of companies
includes Dalmia Solar Power, Integra Limited, Aston Field Solar and AES
Solar Energy. Under the PPA, the purchase price will be Rs 17.91 per unit
for PV plants and Rs 15.32 for solar-thermal plants. Both rates are more
than what Gujarat is offering. 


Unlike Gujarat and like Rajasthan, it doesn't have a solar policy yet;
there's one expected by the year-end. Meanwhile, it is pushing for capacity
through the National Solar Mission, where it feels it has been grossly
under-represented. Tamil Nadu asked the Centre to allocate 200-500 MW of the
1,000 MW earmarked for the first phase of the National Solar Mission and it
forwarded applications by 129 companies. 

The Centre initially shortlisted only 29 projects of about 22 MW of
capacity. And the final shortlist has just seven projects, of a total of 7
MW: Amson Power, B&G Solar, Gemini Geoss Energy, Great Shine Holdings,
Harrisons Power, Noel Media & Advertising, and RL Clean Power. Says Dr R
Christodas Gandhi, CMD, Tamil Nadu Energy Development Agency: "All the 129
applicants should have been given an opportunity. They were all of competent
enough to enter into this segment." 

(Himanshu Darji, Mitul Thakkar and Shelley Singh, Peerzada Abrar, Rituraj
Tiwari, Sangeetha Kandavel)


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