Road map for a solar surge

In this decade India’s solar energy programme has grown exponentially. Solar power capacity, which was less than 1,000 Mw in 2010, when the National Solar Mission was launched, is now more than 26,000 Mw. But India’s success in solar power suffers from a major distortion. The bulk of the solar power capacity has been created through large competitively selected solar projects which feed electricity into the grid. On the other hand, decentralised solar power capacity, including rooftop, is still less than 4,000 Mw. 

This is the exact opposite of what the lower cost option is. Decentralised rooftop solar power does not need any transmission investments. And there are no technical transmission and distribution losses. Further, capacity utilisation of transmission lines set up exclusively for solar projects is naturally lower, as solar power is generated only when the sun shines. This distortion will now start imposing avoidable costs, as the share of solar power in total generation begins to rise rapidly from the present negligible share of around two to three per cent.

The special dispensation of a zero transmission tariff for solar power will also start becoming unsustainable. At present the costs of transmission are borne through cross-subsidy from the transmission charges for the flow of conventional power. This will need to change and actual transmission costs will need to be explicitly paid.

This distortion needs urgent reversal. While efforts are being made to promote solar rooftop installations and some momentum is being seen with the generous net metering dispensation, there are limits in urban areas. Most of urban India is going through redevelopment. Older bungalows are giving way to multi-storied apartments where the available space for solar power panel installation becomes modest. In the slums as well as in congested old city centres, there are again space limitations. But the potential for decentralised small solar power installations in rural India is enormous. This is the segment that now needs focus.  

For large solar projects, competitive bidding has been working well. It has brought prices down and India has been able to take full advantage of the global decline in manufacturing costs of solar panels. But for small decentralised solar power installations in the less than one Mw range, competitive bidding, project by project, is just not feasible. Only an attractive enough feed-in tariff would work. Germany, with not much sunshine, has 1.6 million solar photo voltaic generators and is a world leader in solar power with an installed capacity of 43,000 Mw, thanks to a generous feed-in tariff regime.

A feed-in tariff regime for rural India would mean that the local power distribution company would announce that at a particular rural substation, or a distribution transformer, it would be willing to buy solar power at a feed-in tariff (pre-announced price) for 20 years. This offer would be open on a first come basis for two years, or until the technical capacity to absorb solar power at that point is reached. Purchase from a single supplier would be restricted to, say, one Mw, so that a large number of small projects in the kilowatt range are promoted. 

As solar power prices for the larger projects have come down to less than Rs 3 per unit, a feed-in tariff of, say, Rs 4.50 per unit should be attractive enough to get a surge in private investment to benefit from this opportunity. This would give higher incomes to farmers whose land is used, local persons who would install and maintain the solar panels and the providers of solar panel installation services. A feed-in tariff of, say, Rs 4.50 would make this a cheaper source of additional power for the distribution company compared to electricity from conventional sources through normal power purchase agreements. At the point of feed-in within the rural grid, the marginal cost of conventional power after factoring in technical losses and the cost of transmission is usually over Rs 6.50 per unit.

In fact, there is a good case to also shift from net metering to a feed-in tariff regime for solar power generation, including rooftop, within the premises of consumers. This would be attractive enough for those installing roof top solar power and also for the distribution companies, who find net metering financially too onerous. Such an attractive feed-in tariff regime would enable solar power to grow exponentially. Market forces would work wonders. No subsidies would be needed. All that the distribution companies would need to do would be to assess the quantity of electricity that they could comfortably take at a particular sub-station, and then announce that they would buy solar energy on a first come, first served basis up to this amount at the sub-station. 

Supply of solar power to rural sub-stations in the daytime would also enable the distribution companies to supply reliable electricity to farmers for the whole day. This would make an enormous difference to the quality of life and work of farmers who are used to getting electricity for irrigation only during off-peak hours in the night. It should lead to better water-use efficiency, as in the daytime farmers need not leave their pumps on and flood their fields. Other electricity-driven technological modernisation in agricultural operations would also become feasible.

About 18 per cent of overall electricity consumption in the country is in agriculture. This could shift to solar power in a few years. Further, the distribution companies would be saving on power purchase costs for meeting the demand for agriculture. As the burden of subsidy for the supply of practically free electricity for agriculture in most states is to be met by the state governments, this would reduce the subsidy burden on their budgets by 25-30 per cent.

India has 640,000 villages. With just one Mw of solar power being installed in each village, India could look at having 640,000 Mw of solar power. This would be a truly remarkable achievement.    
The writer is former Secretary, Department of Industrial Policy and Promotion, Government of India

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel