Solar energy: Reforms needed as policy guidelines clash with installation targets

solar energy
India has restricted developers of solar power projects from using imported modules, delaying utility scale projects.

Solar energy in India: The Union government is keen to provide a big boost to the renewable energy sector and reduce the country’s dependence on carbon fuels. The existing policy regime, however, has become a major hindrance to achieving this goal. India is looking to boost domestic equipment manufacturing under its ambitious Atmanirbhar Bharat scheme and has set tough generation targets. The problem is that Atmanirbhar Bharat is a long-term plan, but the generation targets are set for shorter terms with deadlines.

These basic contradiction in drafting policies may be reconciled over time with the help from the market and a new generation of entrepreneurs. But they are a major roadblock at present for the effort to make India a clean energy hub.

The government has sidelined even tier-1 foreign players in the field from its notified first approved list of Models and Manufacturers (ALMM) with a view to promote domestic solar original equipment manufacturers (OEMS). By excluding foreign manufacturers whose equipment are in demand globally and whose reputation is validated by both investors and lenders, the government has restricted developers from using foreign imported modules for utility scale projects, essentially delaying such projects. The developers were required to source modules from the listed OEMs for projects bid out from April 10, 2021.

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Small developers undertaking open-access projects have to cater to a wide spectrum of work including land, transmission, grid access, and approval from state authorities. India’s solar power sector is regulated by various government bodies including the Ministry of New and Renewable Energy (MNRE) and state-level electricity regulatory commissions. The red tape and inherent delays in the system cost a lot of time to developers. Solar developers are of the opinion that the government should not have imposed the condition of buying from domestic manufacturers at least for now.

To achieve India’s generation target of 500 GW of renewable capacity by 2030, the country must install about 30 GW of solar power a year. However, the country is far from this annual installation landmark because of the lack of quality manufacturing in India. The country will also need to increase tenders for solar and wind to achieve 80 Gw annually as there is a low efficiency of solar modules. However, tenders have declined instead of increasing to about 28 GW in 2022 from 40 GW in 2019, according to the US think tank, Institute for Energy Economics and Financial Analysis.

India’s solar energy ambitions

The nation is an energy guzzler in terms of electricity consumption and adapting to clean energy sources is a natural path for the second most populous country in the world. The government is also eager to switch to green energy at a time when issues such as climate change are looming as a major threat to life on earth. While there are many sources of clean energy, generating electricity from the sun remains the most viable option for India as the country gets direct sunlight for most part of the year.

Solar power capacity in India has been on the rise with it witnessing more than 11 times jump in the last five years — from 2.6 GW in March 2014 to 30 GW in July 2019. Presently, solar tariffs in India are competitive and have even achieved grid parity. The government also continues to woo private investors in states such as Rajasthan which receive plenty of sunlight throughout the year to make it a solar hub.

Nearly 5,000 trillion kWh energy per year is incident over India’s land area with most parts receiving 4-7 kWh per sq. m per day. Boosting solar capacity is also in line with the government’s agenda of sustainable growth as nearly 250 million Indians still live without access to electricity. India also managed to increase its installed solar capacity at an average growth rate of 47% annually between 2016 and 2021. Nonetheless, India failed to meet its 2022 target of 175GW of installed renewable capacity.

Getting solar projects off the ground is not a cake walk. It requires the right policies and regulatory framework to overcome the hesitation in adopting new technologies. The path is also obstructed by the non-availability of concessional or derisking instruments to encourage private capital flow.

Also, the high upfront cost of setting up solar power projects is a significant challenge. Although the cost of solar panels has reduced significantly over the years, financing remains a significant hurdle for many developers. Access to affordable and long-term financing options is crucial to achieving India’s solar power capacity targets.

While India has overcome these challenges to a large extent, the country still has a long way to go in becoming world leader in solar power adoption. It must overcome other challenges and simplify land acquisition procedures, provide access to affordable financing, upgrade the power grid infrastructure, streamline the regulatory framework, and invest in skill development programmes.

Currently, various schemes are in place with differing completion targets and they together look to boost India’s solar energy sector. This includes the new draft National Electricity Policy (NEP), the One Sun One World One Grid (OSOWOG) and performance-linked incentive (PLI) scheme on the National programme on High Efficiency Solar PV Modules. The government is also eyeing 65GW per annum manufacturing capacity of fully and partially integrated solar PV modules to be installed in the country. This has an outlay of Rs 19,500 crore. The government also hopes to save close to Rs 1.4 lakh crore forex every year.