Thursday, October 9, 2014

Can Solar Solve India’s Energy Woes?

Workers install photovoltaic solar panels at the Gujarat solar park under construction in Charanka village in Patan district of the western Indian state of Gujarat April 14, 2012. REUTERS/Amit Dave
Solar power emerged as a politically attractive panacea to India’s energy woes during this year’s election campaign. Indeed, sunlight is abundant, the conventional utility model is broken, and clean energy can advance energy security and availability. But the devil is in the details, which, so far, have not been forthcoming.

As the world’s fourth largest consumer of electricity and the fastest growing source of global greenhouse gas emissions, India faces pressure to meet basic energy needs as well as to do its part in combating climate change. Solar power is so attractive because it promises to address both issues, but today it accounts for only 2%-3% of India’s energy demand. To rapidly scale solar power, leadership will have to make several difficult decisions to ensure a robust supply of solar panels, direct capital to solar projects, and enable self-sufficiency through a solar alternative to the electricity grid.

First, India must decide that the availability of inexpensive and reliable solar panels trumps the need to protect a fledgling domestic manufacturing industry. Solar policy in India is governed under the admirable but ambitious Jawaharlal Nehru National Solar Mission (JNNSM), which aims to achieve 20GW of solar energy, enough to power 20 million homes, by 2022. Unfortunately, the JNNSM happily embraces two practically contradictory goals — to spur adoption of solar panels and to ensure that the panels are made in India. The JNNSM Phase II, beginning this year, stipulates that at least half of all solar panels need to be domestically manufactured, an unrealistic and counterproductive constraint on the programme.

Large Chinese firms dominate the manufacturing of the panels and have driven global competitors out of business through relentless price cuts. Economical manufacturing requires massive scale and dependable infrastructure such as reliable electricity. India has neither, a Catch-22 which will stymie efforts to cultivate a domestic industry. Blocking imports of Chinese panels shines a spotlight on the woes of domestic manufacturers. Today, Indian solar factories are only 50% efficient and panel costs are at least 25% higher than those of Chinese competitors.

Earlier this year, the US formally brought action against India in the World Trade Organization alleging that the JNNSM “domestic content” requirement that solar manufacturing occur domestically is illegally protectionist and impedes global solar adoption. Although US solar companies may be lobbying for the action out of self-interest — hoping for a market closed to the Chinese but open to the US — their broader point is correct: India is seriously damaging its ability to procure inexpensive, quality solar panels.

Second, India must find ways to bring investment to solar power projects and this requires finding a way to contract with credible solar developers, not just the ones that bid the lowest price. Currently, bids for solar projects are dominated by small and/or untested developers, a joint consequence of the domestic content requirement coupled with a reverse auction bidding process.

There are several ways to fix this problem and all of them will require the tough political decision to move away from a lowest price mentality for judging developers. For example, the state of Gujarat has vastly outperformed all other states in terms of installed solar capacity with over half of India’s aggregate installed solar power. This is partially because it employs a fixed-rate tariff rather than a reverse auction to attract developers.

Germany used a similar policy in the past decade to kickstart the global solar industry, and it works because developers have the security of knowing exactly how much the government will pay for their solar electricity for the next 25 years. This guarantee attracts credible developers who are confident in their ability to build a reliable system that will last for the contract duration and don’t have to worry about being underbid by less bankable competitors. Of course, Gujarat’s continued success will depend on keeping its word — a recent attempt to retroactively reduce the promised tariff added fear and uncertainty to the market.

Third, and finally, India needs to create a policy environment that will allow solar panels to thrive in urban environments as an alternative to the ailing conventional electricity grid. Trusting insolvent state electricity boards to administer solar power likely will not improve grid reliability, as the utilities grapple with integration of the new power sources. Rather, solar panels and batteries should be a customer’s defence against power outages.

While solar is often touted as a means to electrify remote, off-grid villages, its urban applications for providing clean, reliable energy are under-appreciated. Again, Gujarat is leading the way, recently authorizing “net-metering”, enabling consumers with rooftop solar panels to export their excess electricity to the power grid and reduce their electricity bill. The next step toward self-sufficiency from the intermittent grid is a “solar microgrid”, in which a community of homes jointly owns and operates solar panels backed up by batteries. When there is a general power outage, the microgrid ensures that the lights stay on.

Microgrids can be useful for building a 21st-century grid from the ground up — solar panels and batteries naturally use and store DC (direct current) electricity which, unlike the AC (alternating current) electricity from the grid, can power extremely energy-efficient, inexpensive appliances. Today, India leaves microgrids under 1MW (about 1,000 homes) generally deregulated, but future policy should leverage this opportunity to build up a network of parallel grids to supplement and maybe one day replace the conventional grid.

None of this will be politically easy, and entrenched interests will stand in the way. But Indians should demand clarity and consistency in the next government’s solar policies because the upside is certainly worth it.


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