100 GW: What needs to be done

July 10, 2015 11:56 amComments Off on 100 GW: What needs to be doneViews: 58

L(09_2015_100-GW-What)1 Ever since the announcement of the scale up of India’s solar programme to 100 GW in 5 years has been made, the singular question has been “is it real or not”. In our opinion the real question is what needs to be done to make it happen, and is there an alignment between the various stake holders from the government, the regulators, the developers and the power consumers on realising this vision.

First let’s all agree that the vision is indeed path-breaking and creates an opportunity for a paradigm shift in the Indian power sector, which has been on a stretch for the past four years due to issues related to fuel constraints, pace of distribution reforms and stalled projects. Today, the government has put forth a vision of a more sustainable energy mix that will address the energy security and sustainability concerns that loom large. Predictably this has attracted investor attention globally as was evident from the RE Invest sessions in February 2015. The government was also collaborative to solicit feedback from stakeholders on what key issues would require to be redressed for investors to commit funds to make the vision of the 100 GW programme a reality. This was again a big first.

Some of the key issues identified were
(a) improving bankability of off take arrangements (PPA),
(b) mitigating development/permitting risk by the state
(c) creating a pool of low cost capital
(d) ensuring continuity in policies to provide longer term visibility of demand

L(09_2015_100-GW-What)2By and large the solar PV sector has been fair and transparent in India with the solar programme following a reverse bid mechanism as opposed to allocating capacities on a first-come first0serve basis via feed-in-tariff s (FIT). This has ensured that the entire ecosystem strives to stay competitive and ultimately act in the consumer’s interest of providing the lowest cost of power. Globally there are ample examples of how FIT market mechanism is unsustainable, and again the government has demonstrated long term thinking to keep the policy transparent and open.

Against this backdrop the Central government’s recent announcements clearly demonstrate their intent of addressing some of these concerns (a) solar park policy and the state’s developing the park infrastructure is an excellent move that will reduce the risks for foreign investors and IPP’s to allow capacity creation on a scale (b) introducing NTPC to be the nodal agency to procure 15 GW of solar power will definitely mitigate the PPA bankability concerns as well as continue the transparency in allocation of the capacities (c) dollar denominated PPA’s that are being considered with a sovereign hedge will help get access to foreign capital which will contribute to a lower tariff from these plants.

All of these moves augur well for investors to feel confident of the solar programme and hence one may argue that 100 GW co

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