Wednesday, December 21, 2011

Solar Industry of India

Today the solar industry is just how IT was in the early 1980s

It is peak hour traffic in Mumbai and your car stops at a signal. A bunch of kids run to your window. Guess what they are selling? Not selling newspapers or toys. They are selling solar panels.

This picture, envisioned by a solar company head, is a hyperbole, but it underlines the fact that today the solar industry is just how IT was in the early 1980s or telecom in the early 1990s.

In less than a decade, solar panels on your rooftop will be powering your television, refrigerator and lights in your house. Your rooftop will be producing more electricity than what you need, you will be putting in the surplus power into the grid and when you do that, your meters will be spinning backwards, reducing your current bill. Why, even the glass panes that make up the exterior of the upcoming office complex in the neighbourhood could be generating current.

It is elementary physics that when light falls on certain semiconducting materials like silicon, its energy knocks off electrons off the atoms, which can be made to flow and the flow is electricity. There is nothing new or cutting-edge here. After all, solar panels have been powering instruments on board satellites for 60 years. Why, several of us have had solar water heaters in our houses for years and solar cookers are not uncommon. So, what is happening now, that we believe that we are at the head of a megatrend?

The answer, in a word, is ‘cost'. Earlier, we did not use solar much because it was frightfully costly. However, in the last decade, as the fear of climate change began gripping the world, some of the developed countries in their enlightened self interest, began looking for alternatives. With incentives for generation and obligation for purchase, ‘solar' moved from labs into homes.

Prices of panels to fall

Sensing an explosion in demand, various countries began creating factories for producing solar panels and components. Alongside, research intensified to make panels that could convert more of sun's energy into electricity. A combination of large production capacities and improved efficiency caused the prices of solar panels to fall. About four years ago, to put up 1 MW of solar plant, it cost Rs.21 crore. Today it costs less than Rs.10 crore. Still, solar power remained significantly higher than conventional power. Fostering domestic solar industry, comprising both units that generated power and those that produce the equipment for doing so, still needed a policy push.

Although there were a few schemes that incentivised solar power plants here and there, the first major policy driver came in the form of the Jawaharlal Nehru National Solar Mission, which was one of the eight missions under the National Action Plan for Climate Change. The Mission envisions creation of a capacity of 20,000 MW from grid-connected solar plants and an additional 2,000 MW from plants not hooked up to the grid, such as small plants that supply only to the nearby villages, and the rooftop micro plants for powering homes. There are two ways of producing electricity from solar power — the panel way and the mirror way, where sun rays are reflected onto a trough of oil to gather heat, make steam which turns the turbines and generates electricity. The solar mission's idea is to engender creation of both — 10,000 MW each. The programme is being implemented in three phases. Under the first, the idea is to get entrepreneurs to set up plants with a total capacity of 1,000 MW. This again has been split into two batches and the process of award of projects under the second batch has just begun.

Here is where it gets interesting. When the first batch was opened last year, bidders offered to sell power at shockingly low tariffs, some as low as Rs.11.50. Early this month, under Batch-II, tariffs fell even lower. A French company, called Solairedirect, has offered to put up a 5 MW plant and sell power at Rs.7.49, setting a new benchmark. The average tariff moved from Rs.12 in the first batch to Rs.8.80 in the second. Solar power is getting within the reach of the common man. This was possible because due to slack demand from the economically-troubled Europe, prices of solar modules have been dropping exponentially. Module prices have fallen to less than a dollar a watt — a fifth of what they were in 2006. It is expected that prices will further fall, and solar power will sell for Rs.5 a unit in just a few years.

With projects coming up both under the National Solar Mission as well as under the schemes offered by various States, India's solar capacity will grow to at least 1,300 MW in 2013, from 186 MW now.

But the real story of solar is not in grid-connected plants — after all, what is a few thousand megawatts in the country's total installed capacity of 200,000 MW? The real story is in the mini grids in villages and rooftops in cities. The former will have tremendous social impact, as has been seen in the few hundred villages that have been provided lighting with solar power — something a savvy politician will not fail to take note of.

The flipside

While ‘solar power' has taken off smoothly, there are some concerns too. The global fall in module prices that helped bring down tariffs in India is also crippling the domestic manufacturing industry, thereby, defeating one of the key objectives of the solar mission. Companies such as Tata BP Solar, unable to compete against what appears to be distress sales by overseas manufacturers, particularly the Chinese, have had to shut down operations.

Thus, the solar industry is also delicately poised. Will the government impose a customs duty to protect and develop the local solar equipment industry? Or will it allow cheap imports in order to bring down costs and therefore tariffs? The coming budget will have an answer.

In addition, there is the issue of perfecting the grid so as to handle solar power. The problem with solar power is, if a cloud passes over, the generation will drop and when the sun shines again, it will pick up.

The grid will need to be smart enough to handle these vagaries, so that the entire solar programme does not trip over it.

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