Electricity generation from renewable energy sources, especially from solar PV, is often incorrectly believed to be an uneconomical choice. Its costs are considered to be prohibitive to the growth of industry. However, closer inspection of the government’s targets both for large deployment of solar power, as well as ‘Make in India’, show how the two missions are complementary to each other and not in conflict.
India is plagued by an acute shortage of power. Erratic power supply and frequent power outages have serious financial implications for industry. Reports from industry associations suggest that 26 per cent of firms have disruptions in power supply for more than 21 hours a week, while another 68 per cent face up to 10 hours of power cuts every week. As a result, large industries rely on expensive and unsustainable diesel-based back up to cover this shortfall. However, the micro, small and medium enterprises (MSMEs) are the worst hit by these peak hour shutdowns and unscheduled outages as they are not able to afford sufficient backup.
Since much of the primary energy demand is electricity, as India prepares for a significant surge in its manufacturing sector, it is important to focus on a corresponding increase in electricity supply. Existing thermal plants operate at plant load factor as low as 60 per cent due to fuel shortages. Furthermore, cost of input for thermal power plants is on the rise as the quality of Indian coal is low, thus requiring washing or blending with imported coal.
Coal washing Coal washing has proven itself to be uneconomical for thermal power plant operators around the country, making blending the only viable option. The high cost of imported coal (that is only set to rise in the future as can be noted from Indonesia’s announcement of 1.5 per cent increase in coal export prices) clearly indicates that the price of thermal power will continue to go up and its supply constrained by fuel shortages and geo-political occurrences.
Given these constraints on the expansion of thermal power capacity in India, it seems wise to diversify the country’s energy mix. However, to assume that this diversification comes at a prohibitively high cost would be incorrect. Price of solar power from large scale solar projects, which are planned to be a bulk of the 100GW solar target, is already at parity with the price of power from new thermal power projects. Power purchase agreements for solar power are signed for 25 years, with no provision for tariff revision. In contrast, thermal power purchase agreements allow for annual revisions to account for fluctuations in input fuel prices, with no incentive for thermal power producers to lower tariffs.
Matching demand with peaks in production of solar power from captive systems could result in cost of electricity declining notably for consumers. In India, industries pay an average power tariff of Rs.6.3/kWh. Commercial consumers pay even higher tariffs, Rs.7.7/kWh on average and as high as Rs.11/kWh in Maharashtra. In contrast, rooftop (captive) solar supplies power at Rs.5-8/kWh, without any subsidy, depending upon the size of the system and the cost of finance. As a result, the industrial and commercial sector would benefit from meeting at least a portion of their power supply from rooftop solar.
Decentralised solar power solutions, despite being relatively more expensive than grid based thermal power, provide electricity at rates lower than diesel based systems that currently power businesses in much of rural India. MSMEs are central to the Prime Minister’s ‘Make in India’ initiative. However, lack of access to electricity acts as a great impediment to the scaling up and profitability of these industries. The adoption of decentralised solar power solutions, especially in rural India, can help this sector develop momentum by overcoming the challenges of intermittent power supply from the grid, provided the grid exists, or on diesel based systems that are both expensive and hazardous.
New jobs Another primary focus area of the ‘Make in India’ programme is the creation of new jobs. India needs 10 million new jobs every year. In the face of this colossal job creation target, 100 GW of solar comes with a promise of more than a million jobs. CEEW and NRDC analysis suggests that a million full time jobs, and 300,000 long term recurring jobs would be created in the project planning, construction, commissioning, operations and maintenance of 100 GW of installed solar capacity. The economic case for solar power is both sound and optimistic. As PV prices continue to fall and the Indian market matures to phases, where it can gain from large economies of scale for solar systems, solar power makes sense even without considering its environmental, social and health benefits. The 100 GW solar target will result in much (close to a quarter) of our power supply being ‘Made in India’, making us less vulnerable to the geopolitics of fossil fuel trade.
The writers are researchers at the Council on Energy, Environment and Water (ceew.in), an independent, not-for-profit policy research institution.Twitter: @CEEWIndia.
