Incentives restricting solar business in India

Indian industry needs a level playing ground to be able to meet the challenges posed by some countries who seem to be dumping low priced goods in the country. But should the industry keep getting incentives even when there is actually no need for them? Do such incentives help or hamper growth of the industry? Read on for the author’s eye opening views

By P S Deodhar

Monday, November 24, 2014: Since long, India’s photovoltaic (PV) solar industry has been driven by the Central and state governments by offering incentives. There is a need to look at market realities and the drastically reduced prices of PV modules. Grid parity, in real terms, is already achieved. Solar power costs less than a third of diesel power and yet our government offers subsidies!

Industries in India love subsidies and incentives. Even today, myth of PV solar power being more expensive than the power from the grid is being perprtuated. The new government will therefore do well to review and revamp this sector. Actually nothing more than reducing the capital cost of a solar plant and focussing on distributed use of solar energy is required.

Till three years ago, the cost of solar energy was high due to high cost of PV modules. But their prices per Wp have rapidly fallen from US$ 3.75 in 2007 to mere US$ 0.65 by 2014. Interestingly, the chart in Fig. 1 also makes it clear that even at the current price PV modules manufacturing industry is sustaining well, as reflected in the ever-growing volume of shipments. Those industries which were inefficient and not modern enough have already vanished from the scene.

Markets in the India’s solar industry, however, continue to be incentive-driven. Not only this is unhealthy but also this incentive regime has vitiated the market with the Ministry of New and Renewable Energy (MNRE) taking the centre stage than the industry! Incentives and the associated bureaucratic rules and procedures have taken us back to the License Permit Raj. It has become a tool in the hands of government employees who seem to use it to line their pockets instead of promoting solar technology. Many of them have become rich. Related government offices at the Centre and the states are today surrounded by touts, many working for the babus inside.

Another reality is the government’s complete failure in honouring its commitment to pay the promised subsidy. It is a shame that the solar energy industry is so dependent on the government for success. Crony capitalism rules in the renewable energy industry. As the cost of energy from fossil fuels continues its exponential rate of increase and solar technologies improve, the cost of solar energy is becoming progressively competitive with energy derived from fossil fuels.

Need for off-grid systems

The emerging reality tells us clearly that, the most economical application of solar energy for India will be off-grid energy systems and micro-grids. May be rural homes need a capital subsidy, and that can be given ‘cleanly’ and efficiently through the nationalised banks. It is as important as the rural banking if not more. Biggest benefit in lighting our dark rural homes would be a sharp drop in highly subsidised kerosene’s use. Solar energy use in Sri Lanka hinges on this to reduce its fossil fuel imports.

NY State’s Public Services Commission, in their April 2014 Reforming the Energy Vision (REV) document, proposes one new approach. It envisages a new mission for utilities, that of distributed services platform providers (DSPPs). “The DSPP will identify, plan, design, construct, operate and maintain the needed modifications to existing distribution facilities to allow wide deployment of distributed energy resources.” From grid based electricity we are moving toward ‘personal electricity,’ or home based electricity. India needs to wake up.

Very few are aware that currently, each day, our country wastes over 400MW of solar power out of 2GW that we feed into the grid because of 30 per cent loss in transmission and distribution in our grid. That is 2000MWh of solar energy each day! Assuming energy need of average rural home is 200Wh, this lost energy could have brought light into ten million dark homes! One can not forget that the government uses our money to buy this lost energy at 10 to 12 rupees! How unjust and blind can one be!

I am disappointed that the solar energy industry is so focused on feeding into the grid. In case of hydropower or coal, electricity production has always been far away from where it could be used. Grid came up to aggregate power from such plants. God has provided a perfect distribution system for the Sun’s energy. I consider that the grid is an alternative to energy storage in batteries. Grid storage demands efficient grid infrastructure, as in Germany, otherwise grid feed comes at a great price.

Unlike fossil fuel, solar energy is absolutely a free gift from the nature. Its kWh cost is essentially the apportioned cost from the plant cost depreciation. If all scheduled banks are advised to lend the capital for a solar plant at 2 per cent, everyone would want to go for a solar plant even in small towns and villages. Loan amount could be limited to Rs 100 per Wp rating of solar modules used by grid feed users and Rs 130 per Wp for off-grid systems. Government can easily find a way to offer this incentive via banks and completely avoid corruption that is vitiating this business.

The incentive programme therefore can be scrapped right away, except for lowering the interest on capital cost. After this adjustment, the solar energy will give full return for its current value. As it is, currently the cost per unit, kWh, is not more than Rs 7 to 8. Cost of commercial power in most urban areas is 60 to 65 per cent higher during the day time, when the Sun, ready to give away energy for free, is shining bright.

Since 80 per cent of the investment is allowed to be written off, proper market promotion and low interest capital will make the urban institutions like schools and colleges, businesses, factories, malls and commercial shops and establishments to shift to this free and clean energy. The best way to stimulate this sector of potential solar users would be to allow 150 per cent capital value write off as depreciation same year. This will leave no scope for bribes.

Social cause

Solar energy has more to it than mere money. The solar energy does not run on hope so much as it runs on the basis that coal and gas are killing us, and we have to do something about it. Those who currently use it, even though it has not been the cheapest option for them, it is because of their concern for the future. The pie-chart in Fig. 2 reveals how insignificant we are in global projections, both in terms of supply and demand. This can change with micro-grids, and self-owned power by the people.

While we consider energy sector, one can see that the invisible (or better hidden or disguised) costs of fossil and nuclear are much higher. When UPA government was pitching for nuclear power to us as cheap, inexhaustible energy, nobody talked about the fact that demolishing a nuclear power plant costs four times its construction, and that the solution for the nuclear waste disposal stands still unresolved in front of us. We have before us the ‘occasional glitches’ like Three Mile Island, Chernobyl and Fukushima. A report says that, cleaning Fukushima mess will cost the Japanese trillions of dollars besides the real human and environmental costs that nobody wants to talk about.

Once used, the oil is gone. Most of us do not worry since a generation or two later we would not be there to see the burden of the consequences. As the ancient Indian proverb says, “We do not inherit the earth from our ancestors; we borrow it from our children.” So it is not only that we can still pay today for the use of fossil fuel, it is about should we use it to the extent that we do today?

While the current solar technology is for sure far from ideal, it offer a glimmer of hope that the coming generations can one day say: “At least some of us have tried hard to save the future.” Unfortunately, all government policies these days are largely influenced to favour businesses and not the people at large. I hope current focus on rapid development will be steered to be inclusive in real terms. •

The author was the chairman of the Electronics Commission in the eighties and advisor to late Prime Minister Rajiv Gandhi on electronics. He is founder of the APLAB Group of companies and a recipient of EFY’s Lifetime Achievement Award. The views in this article are his personal