Vibrancy of Gujarat’s solar energy sector makes it a favourite destination for investments

Various incentives, attractive tariffs and a single window mechanism for infrastructure development and implementation are the major factors that have made Gujarat’s solar policy comparatively more profitable than the MNRE scheme and other states’ policies

By Richa Chakravarty

Monday, November 24, 2014: Currently, the total installed grid connected capacity in the country is approximately 1600MW. Out of this, Gujarat alone achieved a total installed capacity of 852.31MW across various locations, in 2013. It leads the states in tapping sunshine, with about 4 per cent of its energy requirements met by this source. Rajasthan, the runner up, plans to set up the world’s largest 4000MW solar power project. The total grid connected solar power projects commissioned in Rajasthan till March 2014 stand at 730MW. Madhya Pradesh ranked third among solar power generators last year. Currently two major projects executed by Gujarat and Rajasthan have attracted not just national but global attention too.

Rajasthan gave India its first concentrated solar power (CSP) project. Spread over 400 acres of barren land in Nokh village, a popular tourist destination in Jaisalmer, this 50MW project is the first and only power plant till date among the seven CSP projects declared to have become operational. The government has approved a total capacity of 470MW to be developed by CSP projects under the first phase of the solar mission. The plant is capable of generating around 125,000MWh of clean electricity every year and light up around 2.5 million homes.

Along with this, the Charanka solar park in the Rann of Kutch has put Gujarat on the top of India’s solar map. Touted as the largest solar park in Asia, Charanka has a capacity of 225MW. When fully operational, this park is likely to generate 600MW of power and will have a photovoltaic (PV) solar capacity of 214MW, which is more than the Golmud solar park in China. Till now, Charanka solar park has attracted 21 project developers to set up solar power projects with a cumulative installed capacity of 225MW.

Why investors are inclined towards Gujarat

To capture the huge potential in the solar sector, the government of Gujarat (GoG) introduced its Solar Power Policy (SPP) back in 2009. Promoting alternative sources of energy through investments from private developers was an important step which the state government took in the very formative years of solar power entering the Indian energy market. Growth in solar power generation in Gujarat was largely achieved after the SPP was released in 2009, a year before the release of the National Solar Mission (NSM). Even after the release of the NSM in 2010, Gujarat has emerged as a favourite destination for solar power developers.

The first mover advantage: Though the NSM has been the major promoter of solar energy in the country, Gujarat enjoyed the first mover advantage. Apart from the early launch of its solar policy, geographically too the state has many advantages. Gujarat has a solar insolation of 5.8–6.0 kWh/m2/day and has vast tracts of land in the Banaskantha, Kutch and Saurashtra regions, which have naturally proved to be the hotspots for developers.

Tariff policies: The Jawaharlal Nehru National Solar Mission (JNNSM), launched in 2010, has a target of reaching 10GW solar installations by 2017. To achieve this target, the government has introduced several schemes and tariff policies. In particular, the reverse bidding process in the scheme has attracted its share of controversy. In reverse bidding, solar power developers have to bid for the tariff that will be charged in a PV project. The disadvantage of this method, when compared to Gujarat’s solar policy (where a preferential tariff was fixed by the government for the period the policy was operational), is that the tariff became the most important criterion when developers chose a specific policy (national or state policy). The high tariff offered by the Gujarat government, when compared to the tariff under the reverse bidding system of the NSM, made business developers lean towards Gujarat’s solar policy.

Many companies did move away from Gujarat after the NSM was formalised in 2010, but this phase did not last long. The enormous interest from developers in the NSM led to competitive bidding for the projects and this led to a dramatic decrease in the power generation tariff. The interesting fact here is that the total capacity that developers bid for under the NSM in July 2010 was as high as 5126MW. However, within months, due to the steep fall in NSM tariffs, the capacity covered by bids dropped to as little as 650MW (in September 2010), and only that capacity eventually reached the stage of PPAs getting signed. Hence, the steep fall in the NSM tariff below the fixed level tariff of Gujarat resulted in developers’ interest suddenly switching back to Gujarat’s solar policy.

Better implementation and sense of credibility: Following the footsteps of Gujarat, other states too introduced solar polices but they have not executed these well. Not many states have been prompt in making payments. Karnataka and Tamil Nadu discoms (power distribution companies) have been delaying the release of payments. ‘Moreover, because Gujarat’s SPP has led to a good implementation track record, the state has earned immense credibility among business developers. This is because payment of such high tariffs under Gujarat’s SPP (solar power policy) is not easy, considering the financial stress power distribution utilities in other states are currently going through.

An investor friendly state: Gujarat is a state that favours industrial development and is friendly to investors. Factors such as a strong tariff, transparency, financial stability of the state’s electricity utilities and government agencies have all played a major role in drawing business developers to Gujarat. It is also important to highlight the state’s investor friendly environment as most of the industries are well established in the state, which is an important factor that attracts business. Various incentives, attractive tariffs and the single window mechanism for infrastructure development and implementation are the major factors that have made Gujarat’s solar policy comparatively more profitable than the MNRE scheme and the other states’ policies. These initiatives and the state’s SPP that harnesses the power generated in solar parks, making them grid interactive, have also drawn several business developers and solar companies to invest in the state. This has helped in developing a strong solar base in the country.

 Electronics Bazaar, South Asia’s No.1 Electronics B2B magazine