Solar Power: A business of the future?

Solar power is one of the prized possessions that India is proud of. It is one of the most promising sources of renewable energy, as the country faces a demand for electricity that would increase by five times in the next two decades. Given the frequent power outages throughout the country, harnessing solar power is a sensible option for India that may lead to indigenous solar cell manufacturing. But is India set to emerge as a global solar hub and a big market for solar cells, is the million dollar question looming large over the solar industry.

It is important to understand what’s really happening in India on the solar front to know where it stands in the competitive global pho­tovoltiacs (PV) scenario. Is it worth expecting companies, big or small, to divert resources to the solar domain? What is the ground reality against the promising scenario of India becoming a solar hub in the coming years?

By Srabani Sen

Monday, November 16, 2009: Solar energy (PV) module produc­tion capacity will be almost twice as much as the global market demand for PV in the coming years, according to a government report. “This can lead to oversupply and a huge gap can be created between supply and demand. This can put many manufacturers in a difficult situation,” says Ajay Cahandel, CEO, Urja Ghar. The gap between supply and demand expected over the next few years could hit the solar industry hard. Moreover, the solar industry is still dependent on government support and incentives. So where do we stand and where are we heading to?

Immense potential

“India is one of the best places to develop solar power because we get more than 300 days of sunshine and places like Gujarat, where arid lands are aplenty, can be utilised for generation of solar power, yet so less is happening in the solar industry compared to other countries,” says N Jagatheeswar, owner, Powertec Control Instruments.

India aims to install 20,000 MW of solar capacity by 2020, 1,00,000 MW by 2030 and 2,00,000 MW by 2050 but ironically at present it has only about 5 MW capacity. The Indian solar plan, if implemented efficiently and strategi­cally, can put India in the forefront in the fight for green energy. But despite an ambitious solar PV programme, while the rest of the world has progressed tremendously in the production of basic silicon monocrystalline pho­toltaic cells, India has just a handful of major players—Central Electronics Ltd, BHEL, Moser Baer and REIL. Most other manufacturers of SPV modules are, in fact, assemblers who source the cells and carry out assembly.

Sun’s Energy

Solar power entails producing energy from the sun instead. The sun’s en­ergy can be used in two ways:

• Solar thermal energy: Here the solar energy is converted into solar power through equipment. Example, solar hot water heating system, solar drying system, solar cooking system, etc.
• Solar photovoltaic energy: In this method, the solar energy is converted into electrical energy through equipment using PV tech­nology. It can be used to power anything from a single bulb to all the street lights in the city.

Impending challenges

• As per SEMI India PV, the impending challenges facing the growth and de­velopment of PV in India that needs immediate attention includes:
• Closer industry-government coop­eration for technology to achieve scale
• Common industry standards for railways, telecom, Ministry of New & Renewable Energy, etc.
• Focused, collaborative and goals driven R&D to help India attain technology
• Leadership in PV
• Financing infrastructure, models and arrangements to spur the PV industry and consumption of PV products
• Training and development of hu­man resources to drive industry growth and PV adoption
• Build consumer awareness about the economics and right usage
• Regular calendar of PV technical conferences and workshops to share and diffuse new findings, best practices, technical problem resolutions and to pave the way for collaborative work in the industry

Solar PV is the fastest growing area in the energy sector. Of the US$ 71 bil­lion invested in renewables worldwide in 2007, 30 per cent was in solar PV. According to market analysts, between 2007 and 2011, this industry is poised to grow at a whopping 73 per cent. In 2007, India had 120 MW of installed PV capacity. However, less than 2.5 MW is generated by grid-connected solar power plants. The rest is gener­ated through standalone systems like solar street lighting (about 70,474), home lighting (4,02,938) and solar lanterns (6,70,059).

“After so many years, India still lags behind in basic manufacturing and its growth seems uncertain in the near future as well due to the high cost factor involved in manufacturing monocrystalline silicon cells. But the market for SPV applications based products is growing with the active encouragement of the government,” states Ajay Prakash Srivastava, presi­dent, Solar Energy Society of India.

Much depends on the biggies

However, much depends on the kind of manufacturing that can happen in India. The government has been en­couraging companies to set up solar power plants in India. Also, realising the growing potential of solar power generation and to take advantage of the Indian government’s target of meeting 10 per cent of the country’s power needs through renewable en­ergy by 2012, there has been a flurry of announcements by companies to join the solar industry, with many already setting up their manufactur­ing plants in India.

The upsurge in demand in India by about 25 per cent is prompting several players to pump in huge investments. Biggies like Solar Power India, Tata, Reliance Industries, Signet Solar, Ap­plied Materials, Solar Semiconductor, Moser Baer, Orion Solar, Numeric and Tata BP Solar India have major plans for this industry. “This will give a big boost to this domain as these compa­nies may invest a lot of money in R&D to compete with the world, paving way for new and cheaper technology.

This, in turn, will make solar en­ergy accessible to common man. As more and more companies take to manufacturing in the solar domain, the cost of manufacturing is expected to reduce.” says M R Rajesh, director, Powerone Micro System.

Moser Baer has announced it is building US$ 250 million plant to make solar energy products in Greater Noida near New Delhi using thin film technology from Applied Materials Inc. “The glo­bal photovoltaics market is on a high growth rate and sales are expected to grow by six times to US$ 40 billion by 2010. Sales of about US$ 100 million annu­ally are expected once the plant becomes fully operational. How­ever, we mostly look towards the export market,” says Rajiv Arya, CEO-PV, Moser Baer.

Signet plans to conduct R&D in India and to reduce costs through product innovation. Tata BP Solar, a joint venture between the Tata Group of India and BP Solar of the UK, operates one of the oldest solar energy equipment manufacturing plants in India near Bengaluru. The plant is being expanded now at an additional investment of US$ 100 million. US based Cypress Semicon­ductor is reportedly considering a US$ 50 million facility to make solar cells and wafers near Hyderabad, through SunPower Corp, in which it holds a majority stake. SunTechnics Energy, a subsidiary of Germany’s SunTechnics Gmbh, has a manu­facturing plant in Bengaluru and plans to expand it. However, these companies are all looking towards the export markets, where the need is far greater than local needs.

Will investments give return?

Is investing in this sector sensible in the present scenario, where aware­ness, demand and manufacturing are all in nascent stages? Centroterm Pho­tovoltaice AG was supposed to set up a 5000-ton polysilicon plant in Haldia, West Bengal, in August 2009. Will it be able to compete with the Chinese who are already making raw material in large volumes and that too at rock bottom prices—it is dominating the Indian markets as well. In fact, due to oversupply in China, Trina Solar has canceled its plans for a billion dollar refinery in China. Will Centroterm be able to compete with the Chinese who are flooding the Indian markets? Also, setting up a plant in West Bengal, known for its labour trouble and acute power shortages—a polysilicon refin­ery is hugely power intensive—will it do good to the company, state or the country? It would be interesting to follow this up.

While the government is encour­aging manufacturing in the solar domain, despite suitable conditions, there’s a noise in the industry that the investors, both domestic players as well as MNCs are preferring to adopt a wait and watch policy till some of the government plans see the light of the day. It is also risky to invest into PV cell manufacturing in India or import­ing standard PV cell production equip­ment, install them in India and take the risk of competing against Chinese volumes and low pricing. “But unless you have achieved 1,000 MWs of production using innovative technology, have really mastered it, and understood the trends of the Indian market, it is not sensible to compete with the Chinese,” says Rajesh. The only way to compete is higher volume and lower price.

So where should the investors put in their capital? “Into solar panel production and Indian domestic power generation,” Rajesh is prompt in commenting. “If companies invest in manufacturing solar panels, solar modules, made up of as­semblies of PV cells, this large skilled labour component in panel manufacturing would give India a potential edge. One can do good business by importing low cost PV cells in large volumes to make PV panels,” says Cahandel.

“Solar power generation in India can really make the investors see the sunshine days. This is where they can make money in India,” says Srivastava. This is not because of the ample amount of sunshine India has but because it has acute power outages. Many countries like Ma­laysia have good sunshine and also good power supply and that’s the reason solar power generation did not pick up well in those countries. So despite Malaysia being a huge exporter of PV cells and panels, its domestic demand is yet to help the nation to claim a good stake in the global pie. The same is the case with India with the exception that it has a high rate of power shortage. This growing power shortage is the only reason that India can take advantage of and think of claiming a stake in the global pie chart. And this can happen easily if the government wakes up in time. It is high time that it stops taking baby steps. But is someone listening?

In January 2008, the Union Min­ister of New and Renewable Energy announced feed-in tariffs (FITs) for solar PV projects up to a maximum capacity of 50 MW. Such projects were to be supported by financial incentives of a maximum of Rs 12/kWh (28 US cents) for PV projects and Rs 10/kWh (24 US cents) for solar thermal power projects over a period of 10 years. The scheme is aimed at encouraging a small number of megawatt-level projects. Under the scheme, the project developer signs a power purchase agreement with the state utility at the highest existing market rate. The ministry, through the Indian Renew­able Energy Development Agency, augments this rate to a maximum of Rs 15 per kWh. The maximum sup­plement incentive from the ministry is restricted to Rs 12 per kWh. This will be reduced by 5 per cent for projects commissioned from the beginning of 2010 onwards. The supplement is available for up to 10 years.

The announcement saw a com­petition among the investors for the ‘gold rush’, filing papers to set up solar power projects. But after a year, nothing has taken shape.

Same is the fate with the ambitious National Solar Mission, which an­nounced that FITs would be given for various applications by the respective state governments. Does it mean that the investor gets benefit from both the governments—Centre and state?

Some of the states like Gujarat have already announced FITs at 500 MW. A total of 3,275 MW of paper was filed for this FIT benefit, to be made available by March 2014. The Indian government should study the example set by Spain whose FITs policy of 2007­2008 drove the global PV sales through the roof. Its PV sales went from 600 MW in 2007 to 2511 MW in 2008.

“Investors are making all the right noises but not opening their pockets,” concludes Rajesh. “This is unfortu­nate because if there is a largescale potential anywhere in the world, it’s in India,” he adds.

Cities identified for solar city plan

The Ministry of New and Renewable Energy has formulated the criteria to declare a city as a solar city in the country. The criterion for developing an identified city as solar city is to reduce a minimum of 10 per cent of its projected demand of conventional energy at the end of five years in their Master Plans through energy efficiency measures and generation from renewable energy installations. These cities will have a population between 0.5 to 5 million with relaxa­tion given to special category states including northeast states.

Based on the scheme guidelines and the cities identified by the state governments, so far ‘in principle’ approval has been given to 15 cities namely Agra, Rajkot, Moradabad, Gandhinagar, Nagpur, Kalyan-Dom­biwali, Indore, Imphal, Kohima, De­hradun, Chandigarh, Gurgaon, Coimb­tore, Visakhapattanam and Thane for preparing their Master Plans.

Govt support still on paper

Much depends on the government as well. It has come up with several schemes supporting and subsidis­ing various kinds of solar power systems—some of which have been implemented while majority are still on paper. For example, through a special incentive package scheme, the government had offered capital subsidies to semiconductor manu­facturing and related units, includ­ing solar PV. Eligible semiconductor projects must have a net present value of at least Rs 2,500 crore. The subsidy available is 25 per cent of the capital expenditure. Proposals roughly worth Rs 1,40,000 crore from 14 manufacturers are still lying with the ministry.

Another example of government scheme pending is the heaters promo­tion scheme. “The problem with such schemes is that they come through dealers designated by the government so it is difficult to trust the quality,” says Srivastava. “A national level cer­tification and labelling programme is a must to ensure quality and perform­ance,” he adds.

“The day the government imple­ments attractive feed-in tariffs, incen­tives, subsidies that are now mostly on paper, to individuals and indus­tries, renewable energy will become the next booming industry in India,” says Srivastava.

“Innovative incentive schemes are necessary for mass adoption of solar power in India. Government policies need to be implemented for market adoption and growth such as financing schemes for in­dividuals and enterprising,” opines Jagatheeswar

Challenges and hindrances

The biggest challenge faced by the country is to bring down the costs of manufacturing solar PV—the cost of installing 1 megawatt (MW) of solar power is about five to eight times more than the conventional technology. Finances and the limited techni­cal knowhow remain the key barriers for the solar projects in India. In­novations are needed to make solar projects financially and technologi­cally feasible.

However, the cost of solar cells must come down to encourage solar energy adoption. Adoption of nano technology can also help on the cost factor. Improvements in technology and competitiveness among players in the fields of manufacture, supply, and installation will lead to reduction in costs, but not at the sharp rate that is expected. However, it appears that direct conversion of solar power to electricity is cheaper in India than in other countries.

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