Two pieces of news broke last week. Both around solar energy in India.
Both go back to something that was kicked off in 2015.
First, Mint reported that several Southeast Asian countries were hesitant to join the International Solar Alliance (ISA).
In case you don’t know, the ISA is an alliance of 121 countries that lie between the Tropic of Cancer and the Tropic of Capricorn - sunshine region of earth. It’s an alliance formed by India in 2015 with the aim of using solar energy to replace fossil fuels. Think of it as the new energy equivalent of Organization of the Petroleum Exporting Countries (OPEC).
Second, the Economic Times published a story that SoftBank was in talks to sell a majority stake in its Indian renewable energy company, SBG Cleantech.
Set up in 2015 as a joint venture between SoftBank, Bharti Enterprises and Taiwan’s Foxconn Technology Group to build solar and wind parks, it was a key win for Prime Minister Narendra Modi and the Indian government’s push for clean energy.
Look, I know what you are thinking. This looks like a familiar script. This is a story about the Indian government doing stupid things, and of SoftBank doing cartoon-villain evil things.
Nope. That’s not this story.
Mostly because, and I can’t believe I am typing this out, solar energy was one of the very, very few things the Indian government got right. Not demonetisation. Not the Goods and Services Tax. Not the economy. Not tax structures. But solar energy policy.
And not for a short period. But for nearly a decade.
Then, suddenly, it noticed things were going well and said — hey wait a minute...
And proceeded to screw it up.
Big Solar Audacious Goals are set...
Back in 2010, the Indian government launched an initiative called the National Solar Mission. The purpose of the mission was simple — establish India as a global leader in solar energy.
At that time, India had an
installed solar capacity of around 10 MW. To put this in perspective, the total installed capacity of all energy sources in India — coal, thermal, hydro, everything else was
around 160 GW, of which just 10% was renewable energy. Solar energy stood at 0.006%.
So the National Solar Mission said, okay, let’s set a big, audacious, goal. Let’s get solar to 20 GW by 2022.
That’s a 2000X increase. In just 12 years.
Look, if you know anything about India, you’ll know that goals like this are made all the time. Announcement is made. All the newspapers faithfully carry it in their pages. Speeches are made. Then everyone in government goes back to their day job of finding excuses to walk out of Parliament.
This time though, something strange happened.
India hit the 20 GW target in 2018.
A full four years
ahead of schedule.
...and so the Indian government gets more ambitious
It’s worth asking, how did this happen?
There are four things that are necessary to make solar energy work.
- Cheap solar panels
- Cheap labour
- Cheap land
- Lots of sun
India had the last three. It was solar panels — the most important part that had to be fixed. And it got it thanks to a combination of smart policy, the right incentives and...China.
The last bit is important.
China was always interested in solar panels. It neatly fits with their traditional strengths. Manufacturing. Low technology. Global market. So, China really doubled down. Driven by subsidies, economies of scale, and capital,
by 2012, China’s solar module manufacturers had the capacity to supply the entire world’s solar needs.
As we wrote in a
story last year,
The resulting glut in the early 2010s led to the collapse of several Chinese—as well as American and European—manufacturers. Both the US and the European Union had slapped anti-dumping and anti-subsidy tariffs on Chinese solar cells and modules by the end of 2014. Undeterred, Chinese companies set their sights on a new, rapidly growing market—India.
So, in 2015, the Indian government got more ambitious. They raised the bar. Now the new target became 100 GW by 2022.
Prices continued to fall.
Much as in the US and Europe before, cheap Chinese equipment drove down costs for developers, giving India some of the lowest prices for solar-based electricity tariffs in the world. Tariffs fell to less than Rs 3 ($0.04) per kilowatt-hour as companies bid furiously for projects in 2016 and 2017, as imports accounted for about 90% of module sales.
India had arrived. In fact, in 2017-18, the Indian government added nearly 9 GW of solar energy — the highest ever. This is how it hit its 20 GW target early.
Then something changed.
In 2018, for the first time in five years, installations declined.
The four horsemen arrive
Go back to that list of things that’s needed to make solar work.
- Cheap solar panels
- Cheap labour
- Cheap land
- Lots of sun
The word cheap is there three times for a reason. It’s that important. Don’t forget, other forms of energy generation—like coal—have been around for over a century. Over this time, they have scaled globally, and that’s why they are nearly impossible to displace. The only way to do that is if solar energy can be produced more cheaply than any other form of energy. That’s why China’s role is so crucial. No other country could do what China did to drive down prices. Not now. Likely not ever.
That’s the first thing you need to know. Pricing. The minute prices go up, solar energy goes away. Nobody cares about it anymore.
The second thing you need to do is who is responsible for power in India. In India, electricity is a state responsibility, not a central one. This means that the union government can set some policy, incentives, and nudge things along, but really, it’s up to individual states if they want to invest in electricity, and how to do it.
One of the ways that the Indian government did this was to assure solar companies in India that state discoms (power companies) would purchase a certain part of their power requirement from them, even if it was more expensive.
However, the states didn’t see it the same way.
As Down to Earth
reported,
Another reason for the slump is governments’ insistence that plants sell power to discoms at unreasonably low tariffs. This trend began in 2017 after Rajasthan received a bid of Rs 2.44 per unit for the Bhadla Solar Park of Jodhpur.
That set the bar low and all states now expect extremely low tariffs, though operational costs there might be higher than they are at Bhadla. “Lower tariffs require a near perfect scenario where execution, collection and generation risks are minimal,” said Arul Shanmugasundram, chief executive of Mumbai-based Tata Power Solar.
Things were tight.
Then it got worse.
Because in 2017, India launched the Goods and Services Tax.
And it hit solar
hard.
Since many projects predated the tax, and the tariffs that project developers quoted while applying for the tenders were calculated without taking the tax into account, GST became an additional burden and turned the projects unviable.
The Centre asked the project developers to pay the tax and assured them reimbursement. This did not happen.
“Between 2017 and mid-2019, the industry paid Rs 8,000 crore in GST. But state governments refused to pay and instead approached the Appellate Tribunal For Electricity. We are now requesting the Centre for reimbursement,” said Manoj Upadhyay, founder and managing director, ACME Solar, a Gurugram-based firm.
Firms also said the government has framed the tax irrationally. “They tax solar projects assuming 30 percent of our cost is ‘services’ and 70 percent is ‘goods’. But ‘services’ are just 10 percent of what we do,” said Subrahmanyam Pulipaka, CEO, NSEFI. His argument could be driven by the higher tax the government levies on services (18 percent) than goods (5 percent). Still, GST has created complications.
Just as the sector was recovering from this double whammy, the Indian government hammered a third one home.
It imposed a ‘safeguard duty’ of 25% on all solar modules imported from China. It did this to protect local manufacturers from Chinese imports, and to stimulate them.
Nearly 90% of solar modules in India were imported from China.
So did the duty help Indian manufacturers?
Hell no.
As The Economic Times
reported last year,
One year after India imposed an additional import duty on solar cells and modules to stimulate local production and reduce dependence on imports, no new domestic manufacturing unit has been set up, according to a renewable energy consultancy firm.
Before it was imposed, around 90% of solar panels and modules used in local solar projects were imported, mostly from China and Malaysia, as they were cheaper than locally manufactured ones.
The imposition of safeguard duty has not changed the situation.
Prices went up. In some cases, by as much as 20%. All of this led to solar companies producing lesser electricity. In September last year, the analyst firm Crisil put out a
report titled ‘Return to Uncertainty’. The report noted that of the total 64 GW solar and wind capacity for which tenders were floated:
31% was cancelled
26% was undersubscribed
10% was delayed
Nobody wanted solar anymore.
Then came the economic slowdown.
Which led to states getting delayed payments from the central government. Which led to state discoms putting off payments to solar energy companies. Banks started to refuse to lend to solar companies. Slowly, solar power in India couldn’t find capital anymore.
Also, some states started doing some strange things. In a damning story published by Mint a couple of months back titled ‘
The setting sun on India’s solar dreams’, it
noted
Policy changes have been sudden and unpredictable in other states as well. Taking a cue from Andhra Pradesh, Uttar Pradesh made an attempt to renegotiate old renewable energy tariffs. Gujarat decided last year that only projects which supply power to the state discom could use land within the state, flouting a central procurement agency’s rule for setting up projects under the interstate transmission system. Rajasthan, one of the most sought-after states for solar power plants, recently announced its decision to impose a charge of ₹2.5-5 lakh [$3,500 - $4500] per megawatt on all projects that sell power outside the state.
In 2020, the total installed capacity of solar energy in India stands at around 28 GW against its target of 100 GW by 2022.
Last month, the Union Minister of Environment, Forest and Climate Change Prakash Javadekar claimed that India will add 67 GW in the next two years.
At the United Nations Climate Action Summit last year, India’s Prime Minister, Narendra Modi increased India’s renewable energy target to 450 GW by 2030.
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