Need to Tread Carefully on India’s Solar Ambitions?

Gone are the days when the Solar Power projects were solely an estate of Government’s subsidy regime. With India’s solar industry achieving the price parity, there is a perception that the nation is striding fast towards achieving its 175 GW of Renewable Energy target by 2022.

The large pool of global capital eyeing India’s solar potential coupled with the greater appetite of global financing industry disbursing cheaper loans for increased tenors and the significant reduction in the equipment cost (26% reduction since last year) are some of the key factors signalling that the market for solar is growing in India.

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For greater uptake, the project developers have also gone a step ahead by cutting down their annual margins. Such market dynamics are possible due to the credit worthy power procurers such as Solar Energy Corporation of India (SECI) and National Thermal Power Corporation (NTPC) who ensure guaranteed consumers and returns to the investors. As an outcome of the above, electricity tariffs for consumers have significantly gone down. No wonder the much spoken about Madhya Pradesh’s Rewa Solar Plant has hit the record low tariff of Rs. 2.97/unit in its first year.

This clearly seems to be a good news for the consumers. However, the key question to be pondered over is whether the benefits will percolate till the last mile consumer?

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As regards the last mile, decentralised solar rooftop approach is essentially the means to relay power to the last mile consumers located in the remote and rural areas in India. This approach brings along numerous benefits. Apart from ensuring energy access, it is a cleaner energy source and much cheaper in comparison to the diesel generated power. The market is currently operational on different business models which have been developed to suit the consumer’s requirements. Further, it is also worth noting that the reduction in equipment cost for utility scale projects has brought in a sense of relief for the investors in the decentralised industry as well. However, despite the Government’ subsidy schemes to support the decentralised market, relaying power to the last mile is still fraught with ample number of bottlenecks.

Lacunae in policy design, administrative issues, complicated application procedures and lack of consumer awareness are amongst the critical bottlenecks. In contrast to fixing these bottlenecks, we are falling in the trap of ignoring the last mile consumer. The traces of the same can be gauged from the Ministry’s new plan of increasing the target till 2022 for solar parks by 20 GW and a corresponding reduction of 20 GW in the rooftop segment’s target.

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With regards to the policy landscape, there are few factors that need to be considered. What investors look for is policy predictability over long term. While this is desirable, it may not be easily achievable. For instance, the subsidy schemes are quite often revised by the Government. In addition, there are solar programmes and subsidy schemes being offered both by Centre and various State Governments. This results in the difficulty for assessing the impact of such schemes in terms of electrified households and villages. Thus, it would be beneficial for the Government to undertake an assessment of policy failures and organising inclusive multi-stakeholder consultations for designing sustainable policies, so as to avoid failures as far as possible.

Another significant concern that needs attention are the procedural complexities. Seeking approvals for availing subsidy benefits is a tedious task for consumers. Further, there is also the absence of a single interface mechanism for consumers to facilitate all requirements ranging from financing, installation, operation and maintenance. Thus, we need to design measures to reduce challenges for the last mile consumers. Alongside Ease of Doing Business, indicators ensuring ‘Ease of Availing Services’ also need to be designed and implemented.

Deficiency of appropriate financing mechanisms is yet another challenge for the decentralised industry to take off well. Financial institutions are highly sceptical of the credit worthiness of such consumers. Collection of timely instalments from consumers located in remote and rural areas adds to banks’ burden. A suitable approach in this regard could be designing of a tripartite agreement between the Government, financial institutions and project developers/AMC contractors for designing suitable business models. This shall reduce the risks for all the parties to a large extent.Owing to all the above, the decentralised segment continues to pose as an arduous puzzle for project developers, government and financing institutions. Clearly, the task ahead is a mammoth one to translate benefits of low tariffs and energy access to the last mile consumer. It is just about time that government in partnership with the private sector designs a strategy to overcome these challenges or else inclusive and sustainable development will remain a far cry. Needless to say that for India’s solar ambitions to bear the fruit of success, equivalent consideration is required for both centralised as well as the decentralised segment. Thus, it’s time that India treads carefully on its solar ambitions.

Owing to all the above, the decentralised segment continues to pose as an arduous puzzle for project developers, government and financing institutions. Clearly, the task ahead is a mammoth one to translate benefits of low tariffs and energy access to the last mile consumer. It is just about time that government in partnership with the private sector designs a strategy to overcome these challenges or else inclusive and sustainable development will remain a far cry. Needless to say that for India’s solar ambitions to bear the fruit of success, equivalent consideration is required for both centralised as well as the decentralised segment. Thus, it’s time that India treads carefully on its solar ambitions.

Co-authored with Kanika Balani (Research Associate, CUTS International)

(The author is Deputy Executive Director of CUTS International www.cuts-international.org)

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