The JNNSM has seen a strong start with exponential growth. India now generates 979 MW of solar power from less than 20 MW in a span of two years. Another 820 MW will be generated by mid 2013. The framework of the JNNSM’s policy has been appreciated around the world and its continued growth is important for India’s energy security and its growing power needs.
The existing solar projects under JNNSM have faced several major challenges thus the industry committee will have to deliberate and advise on targets for the next phase, technology matters, manufacturing, investments and fiscal policies that are critical for the growth of the solar industry in India
1) Challenges revolving around the structured policy:
- The procedure to avail the duty exempt is lengthy and involves multiple bodies i.e. state and MNRE and thus various clearances takes times and delays the projects.
- There seems uncertainty associated with the recent solar auctions due to the extraordinarily low tariffs quoted by successful bidders.
- Another issue that needs to be addressed immediately involves the extent of policy protection permissible to local manufacturers. In recent months, Indian solar panel manufacturers have raised the pitch by accusing Chinese manufacturers of dumping and have called on the government to provide trade protection against them. They complain that US and Chinese imports can be brought into the country tax-free, whereas Indian manufacturers have to pay duties on raw materials to make the same products.
- Another policy issue is the allotment of specific quotas to CSP and PV technologies by JNNSM rather than allowing the market to select for most efficient and cost effective technology for India.
2) The other challenge is with respect to finances:
- The understanding of RE sector is less and clarity on various factors is required. Thus the time taken for project evaluation and financial closure increases and therefore increases the risk associated with completion of project in stipulated time period.
- Another concern remains for the security of payment keeping in view the financial health of SEBs and Discoms.
The past one-two years have been an excellent learning phase for the investors and state policy projects have given financial institutions a sense of commitment beyond being mere debt providers.
3) Land acquisition: Solar power is one of the most land intensive electricity generation options requiring 5-10 acres/MW.
- JNNSM left acquisition of permission for land, water issues, construction power, basic amenities etc to be decided at the state level which adds another layer of process which can potentially delay process.
- Further, such huge requirement calls for a comprehensive land use plan. Neither are there any standards in place for land acquisition for solar manufacturing plants and power stations. Guidelines must be framed to prevent excessive land acquisition.
4) Grid Connectivity:
Most of the renewable energy projects are located in remote areas, which have sparse transmission/ distribution system and which has been a major hindrance in harnessing the energy from such renewable sources. In order to overcome this bottleneck, the Electricity Act 2003 under Section 86 (1) (e) has entrusted the responsibility on SERCs to develop suitable framework for providing grid connectivity to such renewable energy projects.
For example the Maharashtra Electricity Regulatory Commission requires that the costs of infrastructure are borne by the utility while the Madhya Pradesh Electricity Regulatory Commission says that the cost is borne by the developers initially and 50% would be paid back by the utility. Similarly the issue of location of metering point is also treated differently by different utilities
Technical guidelines and requirements for RES are varying with one state to other state and not good enough for the large RES integration into the grid. In order to promote RES and to maintain common grid discipline there is an urgent need of a specific and common grid code for RES in India
General Conditions for connectivity of Renewables
i) A generating station of renewable sources can be connected at the distribution level (below 33 kV) or transmission level (at or above 33 kV) of the State depending upon policies of the State Electricity Regulatory Commission.
ii) A generating station of renewable sources can also be connected to the Inter State Transmission System.
The project developer should indicate to the TRANSCO the location (Tehsil, Village and District as applicable) of its proposed project. In this regard, the Project Developer shall submit a letter from the State Transmission Utility (STU) along with the Request for Selection, confirming technical feasibility of the connectivity of the plant to the grid substation. The Solar Power developer would have responsibility for approaching STU and entering into transmission evacuation agreement .The responsibility of constructing the transmission line from power plant upto132/33 kV substation would be of STU.
Technical issues in grid connectivity:
- Active power/ Frequency Regulation
- Reactive power/Voltage Control
- Fault-ride through capability
Issues with evacuation of energy:
- Remote areas, augmentation of existing power transmission lines or new lines
- Interconnection point
5) Technical challenges:
- Lack of authentic data on irradiation has been a big challenge and bankers are wary of the legitimacy of these data and its impact on the CUF of solar power plants. This issue is however getting sorted out slowly with MNRE along with CWET have initiated efforts to set up solar radiation measurement stations at various regions in the country in an effort to provide accurate and reliable data on solar radiation
- Competency of vendors and performance of their products as banks are willing to fund projects that utilized modules and inverters from established players who can offer performance guarantee over the lifetime of the project. Technology and quality of Indian modules still needs to be proven.
- There is no manufacturing base in India for the basic raw material – silicon wafers. The industry hence relies on international markets to source the raw material.
The silicon market has been highly fluctuating in the past, leading to imbalance in demand supply equation, fluctuating prices and availability of raw material.
- Currently, the silicon production capacity is much higher than the demand and prices are at significantly low levels compared to the scenario a year back. In the past, some of the solar PV firms have entered into rate contracts with silicon wafer suppliers to ensure availability. With a sudden reduction in prices, the contracts now prove to be a loss making proposition for these firms.
- Non availability of advanced thin film technology in India
- No delivery concerns with imported modules
6) Other challenges:
- Background and experience of the promoter plays an important role as banks expect that the promoter / developer should have a prior experience in the solar energy sector or its adjacent areas. A developer is held responsible by the bankers not only for his defaults, but also for defaults at the side of EPC, vendor, electricity buyer etc.
- Competency and track record of EPC Company is a concern. The design engineering of a solar power plant is critical to its performance over a lifetime. Banks and other lenders of realized this and hence there is a high demand for competent EPC with proven track record. The second round JNNSM bidding has seen an increase in project size from 5 MW to 20 MW. Indian EPC companies do not have proven experience of commissioning such large utility scale projects. Hence, developers are forced to look up for European EPC’s and system integrators especially for the design and detailing part. This is vital to improve the comfort level of banker to fund the projects.
Hence, the challenges for power producers include policy uncertainties that arise from time to time. For a project developer putting up a power project in the states, the risk of default of payments by these utility companies is quite high.
Global competition is a major challenge to the manufacturers. Indian manufacturers have to differentiate themselves from their competitors if they have to be successful in this market.
The tendency on the part of project developers is to transfer most of the risk onto the EPC is also a challenge. When an EPC accepts a project, it needs to have a clear idea about the risks associated with the project and strategies to effectively mitigate them. There is immense pressure on the EPCs to reduce as much cost as possible. In order to be successful in the long run, it is very important for the EPCs to find the right balance between cost and the quality of service offered by them.