solar power
CENTER FOR STUDY OF SCIENCE TECHNOLOGY
AND POLICY (CSTEP)
LARGE GRID-CONNECTED SOLAR PLANTS
SAPTAK GHOSH AND NAGALAKSHMI
PUTTASWAM
ROOFTOP PV SYSTEMS
NAGALAKSHMI PUTTASWAMY, POOJA VIJAY
RAMAMURTHI AND SAPTAK GHOSH
OFF-GRID AND DECENTRALISED PV
VAISHALEE DASH, POOJA VIJAY RAMAMURTHI,
SAPTAK GHOSH
Making 100 GW Solar Target a Reality
In the recent budget speech, the government announced that out of a national renewable
energy target of 175 GW by 2022, solar will contribute 100 GW. This means that the target for
the Jawaharlal Nehru National Solar Mission (JNNSM) will increase by almost five times. At
a state level, this target translates to 10.5% of solar Renewable Purchase Obligation (RPO).
Although these targets are extremely ambitious, with proper administration and supporting
policy frameworks, they are achievable. The authors have attempted to address the key issues
in achieving these ambitious targets through a series of articles including an overview of the
challenges and possible measures to overcome them.
Large grid-connected Solar Plants
Currently, large solar PV plants comprise
more than 90% of the installed capacity
and developers have received consistent
support from the Ministry of New and Renewable Energy (MNRE) in terms of the
bundling mechanism and Viability Gap
Funding under JNNSM. To enable developers further, MNRE has identified 12 states
for setting up solar parks with a total capacity of 20 GW between 2014-15 and
2018-19. Details of these locations and
associated planned capacity are shown in
Table 1 below. The total proposed outlay
in the form of Central Financial Assistance
(CFA) for setting up the infrastructure for
the solar parks is Rs. 4050 crore.
In spite of these advantages for large developers, reaching the revised target in 7
years remains an uphill task. The following
sections elaborate upon the various challenges and how they can be addressed.
Table 1: Proposed Locations and Capacities of Solar Parks in Indian States.
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Technical Challenges
Solar energy, being intermittent in nature,
leads to grid instability. Scaling up the installed capacity to the revised target will
magnify the concerns of grid operators
and load dispatch centres in regulating the
frequency and voltage fluctuations. Each
region/state will need Renewable Energy
Load Dispatch Centres to predict the fluctuations from both solar and wind. They
will work closely with grid operators, developers and state load dispatch centres
to develop accurate load balancing algorithms using appropriate storage mechanisms such as pumped storage hydropower systems or large battery systems (which
are capital intensive), or other systems
with fast ramp up capabilities such as gas
plants.
A major challenge of large solar parks is
the associated evacuation infrastructure
requirement. Heavy investments are required to upgrade the national grid and
construct new sub-stations, transformers
and transmission lines. International financial institutions such as the Asian Development Bank (ADB) are already lending to
the Indian Government for this cause. The
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issue here is that newly constructed transmission lines will remain idle after sunset.
To increase the utility of the evacuation infrastructure, large storage systems need to
be in place to supply 24/7 power. Concentrated Solar Power (CSP) with molten salt
storage systems is an option, albeit an expensive one. The other choices are to have
biogas plants with local biomass resources
or dedicated biomass plantations within
the solar park vicinity or hybrid plants with
wind turbines. Optimisation algorithms
will be needed to determine the capacity
of the solar park considering biomass or
wind resource availability and techno-economics of other storage systems.
Resource Availability
Large-scale solar installations in the revised
target will impose strains on resources in
terms of water and land availability. In arid
and semi-arid states, water availability is
a growing concern. Solar parks in these
states will directly compete with societal
demands. To reduce this impact, established linkages of water with power plants
need to be constructed, which do not infringe on the needs of society. PV plants
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– which require lesser amounts of water
as compared to CSP plants–with more efficient cleaning or recycling mechanisms
need to be explored to conserve water.
Solar plants have large land footprints and
this constraint is likely to play an important role in India since it is very difficult to
find large uninhabited contiguous parcels
of land. For solar parks, rehabilitation and
relocation measures must be undertaken
after grassroots level stakeholder interactions to compensate for displacement.
Human resources are vital for the success of solar parks. Although solar parks
guarantee job creation, local participation
remains a concern. The government’s plan
to train 50,000 people in areas related to
solar power need to include local capacity
building strategies to ensure growth in local income.
Financial Challenges
Although the cost of solar PV has witnessed a decreasing trend in the past few
years with Levelized Cost of Electricity
(LCOE) reaching as low as Rs. 5.25/unit
and the capital cost hovering around Rs.
7 crore/MW, approximately Rs. 2,80,000
crore will be required to achieve the large
grid-connected solar plants target. In the
past, the biggest financial challenge faced
by developers has been access to low cost
finance. While developers using imported
modules and cheaper EXIM bank loans
(10% interest rate with hedging for 18
years) have thrived, developers using indigenously manufactured modules have
had to avail costlier loans (at 13% interest
rate with a shorter tenure of 10 years). This
has led to a reduced growth in the Indian
manufacturing sector. To drive down the
cost of debt, innovative financial instruments must be introduced in the market.
One option is to introduce Green Bonds
(issued by World Bank across the globe to
finance Renewable Energy projects). The
Solar Energy Corporation of India (SECI)
can issue bonds at 8% interest rate to the
public with a maturity period of 18 years.
The corpus collected can be made available to developers at around 9.5-10%
for the same time period. This will lead
to higher returns for developers using domestic modules.
Another option is to create a corpus
using foreign funds with a lower hedge
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rate. Historically, India has procured considerable amounts of foreign debt to build
infrastructure at low interest rates and
the credit rating of the country has been
good. Hence, developed countries continue to lend finance for Indian infrastructure projects. This works in the favour of
a low hedging rate if a credible national
institution like the Reserve Bank of India
secures the debt. Since developed countries expect around 3-5% interest on their
investments, India can take advantage of
this by investing in the solar sector.
On the other side, distribution utilities
that are the purchasers of solar power
across the country have ailing finances. It
is a heavy burden on them to enter into
25 year Power Purchase Agreements (PPA)
at Rs. 5.25/unit because they will need to
pay for 66 billion units generated from
large solar plants per year. One way to
keep both the developers and the utilities
happy is to have a rational tariff setting
mechanism. Since the price of coal-based
electricity is increasing, the solar PPA can
be dynamic and start at an average pool
purchase cost for the utility and increase
annually at the same rate of coal before
being capped once grid parity is achieved.
Research has shown that this mechanism
leads to better returns on investment for
the developer than a fixed PPA at Rs. 5.25/
unit. The rising costs of electricity will ultimately get passed on to the end user, so
the utility is also protected in this scheme.
If all of these challenges are dealt in a
structured manner by the government
with appropriate policy frameworks within
which RPOs are enforced along with timely
integrated resource planning and single
window clearances for land procurement, there is no reason why India cannot achieve the target for large-scale solar
plants by 2021-22.
Rooftop PV Systems
The second part focuses on the Rooftop
PV (RTPV) sector in the country. Till date,
large solar plants have dominated the Indian solar landscape, with more than 90%
of the 3.3 GW installed capacity. However,
decentralised solar generation provides
benefits such as low land footprint and
reduced Transmissions and Distribution
(T&D) losses. The new government appears to have realised these benefits and
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Till date, large solar
plants have dominated
the Indian solar
landscape, with
more than 90% of
the 3.3 GW installed
capacity. However,
decentralised solar
generation provides
benefits such as low
land footprint and
reduced Transmissions
and Distribution (T&D)
losses
has allotted 40% of the100 GW target
(by 2021-22) to RTPV systems. CSTEP’s research shows that the RTPV potential in India ranges between 40-92 GW, and hence
the national target seems to be technically
feasible.
RTPV systems (~60 MW installed till date)
typify decentralised power generation and
thus pose a unique set of challenges for
policy makers and distribution utilities.
These systems are end-user oriented and
have more transactional and institutional
layers as compared to large solar plants.
The major obstacles include lack of economies of scale, weak local distribution infrastructure and poor social outlook. Major institutional reforms, social awareness
programmes, technology up-gradation
and innovative policy mechanisms need
to be implemented to reach the ambitious targets in the next seven years. A
“systems engineering” approach needs to
be adopted which takes social, economic
and technical aspects into consideration
while designing a successful RTPV policy
framework.
Technical Challenges
Intermittency in radiation profiles leads
to fluctuations in energy generation from
PV panels, which have implications on the
power quality and stability of the low tension distribution grid. States like Delhi, Tamil Nadu and Punjab have recommended
that the threshold limit for penetration of
PV distributed power be 15-30% of the
distribution transformer’s rated capacity.
It becomes a challenge to manage fluctuations at higher penetration levels of
distributed solar power. Therefore with
40 GW of installed RTPV systems, at a
decentralised level, where load balancing
algorithms are weak, intermittency could
have severe implications on grid stability in the form of voltage fluctuations. In
simpler terms, assume that there are 70
houses with grid interactive RTPV systems
on a street with one distribution transformer. During the daytime, when these
RTPV systems are generating electricity, a
large passing cloud will cause an instant
drop in the generation which will need to
be compensated by the local transformer.
Owing to the voltage and frequency mismatch, the transformer might fail leading
to power outages and maintenance issues.
Financial Challenges
One of the major reasons behind RTPV’s
slow uptake in India is high initial investment costs. The price of RTPV systems
hovers between Rs. 70,000-1 lac/kWp depending on the inclusion of battery storage and tracking systems [Most RTPV systems are constrained by available rooftop
area. Hence, to maximise yield, tracking
systems are used to follow the trajectory
of the sun. Although this leads to higher
initial investment, the IRR increases by a
higher margin, thereby making a stronger
business case for the consumer].
The capital subsidy offered by the Ministry
of New and Renewable Energy (MNRE) has
recently been reduced from 30% to 15%.
A typical urban RTPV system with a capacity of 4 kWp with a net-metering scheme
[In this scheme, electricity consumption
and total generation from the RTPV system are measured on a monthly basis. If
consumption is more than generation, the
consumer pays the difference to the utility
and vice-versa. In the case of Bengaluru,
the net-metering rate is Rs. 9.56/unit without MNRE subsidy and Rs. 7.2/unit with the
subsidy]. (availing a commercial bank loan;
Interest rate = 13% and loan tenure = 10
years) yields an Internal Rate of Return (IRR)
and payback period of 12%and 8 years
respectively. The German RTPV model was
immensely successful with the Feed-in-Tariff
(FiT) mechanism which yielded IRRs of 5%
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(the discount rate was around 1.5% in the
last two decades) with payback periods of
more than 10 years. However in the Indian
context, these numbers are not economically viable to the quintessential middle
class family, which comprises a major portion of urban demography. Normally, in
Indian society, expected returns on any investment are more than 13%. To encourage domestic RTPV uptake, some commercial banks are now providing loans for RTPV
systems clubbed with home loans at lower
interest rates.
Industrial and commercial consumers
depend heavily on diesel-based electricity which costs around Rs. 11/unit. Using RTPV systems, they can reduce this
dependency and obtain cheaper power
between Rs. 6-7/unit (without capital subsidy). To make a more robust business case
with IRRs above 15%, they need to gain
additional revenue by selling their accrued
Renewable Energy Certificates (RECs) in
the market. However, at the moment, the
Renewable Purchase Obligations (RPOs)
are not stringently enforced, thereby making REC sales a major challenge.
Additionally, the financial implications
of 40 GW of RTPV systems on the country’s distribution utilities will be quite severe. The already cash-strapped utilities
will lose revenue as customers increasingly
meet their electricity needs through RTPV
systems. Utilities will have to procure excess electricity generated by RTPV systems,
through the net-metering mechanism or
FiT mechanism, at rates which are considerably higher than their Average Pool Purchase Price (APPC). Utilities will also have
to invest in grid balancing and network
up-gradation to ensure effective last-mile
connectivity.
Holistic System Design
A generic policy and regulatory framework
needs to be developed to enhance the rate
of RTPV uptake in India. This framework
can be implemented across the country
with tweaks, which take local aspects
into account. To begin with, stakeholder
interactions need to be held between the
renewable energy development agency,
electricity regulatory commission and distribution utilities in each state. Once the
financial health of utilities has been assessed, a roadmap needs to be charted
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out which sets annual capacity addition
targets and provides guidelines for utilities
to upgrade their existing infrastructure.
Appropriate net-metering and FiT rates
should be implemented after calculating
revenue losses of utilities and compensating for the Cross Subsidy Charges (CSS) of
industrial and commercial consumers.
To be able to exploit the rooftops of those
who cannot afford the initial investment, an
innovative scheme involving the use of an
“aggregator” can be devised. The aggregator system is an institutional innovation
that improves the efficiency of interaction
between government schemes and numerous individual households. An aggregator
can consist of a solar developer and a retail
company with a proven track record of customer interaction. The aggregator will be
responsible for setting up RTPV systems on
customer’s roof tops as well as Operation
and Maintenance (O&M). The customer
will not own the RTPV system (thereby saving the initial investment), but will only pay
the aggregator for the electricity generated at a rate lower than the utility tariff.
Based on the customer’s credit rating, the
aggregator will also charge a down payment which will adjust itself with future
electricity sales. The aggregator can gain
additional revenue by selling RECs (once
RPOs are enforced) gained from their RTPV
portfolio, and availing tax holidays for the
first 10 years.
Therefore, instead of direct interaction
with customers, the government can take
on an administrative role of enforcing
RPOs (which are essential for this scheme
to succeed) and performing energy audits.
Urban areas can be divided into zones,
which can be allotted up to two aggregators to ensure that there is an initial
level of competition. After a few years,
these zones can be opened to all aggregators to create a free market with perfect
competition.
In conclusion, in order for India to
achieve its ambitious 40 GW RTPV targets
by 2021-22, it is imperative to examine innovative schemes and policies such as the
ones discussed in this article.
Off-grid and Decentralised PV
This part of the article examines the offgrid sector. Currently, there are more than
300 million Indians without access to electricity and a significant population, which
gets less than six hours of power supply
per day. A primary reason for poor electrification in India has been the slow expansion of central grid systems. Till date,
the solar energy landscape has been dominated by large-scale plants, which make
up more that 90% of the 3.3 GW installed
capacity. However, remote locations and
low incomes of rural population make the
extension of centralised grids uneconomical. Small-scale solutions can be effective
in such situations, which is the key driver
behind the government’s plans to strongly
promote this technology as part of its 100
GW solar target (by 2022).
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Popularly used decentralised solar systems
include Solar Home Lighting Systems (SHS),
Solar Lanterns (SL), micro-grids and pumps.
Capital costs of off-grid solar micro-grids
with storage systems are about Rs. 2 lakh/
kWp and the Levelized Cost of Electricity
(LCOE) is Rs. 19-24/kWh. This is high as
compared to Rs. 6-9/kWh for large gridconnected plants and RTPV systems; however it can be low compared to the cost of
extending the grid to remote areas, which
Agarwal et al. (2014) claim becomes prohibitively high at Rs. 26-228/kWh if the village is 5-25 km away from the grid.
Despite several attractive schemes being
introduced by central and state governments, off-grid systems aren’t as popular
as grid-connected projects. They face major obstacles which include high capital
costs, complicated disbursal procedures of
central subsidies, minimal guarantee of returns on investment and difficulty in local
Operation and Maintenance (O&M). In addition, varying location, needs and preferences of consumers render a ‘one size fits
all’ approach infeasible. Hence these systems face higher costs and increased challenges. Ramping up the existing installed
off-grid capacity will require meticulous
planning and innovation.
Policy Gaps
In the past decade, multiple decentralised electrification schemes from various
ministries have led to unclear directives
and mixed results in the sector. Complicated processes have led to capital subsidies being doled out after long periods of
time, even up to 2-3 years. Bringing these
schemes under one authority and streamlining the associated processes would provide more transparency and efficiency in
the overall processes.
Previously, subsidies on diesel and kerosene made investing in relatively more
expensive solar systems unattractive. However, with diesel prices already deregulated
and kerosene subsidies most likely to be
scrapped, global declining solar prices
could make solar solutions increasingly
economical. A recently proposed scheme
includes giving rural households the option to choose between cash subsidies for
kerosene or upfront capital subsidies for
SHS. Once in effect, the scheme will be a
game changer for the off-grid solar sector.
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Financial Challenges
Established developers prefer to invest
in large-scale and RTPV systems because
they are able to raise finance, are assured
of payment (utilities or open-access consumers) and O&M is required at a single
point. Raising finance for off-grid however
is a challenge with a dearth of interest
debt schemes. Benchmark prices set out
for availing subsidies offered in central
schemes are often considerably lower than
the actual costs for project implementation; this leads to tenders being met with
disinterest.
In order to achieve the proposed targets,
innovative schemes need to be devised to
drive down the cost of debt and increase
returns on investments. Public-private
partnerships with rural entrepreneurs as
well as community and Electricity Supply
Company (ESCOM)/government entity
owned projects can be encouraged. Based
on the model followed, appropriate soft
loans can be availed. To encourage private developers, incentives such as long
tax holidays and partial risk guarantee
mechanisms (from the state government)
can be provided. Further, since the Internal
Rate of Return (IRR) in such projects is typically low, large multinational companies
can dedicate Corporate Social Responsibility (CSR) investments to off-grid solar
projects.
Often, under capital subsidy based models, once the system is installed, they fall
into disuse due to lack of long-term financial incentives. In some extreme cases,
panels have been stolen and meters have
been vandalised. Hence, apart from interest rate subsidies, revenue models such as
Generation- based Incentives (GBI) using
prepaid meters should be implemented.
The lack of a roadmap for rural electrification implies that there is no certainty
on when a village could be electrified.
Therefore, villagers might be unwilling to
pay developers for expensive electricity, in
the hope that the grid will reach them. The
same uncertainty makes developers reluctant to set up a system. The government
should mandate micro-grid based systems
to be grid-interactive (with bi-directional
meters) and create a risk mitigation plan,
where developers can be compensated
if the grid is extended to their area of
operation.
Technical Challenges
While SHS and SL systems are simple to
implement, they can only satisfy lighting
needs. In order to encourage income generation activities, micro-grids are invariably
more suitable; however they are more
complicated in terms of technology. This is
because micro-grids need to counter intermittency using load balancing algorithms
(typically using battery storage). Not only
does this add to the cost, but it also leads
to more maintenance issues. Innovative
storage mechanisms (such as flow battery
instead of lead-acid and lithium ion technologies) and hybridising solar plants with
either wind, pumped hydro or biomass can
make load balancing more robust.
As skilled human resource is scarcely available in these areas, O&M poses a huge
concern. Local participation and capacity
building measures undertaken by state authorities, Non-Governmental Organisations
(NGOs) and developers should be encouraged. In addition, solar off-grid training
programmes should be conducted in industrial training institutes and similar local
bodies, which include ‘training of trainers’.
The present lack of regulations and
guidelines for micro-grid systems makes
verification of designs and performance
parameters uncommon. In order to ensure
sustainable rural electrification, the government should establish guidelines and
enforce strict quality standards for these
systems.
Effective planning of small-scale projects
requires conducting site-specific pre-feasibility analysis and assessments of local
households and agricultural demands. This
can be a cumbersome process, leading to
added expenditure, but it helps in checking long term costs associated with maintenance. Further, this analysis can be done
by involving local NGOs and the village
community. This increased participation
and engagement will ensure that the villagers feel a sense of ownership and keep
the system functioning effectively.
If these challenges are addressed in a
structured and phased manner, then significantly increasing our off-grid solar power
is achievable. However, attaining success
in this sector will be an arduous task compared to grid-connected systems 7
The views expressed in this article are those of CSTEP.
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