India's Budget Deficit Threatens National Solar Mission

India's financial woes are likely to derail the country's ambitious National Solar Mission, widely seen as a model solar development policy program.

The current Indian government's current account deficit (CAD) of $98 billion is steadily rising, as the much-touted gross domestic product (GDP) growth rate has come crashing down from highs in the double-digits to under 4%. Consequently, the CAD-to-GDP ratio of 4.9% is also experiencing new highs as the central government falters in bringing back confidence in the marketplace.

The second phase of the National Solar Mission, which was targeted to achieve installations of almost 4 GW of solar power projects under a federal scheme, and 6 GWs under state schemes, has not yet taken off. The draft policy document on the second phase was released by the Ministry of New and Renewable Energy (MNRE) in December 2012. The ministry conducted various consultative meetings with various stakeholder groups, hoping to be able to launch the program in February of this year. As of September, there is still no final policy document.

In a related disappointment, as of February, the MNRE stopped accepting applications for the 30% subsidy it offered to all rooftop and off-grid power projects, too. And, it is not yet clear as to when this window will reopen.

The current account deficit has devalued the local currency by over 20% over the last few weeks, with pressure mounting on the government to push forward reforms and reduce subsidies. On the latter count, the second phase of the solar mission surely will take a hit as its most critical component is viability gap funding - a direct subsidy to cover the cost of a solar power project up to 33%. The cost of the subsidy may well go up to $1.5 billion - something that the nation's treasury certainly will not allow.

Absence of any such program, devaluation of the local currency by 20%, non-enforcement of solar power purchase obligations and the slow sale of renewable energy certificates will significantly impact the country's solar power sector and various stakeholders.

This scenario is actually a bitter pill that the industry will have to swallow. India's solar sector must go beyond various government and regulatory dependencies and explore opportunities in a three-dimensional matrix consisting of the local states and business segments, with time - and persistence - as the third axis.

The rising cost and lack of generating capacity of conventional power offer some solace to the solar sector, which may hope that consumers will eventually adopt solar power in a country that is blessed by the sun for over 300 days per year.

A solar energy revolution in the making

India is set to replicate its information technology (IT) sector success in solar energy. With every known business entity exploring its own agenda in the solar energy sector, the country is already at the starting point of an energy revolution.

All prominent Indian companies have either set up their wholly-owned solar energy subsidiaries or have gone in for joint ventures or have set up solar energy divisions within their existing operations. The predominant business model being pursued by them currently is of grid-tied project development.

However, as more avenues open up for captive and REC-driven solar power projects, business entities are seeing more value in getting ready for the next wave. (RECs are renewable energy certificates that have become tradable commodities on India’s different power exchanges.)

The private business sector is gearing up for solar energy even though there is an almost policy paralysis with the central government, while different state governments have slowed down or postponed their policy initiatives. Most companies have set up small teams, seeking to explore opportunities in off-grid, micro-grid and roof-top applications to serve the larger private consumer market.

These opportunities are small in terms of ticket-size, but these are enabling all new entrants to test technologies, processes and their people. Gaining experience through pilot projects seems to be the underlying thought.

And, it is not only in the PV space that this below-the-surface activity happening. Companies are finding solar thermal, particularly heat and steam applications, too to be exciting opportunities. Roof-top solar water heaters, one of the oldest availably solar solutions, are now increasingly becoming a USP for residential property developers to offer to their prospective customers. The property developers on their part are forming joint ventures with technologists to gain a share in a market that will surely see exponential growth in the years to come.

Among the predominant and already-known entrants are the Reliance business groups, Lanco Infratech, Moser-Baer, Tatas and BHEL. But, other corporate houses like that of automobile major Mahindra, finance major Welspun, finance major Kotak and the Birla group too have taken long bets on the solar energy sector.

International majors like First Solar, juwi, abakus Solar, Bosch Solar, DelSolar, EMMVEE and SCHOTT are also among those who have taken long bets on the Indian market. Some of such players, who are largely equipment manufacturers or suppliers in the other markets, are keen to even become project developers in a country whose over 30 per cent population is still without any grid-supplied power.

Dedicated and recently-promoted solar companies include Azure Power, Waaree, GreenBrilliance, Vikram Solar and Indosolar. A listing of other scores of newly established regional players would make one feel that the market is already over-crowded – all waiting for the solar energy wave to come in.

The above phenomenon largely reminds one of the early part of 1990s when almost all business entities in India stepped into the information technology (IT) , or more specifically software services, arena. The dotcom boom of the late 90s and parallel offshoring of various service jobs placed Indian’s IT sector among the world majors.

The current euphoria, however, is not without its own sets of challenges and risks. Lesser-than-expected business is visible in the number of marketing and sales CVs that have started getting shared through emails. These CVs are not only of those professionals who are wishing to enter the solar sector, but also of professionals who claim to have a minimum of couple of years of experience in India’s solar project development space.

Nevertheless, as awareness rises, as conventional power becomes costlier and as power shortage increases, the demand for solar power will rise. And, this day is certainly not far off.

Solar Project Enquiries On The Rise

It was a worthwhile effort. Heavy industry users are keen to adopt solar power generation and solar thermal (solar water heating and solar steam generation) solutions more than ever before. They now want to see demo projects.

Such interest was received from prospective clients at the end of a 2-hour exclusive seminar that I conducted for them to explain the merits of solar technologies and how these had become cheaper compared to diesel, furnace oil or any other similar fossil fuels.

The other major focus on my presentation was that the energy crisis in India is only going get worse with acute problems affecting coal and gas-based private sector power projects coming up in the country.

I look forward to connecting prospective clients with solution providers in the industry that will boom big time in near foreseeable future.