Powered by the sun by Kameshwar Rao 24 Jul 08 (http://www.financialexpress.com/news/Column-Powered-by-the-sun/339497/)
In barely two generations from now, going by the survey of energy resources of the World Energy Council, we may see a radically different power industry. Fossil fuels, which dominate today, are forecast to supply less than half our energy needs, whilst solar energy, an infinitesimal contributor so far, could contribute as much as 30%.
The tightening supply conditions, and the higher costs, volatility, and concerns of energy security that accompany it, give credence to such forecasts. Today domestic coal is 3.3 times costlier than in 1991 and imported coal 4.7 times, whilst in this period solar power costs have fallen by half. There is, of course, a long way to grid parity, but the paths are doubtless set to cross.
The evolution of the solar industry presents a classic opportunity to make progress on several fronts: save on our energy imports (Rs 2,72,000 crores per year and rising), protect the environment, foster new technologies, and generate employment.
Many others are taking similar steps to create a market and an industry at home. Europe witnessed a 45% annual growth in solar generation capacity in the last five years. Many states in the US compete to attract solar manufacturing with incentives of up to 50%. In India, the capital subsidy and generation based incentives make a bold start, but pale in comparison. The feed-in-tariffs, for example, for grid connected solar power in relation to other renewable sources is 6 times in Germany, 4.5 times in California, but less than 3.5 times in India. The preferential tariff is only for 10 years against 20 years elsewhere, and investors setting up plants for own use or trade are excluded. In contrast, eastern Germany, the hotbed of solar technology, offers diverse incentives beyond the federal programs, such as interest rebate on loans, state guarantees (up to 80% of loans), labour grants, training assistance, and R&D support.
These incentives and guarantees are valuable to a capital and skill intensive industry such as solar. Upstream solar involves large capital investments (which is 60% of an integrated plant) and is cyclic and technology intensive. It needs considerable power and water (a mid-sized manufacturing plant can demand a 100-mw peak load).
Presently, India imports the bulk of its silicon wafer needs, and as capital costs form 75% of a solar IPP, high import content means a greater proportion of incentives are paid out to overseas technology suppliers upfront It makes sense to instead boost capital subsidy and infrastructure to attract local manufacture.
Even with the best of incentives, the industry will take time to grow. It took Germany, which has the most cited renewable programme in the world, 10 years to add its first 100 mw of solar generation capacity, but breezily added 2000 mw in next 5 years.
The current incentive policy in India sets out overall and state-level caps. This risks fragmenting capacity and discourages economies of scale. Today solar technology is amenable to grid applications, and higher capacity generating plants are being set up. In end-use, too, 90% of all solar installations globally are on-grid now, and small-scale systems have given way to larger ones.
The market development in many parts of the world has focussed on residential and other distributed installations. The dense and mixed nature of our cities makes this a less likely path for us. A more viable approach is to focus on supply-side and on IPPs; it will attract more investors, bring innovation and new business models.
Promotion of solar industry also brings extended benefits of exports, services, and new chemical, metallurgical and semiconductor technologies. We missed the semiconductor bus earlier. The solar industry takes its roots from the semiconductor industry, bypassing it last year as the larger user of silicon. We now have an opportunity to catch up on both.
—The author is leader, power practice, PricewaterhouseCoopers. These are his personal views...
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