Solar power, India's only viable long-term energy solution

India’s growing economy is facing a severe electricity deficit that runs between 10% and 13% of daily needs. As the nation is increasingly eyeing solar in its energy mix, Nishtha Arora engages solar expert Dr Tobias Engelmeier on the way ahead for India. He is owner of a renewable energy and resource management company based in New Delhi.

Tobias Engelmeier (photo credit: Bridge to India)

India relies on coal for about 40% of its total energy consumption, oil for about 24%, and natural gas for 6%. The country is now looking beyond fossil-fuels to turn around its energy deficit. How do you think this can be achieved?

India will continue to rely on fossil-fuel for the next 20 years or so. The energy market is very strategic. Any decision you take now will be relevant for a long time. For example, India is now investing in nuclear power. It’s a long-term decision. Ten years or so to build a plant and it runs for the next 15 years.

There is something called path dependency; once you are on that path, you stay on that path. The question is when India is going to make a strategic shift from fossil-based power to non-fossil based power; and you can see that happening already. It first happens in the mind and then it happens in the investments.

In the mind, this shift is starting to take place and India is actually quite advanced compared to the US, for example, which is a developed economy with a slower growth rate and demand. You see significant investments coming in but it will take time for it to have a fair share of energy mix. 

You have said solar is set to grow significantly in India over the next ten years and that the market’s gigawatt-scale emergence will be spurred by the maturing National Solar Mission (NSM). What does this mean to the people?

Solar power has one big disadvantage: it is costly compared to other sources. But the key advantage is that it can be installed off-grid, of any size it does not matter. We cannot do that with a coal-based plant.

India has not built up a centralised power infrastructure, a big grid involving mega power plants. The problem for the population is they do not have access to power. For the government, it will be more expensive to provide them with a grid than to provide them with a decentralised energy solution. 

It is quite likely businesses that are suffering from power cuts, and villages that are cut off from the grid will look at solar power for a solution. The question is who pays for that extra cost. There are ways of mitigating that.

The government could subsidise it directly; it depends on the customer group. So if you look at village electrification, you have 90% capital subsidies for that. The commercial, industrial markets would be able to pay for themselves. 

What are the motivations for the common man to invest in solar photovoltaics?

From an economic perspective, what are the options for a villager without power supply? For now, he mostly uses kerosene, cow dung or twigs; biomass in various forms. If he is wealthier, he may buy diesel for water pumps.

Cow dung and kerosene are extremely unhealthy. Kerosene and diesel are heavily subsidised. I am not sure how much longer they will be because it is not economically, environmentally and socially sustainable. 

Electricity is extremely expensive and you pay upwards of 15 rupees per kWh. You can have solar power at 11 to 12 rupees. In that context, it is much cheaper, even if you look at the cost of solar installation, which is falling rapidly. The problem is in the liquidity. If you buy diesel power, there is a small fixed cost, which is the generator, and the high variable (and recurring) cost, which is the fuel. With solar power, you have to pay for the system upfront but people don’t have that much cash in their pockets. So you have to look at some sort of financing models, like micro financing or some sort of Grameen Surya Bijlee.

While solar policy is robust, developers are facing a number of challenges that threaten forecast growth. Chief among these threats are project bankability and financing. Why are the banks still hesitant to invest in this area?

Capital expenditure, as in equipment cost, is an issue and that relates to the global market. However, costs have come down significantly globally, and that is a big macro trend.

India has an uneven price topography, very different customers and very different process, not just for grid power but for any power. In that uneven topography, you have many different islands in which solar power is commercially competitive. That is what we are looking at in projects that we are developing.

On the bankability side, it is a question of risks. The banks would normally ask, if I finance 70% of the project how secure are my returns? How bankable are the power purchase agreements with the state utility? Does the technology work in India? Is it well built?

Initially, banks were hesitant as they did not know the technology and the international banks did not know the market but it has started moving now. Indians are very enterprising and creative in finding ways to make things work.

What do you think are the prospects of meeting India’s energy needs through a mix of renewable energy (RE) technologies in the next five to ten years? 

It is not clear if there is a power strategy but as I see it, India wants to get as much power as possible from all sources because it has an energy deficit that is growing. Demand rises so fast that the supply cannot keep up. Therefore, there are these big coal-based plants, nuclear power, gas and hydropower projects, etc.

On the renewables side, there is a problem because you work with limited resources. Therefore, you want to find out which renewable energy is cheapest, is most readily available where you need it because then you save on the transmission and distribution infrastructure. Then there is the question of supply security, which is the issue with biomass. You also want to develop a technology that is scalable because you would need to fill a huge gap.

The four renewable energy sources in India – biomass, hydropower, wind and solar – have different pros and cons. Wind is extremely competitive price wise and is reliable as there is a lot of data available. But there is limited potential because the best sites are already in use. 

Biomass can be very good but you have the problem of supply, which fluctuates according to the monsoons and the harvests. A number of biomass companies are having trouble securing a stable supply of feedstock. And you always have the question of whether you are in a conflict with the food chain.

Now, there is small hydropower, which is very profitable, very old technology, very bankable. It is good technology. I am talking about those below 25 MW, which is run-of-the-river, so it is not damming. More of these should be done.

Solar power is more expensive but it is easily available on a small scale. So you can have a solar powered torch or solar application like street light or a solar home system. In my view, solar power is the only long-term viable strategy that this country has to satisfy its power demand.

It is often said companies that manage their carbon emissions responsibly can enhance their brand value. Also, investors are choosing to invest in and buy from companies that are environmentally-conscious. How well do you think Indian companies are taking this route? 

I do not think India as a country, or Indian companies, are interested in going green on a global level. They are interested in green when it comes to local pollution to some extent. Even the government invests in these technologies not because they are green but because of power security. 

There some notable exceptions. Nevertheless, by and large, the willingness of an Indian company to pay even a penny more for power that is green is almost non-existent.

In order to really scale the industry, it has to be a commercially-viable option. It cannot be a CSR option. 

Longer cost-recovery period, higher development costs and economic viability are the major restraints with building and operating renewable energy systems. How do you think the Ministry of New & Renewable Energy (MNRE) can address this issue?

The MNRE follows a number of programmes. Jawaharlal Nehru National Solar Mission is a very good one and very well executed. Why, because, it is a trial and error programme. The MNRE says this is India, we have a lot of energy requirements, we have a lot of sunshine but we do not have unlimited resources. We cannot build plants, and fields and fields of solar power just because we think it is cool. So we need to see how to do it and we do it with trial and error. We support a little here and a little there and see what transpires.

Can we afford these trial-and-error ways when there so many other burning issues?

Energy is one of the most fundamental issues in India. Providing energy to people and to industry is crucial for this country. It is like a philosophical question; which is more important: education or health?

It is wrong to think the government should or could create a market that is a ready-made bed so that you can lie down on it. That is not going to happen. There are a number of issues in the marketplace, like solar irradiation and what the cost and returns on investment will be. Banks are also reluctant to give money. Technological competencies in the country are low, not only at senior levels but also on the installation side. 

The market and the government have to work together to address these issues. The government does certain things like set up funds to guarantee payments of PPAs under the National Solar Mission to make projects more bankable. The government is investing in R&D centres, Indian Institute of Technology (IIT) in Jodhpur and IIT in Mumbai.

The overall strategy for the government has been to create an industry, to have at least a hundred companies that are into solar and would be able to compete with each other, and they have achieved this. And they have achieved improvements in the domestic manufacturing industry, although I have my doubts whether that is the right way to go. What they have not achieved yet and where I think the market needs to go is to provide more support for decentralised solutions.  – Canary Trap

Profile of Tobias Engelmeier

Ranked among top 50 solar experts in the world

PhD in political science from South Asia Institute in Heidelberg, Germany

Owner of Bridge to India Pvt Ltd, a renewable energy and resource management company based in New Delhi

Had worked for three years in the energy sector with a strategy consultancy

Has written a book on Indian political culture