India Shining: Even the Sun Has a Price

Solar projects have grown in number over the past decade but could stall if India does not consider new areas of opportunity. Innovative financing mechanisms that would enable the market to expand are being widely discussed. Public-private partnerships could be the answer, based on the US model. Different tools are under consideration such as the Power Purchase Agreement (PPA) and the use of agency funding to finance solar programs.

The Power Purchase Agreement (PPA) for financing solar energy projects appeals to India. Through a PPA, a third-party investor assumes all financing, installation and maintenance costs, and the district or government agrees to buy the power back, at a fixed reduced rate. This international financing tool provides immediate cost-savings and environmental benefits, while third-party investors (mainly financial institutions) bear all any financial risks incurred by the system.

Agencies could provide another way of financing solar projects as they shave budget earmarked for the purchase of solar energy systems. The government owns the system, its energy production and all the environmental attributes, such as renewable solar energy credits and clean energy credits. If the agency has properly kept budgeted funding, purchasing a system could be a worthwhile option because of lower in-house transaction costs and lower overall costs to the taxpayer.

Such innovative financing mechanisms are of great interest for India that has some of the world’s highest solar resources. However, they involved the further deregulation of private investment. The resources could be obtained through public-private partnerships within and without India. Some companies are pushing India to remove its restrictions on solar technology imports. They are seen as threats cutting American and international businesses out of a promising market. Limiting access to high-quality solar equipment that is available outside India is likely to impede India's solar power production and prevent other investors from developing solar projects in India. India is at a crossroads: will it resolutely take the road to international innovative finance, or it will remain alone with its huge amount of solar resources.

Laying the Foundations for a Brighter Future: New Light on Indian solar industry

There’s no denying, India is developing at a breathtaking pace. New infrastructures are sprouting up every day, ever-growing numbers of cars are driving on ever-growing numbers of roads, houses are fitted with new appliances; yet, all this comes at the cost of a tremendous amount of energy. India is ready to rise to this challenge. However, if it wants to do so sustainably on a large scale, it cannot turn it back on the solar option. Thankfully, although much is still to be done, things seem to moving along in the right direction. A recently published Natural Resources Defense Council (NRDC) report entitled Laying the Foundation for a Bright Future provides an interesting outlook into the current state of solar energy in India. Indeed, there’s good reason to hope. For instance, Indian solar energy capacity went from 17.8 megawatts in 2010 to an impressive 506.9 megawatts in March 2012. That’s an astonishing advance over such a short time span and definite proof that there is interest in the solar market. However, the report also identifies three major hurdles on India’s road to solar sustainability. One is the technology gap between India and other countries. Two, albeit growing, the global industry is still very fragmented, mainly comprising numerous small-scale plants. Three, the industry is young and plagued by difficulties in obtaining raw materials, inverters and system components, slowing down growth in the sector and making self-sufficiency an issue for India. Obviously, there is still much to do and at many levels, ranging from component suppliers to solar energy producers, including distribution. But there’s a real interest in the burgeoning sector that materialized during the PV Manufacturing Summit on August 1and 2 in Delhi. On that occasion, key industry players met Tarun Kapoor, Joint Secretary of the Ministry of New and Renewable Energy, to discuss solar industry issues. This can be considered as a good starting point for addressing the conclusions of the NRDC report and fuel more energy into an already vibrant sector.