Financing a Diverse Solar Ecosystem in India

Kurnool Solar Park during NRDC site visit
Credit: Photo: NRDC-ASCI

Co-authored with Tasfia Nayem

With the recent climate talks in Bonn, catalyzing the solar energy market to achieve India’s climate goals is a key priority for the Indian government and market leaders. Fortunately, India’s promising utility-scale solar market is growing with innovative solar parks as a global trend-setter. Yet, at the same time, the nascent rooftop market is in flux. One key focus area to boost solar energy from solar parks to rooftops is catalytic financing, with new programs and funds recently announced. 

To accelerate economic growth, create jobs and lift millions out of poverty, the Indian government is redoubling its commitment to solar energy as a solution. These efforts will simultaneously combat the threats of energy security and climate change. India has set an ambitious near-term renewable energy goal of 175 gigawatts (GW) by 2022. The recent 2018 National Electricity Plan reaffirms India’s plan to expand renewable energy capacity to 275 GW by 2027, with solar energy accounting for a majority of the total. 

The Indian market has seen record-low solar and wind tariffs (both at 2.44 Rs/$.04 per kWh). This stunning growth in solar and wind energy has prompted several Indian states to scrap plans to build new coal-fired power plants and announce the cancellation of coal mining projects. Yet, the National Electricity Plan still plans for a marginal net addition of coal general capacity, according to Bloomberg New Energy Finance. While solar energy remains the promising front-runner, meeting India’s clean energy goals will also require more than $100 billion in investment over the next six years, according to estimates by the Indian Ministry of New and Renewable Energy (MNRE).

Solar Park Expansion

Catalyzed by dramatically falling prices combined with economies of scale and a massive air pollution crisis, India’s large-scale solar market has jumped from a mere 17 megawatts (MW) in 2010 to over 20,000 MW in March 2018. A recent report by the Institute for Energy, Economics, and Financial Analysis (IEEFA) finds that India is second only to China in leading the world in large utility-scale solar projects. For example, the Kurnool Ultra Mega Watt Park and the Adani Kamuthi Park, with generation capacities of 1,000 MW and 648 MW, respectively, are the second and sixth largest operating solar parks in the world. Nearly half a dozen more solar parks are planned for 2018.

India’s commitment to large-scale solar has been accelerating in recent years. As the IEEFA report details, “India has pioneered the concept of the ultra-mega power plant in a single solar industrial park, and India’s MNRE initially set a target for 40 industrial solar parks with a combined capacity of 20 GW, but in 2017 doubled this target to 40 GW by 2022.” This expansion of large-scale solar parks demonstrates the massive transformation in India’s energy sector. 

India is home to half of the 10 largest solar projects under construction in the world. The nearly complete 2,225 MW Bhadla solar park in Rajasthan and the recently approved 5,000 MW Dholera solar park in Gujarat both eclipse the current largest operating project in the world, the 1,000 MW Tengger Desert solar park in China. Between January and March 2018, India added a record-breaking 4.6 GW of new utility-scale solar capacity, the nation’s highest-ever quarterly increase in solar capacity. Driving innovation further, the Indian government recently announced a 2.5 GW auction for hybrid wind and solar projects.

Rooftop Solar Market in Flux

The tremendous gains in utility-scale solar in India have been paired with diminished action on distributed and rooftop solar. While the government exceeded its goals for ground-mounted solar installation, it missed its rooftop solar targets. Earlier this year, the Indian government downscaled its targets for fiscal year 2018 from 5,000 MW of added rooftop solar capacity to only 1,000 MW. Even with this sharp decline, targets were greatly missed, with only 353 MW installed. While the long-term target seems to remain at 40 GW of installed rooftop solar by March 2022, a Bridge to India analysis suggests that total rooftop capacity will reach only a sobering 10.8 GW by 2021.

Small rooftop solar, microgrids and off-grid solar projects have the potential to transform the lives of millions—from providing light for schoolwork to reducing the need for fossil fuels. The Indian government and stakeholders are not giving up on the underserved rooftop market. As proven with the initial rocky days of the large ground-mounted photovoltaic (PV) market, the solar ecosystem knows that there are bumps in the road and has the wherewithal to overcome them. This is due to the business opportunity solar energy promises, with over 300 days of sunshine a year on average in India.

The Indian government’s recent KUSUM (Kisan Urja Suraksha Evam Utthaan Mahaabhiyan) scheme exemplifies some innovative approaches to jump start the distributed renewable energy market. KUSUM encourages the use of solar energy on barren land in remote rural areas. The scheme provides for the installation of grid-connected solar power plants of up to 2 MW each in these areas for farmers’ use. Farmers could also sell surplus energy produced back to distribution companies for additional income. The scheme also provides for the installation of off-grid solar water pumps for irrigation for farmers not connected to the grid. In addition to rural distributed solar, another key market area is the underserved rooftop commercial and industrial market, dominated by small and medium enterprises.

Solar panels provide electricity access in Tinginaput, Orissa
Credit: Photo: U.K. Department for International Development via Flickr (CC BY-NC-ND 2.0)

New Financing Programs

A diverse solar energy system, from successful ground-mounted solar to nascent distributed renewable energy, is necessary in India to increase energy access for all, including the rural and urban poor. A robust solar energy sector boosts the economy, provides lighting for education, and enhances livelihoods. Catalytic financing programs are crucial to accelerate clean energy deployment.

Recognizing the tremendous financing needs, the U.K. government and India’s National Investment and Infrastructure Fund have provided $341 million to a green fund focused on India. This fund, called EverSource Capital, is based on equity investments and aims to invest in Indian power, distribution infrastructure, and energy services.

China’s Golden Concord Group and Japan’s SoftBank are also planning a solar venture in India. The $930 million project involves the production and sale of solar ingots, silicon wafers, batteries, and components and will have a capacity of 4 GW. This project more than doubles India’s current annual solar-cell manufacturing capacity of 3 GW and aligns with Prime Minister Modi’s “Make in India” program. These much-needed investments work toward ensuring that India is on track to meet its Paris goals and promotes energy access for all.

Market Views

NRDC and our partner, the Council on Energy, Environment and Water (CEEW), have been conducting extensive research and analysis on opportunities for green investment in India. Focusing on the rooftop market, NRDC and CEEW, along with the Climate Policy Initiative and cKinetics, have held a series of workshops and discussions with developers, project financiers, utilities, development banks and government officials.

Stakeholders agree that while specific segments such as solar rooftop and solar pumps have received some attention, broadening of the overall decentralized renewable energy market is needed to achieve India’s clean energy goals. While public finance has played a key role in the initial stages, significant private and international capital is also needed. The financing gap towards achieving India’s renewable energy target is massive, with the distributed energy market needing $25-30 billion. 

Some stakeholders commented that private and international sources of financing may be reluctant to invest in the decentralized sector for several reasons. These reasons include perceptions that projects are not bankable because of the small size; lack of technology performance track records; and the creditworthiness of the developer, the utility, or the residential, industrial, or small-to-medium commercial customer.

Focusing on solutions, other stakeholders commented that the decentralized nature of solar rooftop, solar pumps, battery storage, and mini- and micro-grids needs approaches that facilitate aggregation constructs, blending of capital, and flexible deployment mechanisms to effectively leverage momentum and enable scale. Catalytic interventions are key to addressing perceived risks and core barriers in the current ecosystem and are essential to enable the broadening of the market.

In addition to robust financing, some additional challenges facing the rooftop market include ineffective net metering policies, rooftop solar owners’ inability to sell power back to distribution companies, inconsistent policies, and low institutional experience of implementing agencies. Most stakeholders agree that to facilitate the flow of private capital into currently underserved markets, there is a critical need for firming up technical, financial and market-building capacities within financial institutions. 

Even with these challenges, India is demonstrating its commitment to achieving an economy powered by clean energy. It makes business sense—ramping up clean energy investment is critical to help build a more sustainable, prosperous low-carbon economy that achieves India’s climate targets. Looking ahead, NRDC and our partners will be discussing innovative solutions at CEEW’s Renewable Energy Dialogue this June. 

Vellakoil, Tamil Nadu
Credit: Photo: WikiMedia (CC BY-SA 4.0)

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Tasfia Nayem is a 2018 Stanback Fellow with NRDC’s India program.