Rapid Growth in India's Solar Energy Market: Stronger Policies to Achieve 100 GW by 2020


Authored by Morgan Capilla, NRDC Stanback Fellow, and Nehmat Kaur, NRDC Representative

The Indian solar market is growing at a rapid clip. The market recently exceeded 4 gigawatts (GW) of installed solar energy and is headed toward becoming one of the largest global solar markets. To reach the solar market's potential and harness investor interest, the Modi government is stepping up policy support. Increased solar capacity, stronger policies, and growing investor interest are a move in the right direction. Yet, as the government and stakeholders know, even greater action will be needed to achieve India's broader renewable energy goals.

New Policy Developments

The Indian government formally adopted the new solar target announced last year. The National Solar Mission (NSM) now includes the 2020 target to achieve 100 GW of installed solar power capacity--a fivefold increase from the initial 20 GW target.

Domestically, Rajasthan emerged India's leading state for installed solar energy projects, boasting a capacity of almost 1.5 GW. Gujarat previously held the lead, and now comes in second with a 957 megawatts capacity. Together, these two states represent 50 percent of India's installed solar capacity.

Prime Minister Modi's Cabinet Committee on Economic Affairs (CCEA) introduced an expansive plan to install 2 GW in grid-connected solar photovoltaic (PV) power projects utilizing viability gap funding. The plan is expected to boost renewable energy employment, creating 12,000 job opportunities for residents of both urban and rural areas. It could also curb carbon dioxide emissions and produce enough solar energy to serve nearly one million households.

The CCEA plan utilizes a new feature, the "Build, Own and Operate" (BOO) model. Under Batch III, Phase II of the NSM, BOO is a public-private partnership model in which the private party builds assets with support from the government. The objective of the BOO model is to enhance private investment in reaching the 2020 target.

As part of the CCEA plan, the NSM will once again use Viability Gap Funding (VGF). The VGF is supported by the National Clean Energy Fund (NCEF), a source that has proven effective in implementing NSM initiatives. Some of the plan's features include:

  • 250 MW Domestic Content Requirement, using solar PV cells and modules produced in India
  • 1,750 MW of "Open Category" content, using solar PV cells and modules from any country
  • Bidders can select the location of projects, which could involve placing projects in solar parks created under MNRE initiatives
  • 13-month commissioning period, starting from the day the Power Purchase Agreement (PPA) is signed

India also has a new Renewable Energy Corporation of India (RECI). Formerly the Solar Energy Corporation of India (SECI), RECI has greater authority and responsibilities, including the power to own and operate renewable plants and trade renewable power. RECI's ability to sell solar power may provide some needed assistance for struggling distribution companies (DISCOMs) in India.

Investor Interest & Financing

Investment in India's solar energy has seen substantial growth across the board. During the first three months of 2015 alone, clean energy investments in India have increased 59% and are expected to surpass $10 billion before the end of 2015, according to Bloomberg New Energy Finance.

This month, SunEdison announced plans to invest $15 billion in India's solar market by 2022. This sizable venture follows an agreement made in January by SunEdison and India's Adani Group to allocate $2 billion toward constructing a solar equipment manufacturing unit in India. As SunEdison's leading Asia executive Pashupathy Gopalan explained, "We believe much of the growth in renewable energy in the next 15 years will be from emerging markets, and much of it will be from India and China."

Last week, Japanese telecommunication corporation SoftBank, together with Bharti Enterprises and Foxconn of Taiwan, revealed plans to invest $20 billion in India's solar energy market. SoftBank's Chief Executive Masayoshi Son thinks that India is a good match for Japan's solar endeavors. Son explains that India has "twice the sunshine, half the cost. That means four times the efficiency."

India will need a sizable influx in finance to achieve the 100 GW solar target--which will require a total of $100 billion in investments and create up to 1 million domestic jobs. Using innovative financing mechanisms such as green bonds and green banks can help provide the impetus that India needs to become a global leader in renewable energy. Renewable energy is a singular opportunity to provide much needed clean energy access and power to India's growing economy.

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(Photo and Image: NRDC)