The Indian Solar Saga Part 1 of 3 – Grid connected Policy Framework

In every major city in India, smog is a constant companion. Burning of fossil fuel to power vehicles, homes, industries, and ward away insects as well as the cold have created a tremendous deficit in the human aspect of living. Smog in large cities has visibility down to short distances and a clear day is only one of few.

More than 50% of India’s power is generated using dirty fuel and while meeting the need of the hour, the environment has been the greatest casualty of the march for progress, with policies for continued subsidy on Diesel to curb inflation, Kerosene subsidies for the poor, deforestation etc adding to its woes.  Another major cause of imbalance is the continued inability of the law of the land to police corruption in a continuous, unbiased basis.

The government has given up prudence over the last decade to sustain growth without balancing the needs of the environment, though lately, the new minister of state for Environment and Forests, Jairam Ramesh seems to be making the right noises and has provided new hope.

Recognition of the need to promote renewable sources of energy by the centre has come, in the form of the on-going wind policy tweaks with introduction of Generation Based Incentives and revised preferential tariffs.  Solar too has been identified as an area to increase internal energy security with the announcement of the Jawaharlal Nehru National Solar Mission (JNNSM).

Our main focus in these articles is to elucidate on the aspects of the solar saga to date;  the first will cover the Gujarat policy, the second JNNSM with other state policies and the last, ground realities, off-grid policy and possible solutions.

In this article which focuses on the Gujarat Solar Scenario on India, we cover the Indian power generation and Gujarat Solar Policy which signalled Gujarat’s arrival as the major solar source of energy in the country and a path breaker for the sub-continent.

Power Generation in India

As of March 2011, 58.43%of the electricity consumed in India is generated by thermal power plants, 19.45% by hydroelectric power plants, 2.47% by nuclear power plants, 10.10% by Captive Power Generation and 9.55% by Renewable Energy Sources primarily wind farms. More than 50% of India’s commercial energy demand is met through the country’s vast coal reserves with another 347 projects waiting in the pipeline.

The major thrust provided to wind energy was the availing of 80% accelerated depreciation to offset immediate profits earlier, the recent introduction of GBI in 2009 and now Renewable Energy Certificates (RECs). In 2010, India’s installed wind power electric capacity was 13,064 MW. Additionally, India has committed massive amount of funds for the construction of various nuclear reactors which would generate at least 30,000 MW.

The country’s energy generation has grown an average of 6% per annum over the past 4 years except for 08-09. In March 2011 as per the power ministry, the installed power generation capacity of India stood at 193,135 MW. The country’s annual energy production increased from about 190 billion kWh in 1986 to over 811 billion kWh in 2006. The Indian government has set a target to add approximately 78,000 MW of installed generation capacity by 2012 which it’s likely to miss due to infrastructural, financial and fuel issues. The total demand for electricity inIndia is expected to cross 950,000 MW by 2030 assuming India continues to grow its economy at current rates. 

Solar Policies

The central government’s thrust towards making solar viable will complete two years in November 2011 from the date of announcement of the Jawaharlal Nehru National Solar Mission (JNNSM) target of 20GW by 2020 by the Ministry of New and Renewable Energy MNREDr. Farooq Abdullah in the winter of 2009.

This announcement was more in the form of playing to the audience than the actual formation of a concrete policy; time taken from draft to final – which instilled a tremendous amount of uncertainty into the solar fraternity – was almost a year. Thankfully, MNRE got their act together and released the final JNNSM policy in Aug 2010.

In that time Gujarat had already stolen the thunder from the central government and was well on its way to being the Solar Pioneer of the sub-continent. The Gujarat Solar policy was declared in Jan 2009 with the intent to make Gujarat the preferred solar destination for the country.

*The initial two phases of Gujarat solar made it the choice of developers in India with a capacity of 716MW of Power Purchase Agreement’s (PPA) signed for a single state compared to 704MW under the JNNSM umbrella for the country as a whole. Under JNNSM, 37 developers were awarded PPA’s signed for 615MW (PV & CSP) – under reverse bidding and a further 84MW of PPAs migrated from the original applications for a fixed rate for a period of 25 years. Also under the MNRE’s umbrella, 98.05MW was also registered for Generation based incentive under Guidelines for Rooftop and other Small Solar Power Plants.

The initial tariff subsidy for Gujarat was for a lower amount which was then increased based on feedback from the industry making it an attractive opportunity. The Gujarat PPA also allows for availing accelerated depreciation in Solar Power Projects without reduction of the preferential tariff, a key ingredient which made it an attractive prospect

Let’s look at India’s first defining solar grid based policy


The acknowledged leader in Solar in India has helped nurture the ambitions of many a developer with 700MW+ PPA’s signed by allotting *716 MW of Solar Power capacity to 34 national and international project developers against the 500 MW capacity originally declared under its Solar Power Policy -2009. Of the 716 MW, Solar Photovoltaic and Thermal technology allocations comprised  365 MW and 351 MW respectively.

Per the Gujarat Government, these allocations will tantamount to an investment of over Rs. 12000 Crores into the State in the next few years,  generating 1.25 Billion KWh units of Green energy annually, while nullifying 0.875 million tonnes of coal on an annual basis and reducing approx. 1.25 million tonnes of carbon dioxide emission as well. These projects will also provide employment to a significant number and enhance prospects of the local inhabitants.

Here are some of the key points which work in favour of Gujarat policy:

  1. Accelerated depreciation can be availed without reduction in tariff rate
  2. Gujarat is a sun and cash rich state, international finance orgs are comfortable with its investment grade and payments are expected in time
  3. Terrain is suitable for large scale solar farms
  4. Land availability and conversion is easier compared to most states
  5. Gujarat is a power surplus state and the power infrastructure has the capability to support large power projects
  6. The single window system actually works
  7. Translation of vision into reality by striving to make the state a hub for solar in India
  8. Politically stable climate
  9. Ability to assign the PPA
  10. Initial tariffs are higher for the 1st 12 years compared to the majority of JNNSM allocations
  11. There is no cap on the number of units generated per MWp as opposed to JNNSM

 And a few of the drawbacks

  1. Post the 12th year the tariff drops to just Rs. 5 per KWh unit of energy generated
  2. The developer cannot part with a controlling stake for 2 years post commissioning in the company under which the PPA was allocated
  3. Some developers have run into land title issues
  4. The prices for land have increased tremendously post the announcement of the solar policy
  5. Carbon credits will need to be shared with the power evacuation organization
  6. Dry, hot and dusty climate with very few suitable technologies

All phase 1 and 2 PV allocations require plants commissioned no later than Dec 2011 post which developers will be penalized on a daily basis for those capacities which haven’t been evacuated. While some developers have financed their projects using their principal’s balance sheet, the majority are heading for disaster due to their inability to complete financial closure till date. Some or most developers expect the Gujarat government to extend deadlines; however that is open to debate. 

The major issues for lack of financial closures has been the unavailability of non-recourse funding especially for SPV backed PPA allotments, lack of will on providing debt by the Indian banking system, rising interest rates,  dearth of equity and to an extent developers wanting to cash out.  These are the main barriers facing the success of solar both in the state of Gujarat and India today.

The Gujarat government has also taken the initiative to enable land allotment and development of solar projects by designating earmarked areas in Charanaka, Patan district, in north Gujarat, to develop the first Solar Park. The cost of this initiative is estimated to be Rs. 80 billion (approx. €1.35 billion). When commissioned entirely it will be Asia’s first such large-scale solar PV park. The park is to be equipped with 440KV power substations for evacuation of power and will provide all basic necessities like water, electricity, roads, equipment storage, etc . The average solar insolation was measured to be approx. 5.9 kWh/m2 within the boundaries of the park.

Serious developers with PPAs have raised debt using balance sheets and are on their way to meet the Dec 2011 commissioning deadline. The exact number of successful projects will be clearly visible in a couple of months with the main casualties poised to be the developers who were in it from an opportunistic perspective and lacked the financial strength.

On the other hand, the ability to claim accelerated depreciation has recently generated a lot of interest from large corporate houses in funding Gujarat PPA’s who would like to avail of it and have started approaching developers to help fund their projects. There is a lot of back room manoeuvring currently happening to work around the stake sale restriction clause and this will in turn decide the fates of many a project.

Our subsequent part in this three part article will cover the Central Government’s JNNSM Policy as well as other released state solar policies with similar insight.

The author leads an Advisory organization focused on Renewable Energy Projects and also runs two of the largest renewable energy forums on dedicated to the Indian subcontinent.

You can reach him at and the forums at Renewable Energy and Cleantech Forum – India as well as Solar Energy Professionals – India

*These figures are extracted from the official government websites, there are discrepancies from those actually reported in the press, however we have used official figures only.

About Ritesh Pothan

Ritesh Pothan, is an accomplished speaker and visionary in the Solar Energy space in India. Ritesh is from an Engineering Background with a Master’s Degree in Technology and had spent more than a decade as the Infrastructure Head for a public limited company with the last 9 years dedicated to Solar and Renewable Energy. He also runs the 2 largest India focused renewable energy groups on LinkedIn - Solar - India and Renewables - India
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