The country has set a target of 175 GW of renewable capacity by the end of 2022, of which 100 GW is to accrue from solar power. (Reuters)

When the Union Cabinet doubled the approved capacity of India’s solar parks and ultra mega solar power projects from 20 GW to 40 GW in February end, it was responding to the sea change the sector has witnessed in recent years, with bids for solar projects falling to as low as `3.30 a unit.

On March 10, Power Minister Piyush Goyal announced that installed solar power capacity in India had crossed the 10,000 MW mark. The country has set a target of 175 GW of renewable capacity by the end of 2022, of which 100 GW is to accrue from solar power. While the target of adding another 90 GW of solar capacity in five years is stiff, it is not impossible to achieve—China installed 34 GW solar capacity in 2016 alone. Though the 6.8 GW capacity India installed in FY17 was well short of the 12 GW target, it was about 125% more than in the previous fiscal.

It has taken technological advances and financial assistance for the solar sector to reach a stage where the average levelised bid tariff in auctions between January 2016 and February 2017 fell to `4.65/unit. The lowest bid of `3.30/unit in this period was for the Rewa solar park in Madhya Pradesh. Significantly, the Central Electricity Regulatory Commission had set levelised tariff for FY11 at Rs 14.95/unit for solar projects.

For solar parks to attain 40 MW capacity by 2019-20, the Centre has provided assistance of `8,100 crores. The ministry of renewable energy would grant up to `25 lakh for preparing a detailed project report. The Centre would also offer assistance of up to `20 lakh/MW or 30% of the project cost, whichever is lower.

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The construction of solar parks has faced delays thus far due to problems related to availability of land and provision of requisite infrastructure for the purpose. Some of these challenges were addressed by the MP government for the Rewa project – one of the reasons behind the discovery of the record bid. The renewable energy ministry has since proposed fresh guidelines to facilitate projects. As per these guidelines, states have to ensure 100% land possession within three months of the power purchase agreement (PPA) being signed. They would also be responsible for procuring regulatory clearances for projects.

However, the new directives lack a couple of features that made the Rewa project very attractive: offtake guarantee and payment security. Kameswara Rao, partner at PwC, says “the scheme should have encouraged interstate sales by exempting transmission charges, so that buyers in land-starved states could procure power from elsewhere”.

Experts say that considering the large investor base and lower capital cost requirement, coupled with the recent enthusiasm of states to procure more power from renewable energy sources, the 40 GW target for solar parks is achievable. According to industry estimates, investment rates for solar installations (excluding land cost) are in the range of `4-5.5 crore/MW. Funding for such projects has become easier too. Furthering capacity addition are the falling costs of solar components. According to ICRA, the module price level has dropped by 30% over the last eight months.

However, imported modules are still 8-10% cheaper than domestic modules. While the Centre had mandated that a certain capacity addition would be reserved for domestically sourced modules, a World Trade Organisation (WTO) ruling struck down the provision last year, saying it was in violation of the country’s national treatment obligation. Gyanesh Chaudhary, CEO of Vikram Solar, one of the largest module manufacturers in India, says “domestic manufacturing can generate 50,000 direct and 1,25,000 indirect jobs in India”. Significantly, solar panels worth $42 billion are likely to be imported by 2022.

– Anupam Chatterjee