The compelling argument for solar power in India

India is home to 1.2 billion people, representing over 17% of the world’s population.
Unsurprisingly, the country has a massive demand for energy. According to the US Energy Information Administration, in 2011 India had the fourth largest installed capacity of the 217 countries analyzed, with 193 GW of installed electrical generation capacity in 2011.

However, despite this large installed generation base, the Indian energy market has some serious challenges:

  • although India is a major economy, it has one of the lowest levels of energy consumption per capita, with its per capita consumption being about 6% of that in the US, 15% of that in the UK, and only 25% of that in China.
  • India currently has insufficient supply capacity to meet its demand. The country has suffered a power deficit every year since 1984, hindering economic growth. This creates an imperative for new generating capacity. Whilst India’s Central Electricity Authority (“CEA”) has reported that this gap fell to only 3.6% (4.6 GW) in September 2013, the outlook varies significantly between states, with some states being close to being in balance and others having very significant deficits. The Company is focused on developing projects in the southern states of Telangana and Andhra Pradesh. According to the CEA, the southern Indian states of Tamil Nadu, Andhra Pradesh, Kerala, Karnataka and the Union territory of Puducherry will witness an electricity deficit of 26.1 per cent, or 11.7 GW, during 2013-14.
  • a significant percentage of India’s population currently has no access to grid connected electricity at all. Of the 1.4 billion people in the world that have no access to electricity, it is estimated that 300 million of them live in India. This is equivalent to the entire populations of Germany, France, the United Kingdom, Italy, Holland and Belgium, combined. The impact of this shortfall was well summarized by Rebeca Grynspan, the Under Secretary General of the UNDP, in April 2011 when she said:
  • The Government of India has set itself ambitious targets for the alleviation of the high rate of poverty in the country. To be able to achieve these targets the Government has set itself a target of achieving annual GDP growth of 7%. To achieve this it is estimated that India will require a total installed power capacity of 1,476 GW of by 2052. This represents an increase of 1,238 GW, or 541%, on the installed capacity at the end of 2011. If installed evenly over this period, this would represent an increase in generating capacity of circa 30 GW per annum. This is comparable to installing the entire installed capacity of Norway each and every year for the next 41 years.

The need to consistently and reliably balance electricity supply and demand will determine whether India’s aspirations to maintain an annual GDP growth rate of 7% can be achieved.

Installing new generation capacity at the rate required to maintain India’s economic growth will require huge amounts of capital. For this reason the energy sector is one of the areas of the Indian economy where foreign investors are able to own 100% of Indian companies.

Change at the top

"While India’s renewable energy sector has always enjoyed broad political support, the election victory of Narendra Modi’s Bharatiya Janata Party in May [2014] is expected to reinvigorate a sector that is still far from fulfi lling its potential. Modi, previously Chief Minister of Gujarat state, home to a third of India’s installed solar capacity, has always been a strong advocate of a clean energy revolution in India."

Ernst & Young, Renewable Energy Country Attractiveness Index, June 2014

The opportunity for solar power in India

Ernst & Young consider India to be the fifth most attractive country for investing in solar, ahead of established markets such as the UK and Spain

The Directors of Armstrong Energy Global believe that projects can be developed in India at grid parity, that is, without any need for subsidy from the Indian Government. This is because of several factors, including:

  • power output is much higher. Due to the higher levels of irradiance, the Company expects power ouput per kWp to be circa 1,750 kWh per annum, compared with circa 950 kWh per annum in the UK.
  • there are minimal technical differences to projects in the UK. The majority of the equipment used (e.g. panels and inverters) are provided by market leading international suppliers with a track record of their equipment being considered to be bankable.
  • installation costs are much lower. Whilst projects in the UK typically cost circa £1 million a MWp, the Company expects to be able to install projects at close to £500,000 per MWp.
  • high power prices, inflating rapidly. Although GDP per capita is much lower in India than in the UK, wholesale power prices are currently higher than in the UK. Furthermore, due to high levels of growth and the on-going power deficit in India, energy price inflation is much higher than in the UK, sometimes exceeding 10% per annum.
  • a large, long-term opportunity.   The current and future demand for new generating capacity, combined with higher power output and lower install prices, means that solar power plants in India can deliver attractive returns to investors, even without subsidies. This should improve over time as install prices continue to fall and power prices continue to rise.

The Indian Government has set a target of 1,000 MWp of grid connected solar by 2013, 4,000 MWp by 2017 and 20,000 MW by 2022. In addition to these central Government targets, various state governments have also announced policies aimed at promoting solar power generation. Currently India has approx. 1,000 MWp of grid connected solar power generation capacity, with the great majority of this capacity being in the states of Gujarat and Rajasthan.

Despite the huge opportunity for solar power in India, the country currently produces a negligible amount, circa 0.2% of its energy from solar PV.

No lack of opportunity.

"Despite the various challenges to be addressed, it is also clear that there is significant appetite [to invest in Indian solar projects]. Sarus Solar, a consortium of three Canadian firms, plans to invest about US$1b in a 500MW solar park and PV panel production unit in the state of Odisha. The Tamil Nadu state government is targeting 3.4GW of solar capacity with 700MW operational this year, and Solar Energy Corporation of India (SECI) is planning to construct a 1GW solar complex in Andhra Pradesh as part of its goal to install 10GW of solar capacity by 2017.

Meanwhile, GE has invested US$24m in Welspun Energy’s 151MW solar plant in Madhya Pradesh, now India’s largest solar PV project following its commissioning in February…Market forecasts project an additional 15GW of solar capacity by the end of 2018, up from around 2.2GW at the end of 2013."

Ernst & Young, Renewable Energy Country Attractiveness Index, June 2014