India’s solar power policy is now entering round two. And there is much that needs to be reviewed and reworked as the business of solar energy has seen massive turbulence in India as well as globally. In the first phase (2010 to 2013) of the Jawaharlal Nehru National Solar Mission (JNNSM) the target was to set up 1,000-2,000 MW of grid-based solar power in the country. By 2013, the country has indeed commissioned some 1,000 MW of solar power, but 700 MW of this target comes from the non-JNNSM state of Gujarat.

Illustration: Vaibhav Raghunandan

The next phase of the national solar mission kicks in from 2013. The Union Ministry of New and Renewable Energy has set a target of 9,000 MW of solar power by 2017, of which 5,400 MW will be paid by cash-strapped states. But three years is a long time in this fast-moving business. There have been drastic changes—for the good and the bad—in this sector since the mission began in 2010.

First, the good news: the price of solar energy has come crashing down in the past two-three years. In November 2010, when the first tender for solar photovoltaic (PV) power was opened, the lowest tariff was Rs 10.85 per kWh. A year later in December 2011, when new bids were opened, the tariff was down to Rs 7.49 per kWh. This makes solar energy attractive as it is now close to grid parity, with energy utilities buying power at Rs 4-5 per kWh.

But this is only one part of the story. The first bad news is that there is no money to pay for the second phase of solar power development. In the first phase of the national solar mission, one unit of expensive and clean solar power was bundled with four units of cheaper and dirtier coal power to pay for the price difference. But this was when the country had unassigned electricity from NTPC’s coal-based thermal power plants. Now there is an energy shortage. Bundling is not possible.

Second bad news is that 90 per cent of domestic solar manufacturing has closed or filed for debt restructuring. Solar imports have flooded the market. This is when the stated aim of the national solar mission was to encourage domestic manufacturing. It even specified domestic content requirement for the first phase, which would be ramped up subsequently. But when JNNSM specified domestic content requirement for solar PV installations, it left out thin-film technology from its ambit, focusing on crystalline silicon technology. As a result, imported thin film technology, which is not so durable and efficient, today dominates the Indian solar industry.

The reason is simple. There is a glut in global solar module market. China has built a huge capacity, which has no buyers in the increasingly cash-strapped world. Countries like Spain, Italy and even Germany are pulling back on their ambitious solar targets. In this over-supplied market, the price has come crashing down. It is estimated that in 2011, PV modules cost 60 per cent less than what they did in 2008. The price goes down each day.

All over the world solar manufacturing industries are feeling the heat. In just the last year over two dozen companies have filed for bankruptcy in the US and Europe. Even Chinese companies are reportedly reducing production or shutting shop. In this situation dumping and protection is the name of the game. Already the US and Europe have imposed hefty anti-dumping duty on Chinese solar imports. India is reportedly contemplating a similar move. But this is not the only issue at hand. Indian solar industry, in fact, has less to do with China and more to do with the US. The bulk (no exact estimates exist) of the commissioned plants have been built with low-interest loans (at 6-8 per cent) from the US Exim Bank. These loans came with conditions that procurement will be from US manufacturers only. Indian manufacturing industry is hit hard.

This is not the only injury. Under the climate change agreement industrialised countries have agreed to provide fast-track financing to developing countries. To fudge accounts, the US has added these commercial and conditional loans provided by US Exim Bank to Indian solar industry as part of its contribution to climate change finance. So, there is double benefit for the US—its domestic industry benefits and it gets accounting advantage in climate negotiations. The question now is how India will marry the two objectives of cheap energy, which it gets because of crashing solar prices, and domestic manufacture, critical for employment and energy security.

The third bad news in the solar sector development is of even more fundamental nature. The fact is that grid-based solar power continues to reach only those households that are connected to energy supply. In fact, what it does is to subsidise expensive solar for the already-reached population. In a situation where the transmission and distribution losses are 20-25 per cent, it also means that all power generated by solar plants is “lost”. These plants work at a maximum of 20 per cent capacity. Therefore, there is much to rethink in the next phase of solar power development. Let’s discuss the options next fortnight.