While things seem to have turned around in the last couple of months, in 2013 India’s economy grew at its slowest rate – around 5% – in over a decade. However, the solar energy sector is doing well and a forecast of continued growth seems to be a good bet.
Solar energy in India has grown at an accelerated rate for over three years. In 2013, India nearly doubled its solar power. With nearly 40% of rural Indian households lacking access to power, building India’s solar capacity is key to growth and development in the worlds’ largest democracy.
In January of 2010, India opened up the Jawaharlal Nehru National Solar Mission (JNNSM). The mission is one of eight all are working to implement the country’s National Action Plan for Climate Change. The stated aim is to make India a world leader in solar manufacturing and research and development. With its abundant solar power potential, the country has done exactly that.
Planning for the second phase of the JNNSM is now underway. The first phase, from 2010 to 2013, witnessed the innovative combination of expensive solar power with much cheaper unallocated thermal power streams. This phase also included a reverse bidding mechanism which enabled qualified bidders to benefit from declining global prices for solar components, thus lowering the purchasing price of utilities. The second phase, which will last through 2017, aims to anticipate and fix problems confronting the growth of solar in India.
As can be expected, it was difficult to get commercial bank funding in the more high risk first phase of the JNNSM. Funding during this period primarily came from non-banking and multilateral financial institutions. However, the second phase should see greater funding from commercial banks and continued funding from export credit agencies.
This is essential as commercial banks play a large role in funding ongoing infrastructure projects in the country and their participation will be key to long-term growth. Similarly, this aspect makes such participation quite likely. Access to low-cost financing, raw materials, and an underdeveloped supply chain have thus far been the biggest obstacles in the relatively new solar sector.
Additionally, there is a large disparity in solar development among India’s states. The state of Gujarat is currently leading the way with an innovative and expansive solar plant built on a canal. Begun in 2009, the massive project was quickly and efficiently built and opened in the spring of 2012. The solar park in the district of Patan in Gujarat is estimated to have the largest solar capacity in Asia and by some estimates will generate two-thirds of India’s solar power production.
Development in other states lags behind that of Gujarat. Because of existing infrastructure, methods of funding, and capacity problems, it is likely that Gujarat’s level of success will be the exception for at least the immediate future. However, the overall growth in this sector offers encouraging signs for investors. By developing domestic energy production including solar, India will gain greater freedom and likely offset its growing dependence on imported coal, which hit a record high last fiscal year.
A recent Memorandum of Understanding between the governments of India and the United Arab Emirates looks to increase cooperation on solar and wind energy and may work to offset the problems in financing and supply chains. The stated objective is to exchange training and employees and share of information, data, and equipment with a joint working group.
The memorandum was announced on January 20 2014, so cooperation is still in its formative phase. However, both the rapid growth of solar power and the intent to form international working relationships should be viewed as encouraging signs and indicative of the solar energy market’s great potential in India.
