It has been an exciting journey for the International Solar Alliance (ISA) since its inception in 2015. In a little over two years, it has transitioned from a high-profile announcement at the 2015 Paris climate summit to an intergovernmental organisation under the United Nations charter, holding its first summit in March 2018. The World Sustainable Development Summit 2018, which was organised by The Energy Resources Institute, was attended by several heads of state and government officials. Excerpts from the session, “Solar Revolution: The New Global Norm”…
The formation of the ISA has been a gigantic task, and this intergovernmental initiative by India and France is now playing a crucial role in the development and evolution of the solar movement across the globe. ISA is now only second to the 21st Conference of the Parties (COP 21) in terms of global significance. The COP 21 of the United Nations Framework Convention on Climate Change was a watershed moment for the renewable energy sector in many ways. It was a major turning point in the global fight against climate change. Renewable energy has become a mainstream technology and the market scenario has shifted from identifying what needs to be done to what should be done. The government’s vision has indeed ensured India’s time under the sun and winds of change blowing in the right direction are helping the nation in the achievement of its set objectives.
India stands second in the renewable energy attractiveness index released by Ernst & Young in 2017. It is also one of the top 10 renewable energy countries, with a commissioned capacity of almost 65 GW, including 16 GW commissioned during the last three years. Meanwhile, solar energy has now become more affordable in India. Tariffs have fallen by over 75-80 per cent from Rs 15-Rs 20 per kWh during the initial phase of growth to Rs 2.50-Rs 3 per kWh at present.
In February 2015, YES Bank launched the country’s first green local currency green infrastructure bonds. It was a small issue of only about Rs 5,000 million, but by the time it closed, we had an overall book position of Rs 10 billion. Since then, YES Bank has launched two more green bonds issues. One of these was issued jointly with the International Finance Corporation in August 2015. This was the first green masala bond to be listed on the London Stock Exchange (LSE). Further, YES Bank committed to financing clean energy projects worth 5 GW and has already deployed 4.3 GW as of date. While the takeoff of the renewable energy sector has been catalysed well over the past few years, the untapped opportunity between now and 2022 has been estimated at $450 billion of investment. And with India occupying the second position in the renewable energy attractiveness index, the opportunities in the country are tremendous. I would like to make a few recommendations for financing the upcoming projects.
There should be further easing of regulatory measures to increase the pace of investments for the renewable energy sector in the country. In addition, the tenure for renewable energy bonds on an average is five to seven years as the depth of the market restricts us from going beyond this time frame. However, we should match the bond tenure with the financing lifeline of renewable energy projects, which is typically 15-20 years as the market now has a reasonable depth to underwrite and take the credit risk. Further, one should may be, even sell off the credit risk and invite international investors and financial institutions to subscribe to longer-tenure bonds.
There have been about $6.5 billion worth issuances in the local market over the last three years, 68 per cent of which has been in the form of green bonds. However, the next level of innovation is required through aggregation and securitisation of these projects and then selling them to not only corporate institutions but also retail investors. In addition, the retail sector’s participation should be increased in the rooftop segment. The rooftop segment witnessed 80 per cent growth in 2017, most of which was installed in the industrial and commercial segment. Therefore, there is a huge opportunity for a “rent-a-rooftop” model, which is being piloted in several areas. Moreover, discoms are being designated as nodal agencies to increase the adoption in the residential market through the Sustainable Rooftop Implementation for Solar Transfiguration of India (SRISTI) scheme. However, to boost the underlying demands, reforms such as net metering and income tax credit rebates for capex, which are similar to the solar tax investment credits in the US, could help incentivise investments in the segment.
On the sidelines of COP 21, 2015, India made a commitment to the world to reduce its economy’s carbon emission intensity by one-third by 2030, and a new target of 175 GW renewable energy capacity by 2022 was set. The year 2016 saw a global renewable capacity addition of 165 GW, which accounted for about 60 per cent of the total capacity addition. India is one of the largest renewable energy markets and of the targets set, it has already achieved 4.5 GW out of 5 GW for small hydro, while for the biomass segment 8.5 GW out of 10 GW has been achieved. For the wind energy, 30 GW against a target of 60 GW has been achieved, and for solar energy, 22 GW capacity will be installed by March 31, 2018.
However, India still has a long way to go. We have done fairly well on ground-mounted solar front, but poorly in terms of rooftop solar capacity addition. The government is now trying to modify the schemes, by bringing in a new set of programmes to achieve the 40 GW of rooftop capacity target by 2022. Overall, we have already achieved an installed renewable energy capacity of 62.5 GW, which is expected to go up to 68 GW by March 31, 2018.
We will be tendering 30 GW of solar power projects each in 2018-19 and 2019-20. In the wind segment, we will tender about 10 GW of capacity each in the next two years. We have worked backwards from the 2022 targets and will finish the entire bidding of 175 GW by March 31, 2020, with two years of grace period for achieving the targets.
When we talk about the surge in renewables, the final motive is to reduce carbon emissions and provide universal access to electricity at affordable prices. Solar and wind tariffs are now as low as Rs 2.44 per kWh due to improved technologies and greater efficiencies as well as increase in the economies of scale. The capacity additions are now linked with manufacturing and the government is bringing in developers for setting up 20 GW of solar manufacturing facilities during the next phase of its programme. Development of floating solar plants on dams and lakes as well as canal top projects will also be promoted. To improve the technology of solar cells and related equipment, we have the National Institute of Solar Energy and collaborations with other international institutions.
However, India still has a problem on sustaining its renewable energy sector. This can be attributed to the fact that there are no manufacturing facilities for wafers and we depend on other countries for importing this material. Today, about 88-90 per cent of modules are imported to support the growing solar installations. For finance, we are now looking towards the private sector for mobilising funds through innovative mechanisms in order to achieve the targets.
In the off-grid segment, MNRE is bringing out a new scheme called Kisan Urja Suraksha Evam Utthaan Mahaabhiyan (KUSUM), which will focus on incentivising farmers to use solar pumps.
Thomas Friedman called the past few years as the “age of acceleration”. I feel this is particularly true of the sustainable development sector. There are virtual cycles that are created, thereby reinforcing the feedback loops and when the momentum starts to build, the cycle becomes self-reinforcing. But when you have more than one self-reinforcing feedback loop working, the system becomes mutually-reinforcing. This is the case with the solar revolution.
There are three major positive feedback loops that are working as far as the solar segment is concerned. The first loop is improvement in the solar technology and decrease in solar prices. Solar energy tariffs are now down to Rs 2.44 per kWh, making it cheaper than base-load coal. The looming question of grid parity of renewables has now been answered as we have crossed over the tipping point. The speed at which costs have come down has been quite dramatic, pointing towards the power of technology.
The second driver is a combination of internet of things, artificial intelligence and machine learning. This is enabling the industry to set up a distributed power system at costs that would have been inconceivable four or five years ago. This is possible through deep learning algorithms and the high-speed processing computers available to us. Therefore, the kind of control paradigm we are operating with, in the distributed energy systems, which includes electric mobility as well, is another factor.
The third area is battery technology. The economics of lithium-ion batteries is favourable and the technology is durable and safe. There is also a lot of research being conducted on other battery technologies. One usually thinks of bulk solar power as electricity generated from solar farms located in remote areas such as deserts, generating gigawatt-scale of energy. But that is only one part of the solar revolution. The other part that needs to be considered is distributed generation. In some ways, the paradigm shift that is going to happen in the distributed solar segment is even more important than what is happening in the large-scale solar segment.
Electric vehicles charged using solar energy can be an interesting business opportunity. India produces 18 million two wheelers each year, and is the world’s largest manufacturer of two wheelers. We have the ability to transform the total mobility ecosystem using distributed energy.
Innovation in business means that financial institutions and manufacturers must make big bets in terms of mobilising funds and creating an ecosystem for the demand of these applications. A good example of private companies can be Tesla and of government initiatives can be China, having built these ecosystems successfully. We also have to identify interconnected technology and regulatory aspects. This is a major challenge from the government’s point of view and has to be resolved at the earliest.
In 2015, MNRE held a meeting of chief executive officers (CEOs) to discuss financial instruments to promote renewable energy, as a result of which the Indian banks alone, along with private players, put in $77,000 million in funds. However, if all these companies install solar power systems at once, there would be a problem because the market is not yet ready to take this amount of solar. MNRE has recently stated that the country will exceed the target of 100,000 MW of solar by 2022, bringing both solar energy and India to the forefront.
There are five programmes in ISA for generating demand for solar power in the member nations. The first programme aims to provide solar pumps to farmers. Farmers in developing nations usually wait for a long time (a year or two) for electricity connections. In addition, expensive electricity poles have to be installed in these locations that can cost anywhere between Rs 50,000–Rs 250,000.
Moreover, special subsidy rates for farmers have to be provided as per their economic conditions, making electricity tariffs low. If the net present value is taken for all future connections and incentives, subsidies come out to be substantially high. Solar pumps can, therefore, present cheaper alternative solutions. To this end, ISA member countries are trying to undertake a census on the number of diesel pumps in use and if it is possible for farmers to get low-cost and reliable energy.
ISA is not only trying to deploy an aggregate of 500,000 pumps but also looking at floating a global tender wherein member countries will be asked to make a commitment for purchasing solar pumps. For example, Bangladesh submitted a requirement of 50,000 pump sets per year and India needs 100,000 pumps per year. First 500,000 solar pumps will be mobilised and then ISA will go for a global tender. Through this, somewhere in between the price extremes, costs are expected to come down. However, this is in experimental stages and we are still in talks with industries and CEOs.
The second programme is about the financial requirement. The Paris declaration called for mobilising $1,000 billion by 2030. However, this is not a fixed amount and a greater need for funds has been projected. Project developers still find interest rates to be high as banks feel that large risks are associated with projects. ISA is taking steps to improve this.
In May 2016, ISA constituted a task force in Paris with the help of the Council on Energy, Environment and Water, the Confederation of Indian Industry and the World Bank to find out common risk mitigation mechanisms and to increase the inflow of investments into the segment, by mobilising $1 billion for this purpose. On March 11, heads of governments from 52 countries will be coming together under the leadership of India and France and during discussions we plan to launch a few more programmes. One such programme is on e-solar that focuses on solar training, rickshaws, energy storage and rooftops. ISA aims to create an ecosystem that will comprise 10 centres of global excellence to promote R&D, innovation and capacity building.