New bids show promise of solar power in India

Two recent events related to India’s energy security are worth noting.  The first was the joint announcement by the Prime Ministers of India and Australia that the latter would soon start exporting uranium to India. This would need legislative approval in Australia, but PM Malcolm Turnbull is confident of getting that bipartisan support from his Parliament. It would be the first time that Australia would be exporting uranium to a country that has not signed the Nuclear Non-Proliferation Treaty (NPT).

India refuses to sign the NPT on principle since it is discriminatory and exempts the big five of the United Nations Security Council from signing. Because of this stance, India suffered nuclear apartheid for almost three decades before the United States decided to bring India back from the cold. The Indo-US civilian nuclear power deal led to other countries from the Nuclear Suppliers’ Group to begin exports of nuclear fuel to India. Thus it came to pass that Australia, which has the world’s forty percent uranium, signed a nuclear cooperation agreement two years ago with India, facilitating the supply of uranium. India gets only three per cent of its electricity from nuclear power, although it is trying to raise it to five if not ten per cent. Nuclear power is a clean substitute for fossil fuels, which harm the environment. 

Nuclear power plants, of course, have their own challenges.  They need 20 square kilometres of land, far away from densely populated human habitation, near a large body of coolant water, and they need to address risks of accidents, proliferation and reprocessing the spent fuel.  India has 20 plants out of about 450 worldwide.  The world gets 11 per cent of its electricity from nuclear power, with countries like France and Japan getting more than 60 per cent of their domestic needs. Even if India manages to massively increase its share of nuclear powered electricity (after overcoming the economic, social and political challenges), the global supply of uranium is simply not enough. The world will run out of uranium in less than 100 years, and any increase in uranium usage from current levels decreases the time horizon of the supply even more.  Unless India or the world develops thorium-based nuclear power, or finds a way of cheap and safe reprocessing of spent fuel from current reactors, the uranium based power is soon running into a dead end.

This leads us to the other major recent event in India’s energy landscape.  In the most recent auction to bid out the setting up of a 250 MW solar power plant in Andhra Pradesh, the winning bid was a record low of Rs.3.15 per unit (kilo watt hour), won by a French company. This beat the previous record low bid of Rs.3.30 attained in a February auction in Madhya Pradesh for a 750 MW solar power plant.  In the last two years, the successful bids in solar power auctions have come down steadily and have beaten the cost of coal-based thermal power, even without any subsidy. The initial capital cost of installing solar power has also come down from around Rs.20 crore per MW a few years ago, to around Rs.5.5 crore now. The cost of solar panels is continuously declining.

This is an outstanding development, and holds great promise of reaching the target of 100 GW of solar power by 2022 in India. India currently has an  installed capacity base of about 13 GW, which is expected to go above 20 GW before the end of this fiscal year.  The world has already has an installed base of about 300 GW, lead by USA, China and Germany. But India’s share will go up substantially in the coming years. India is endowed with more than 300 days of sunshine in most parts of the country, so it is appropriate that it takes a leadership role in solar power. Renewable energy, including from wind and solar power, is a major component of meeting the goals of the Paris Agreement on Climate Change. 

Unlike uranium-based nuclear power, solar power has no limits in its scalability. There are however serious challenges that must be overcome in making solar energy a mainstay of India’s energy security strategy. Firstly, solar energy still suffers from  disadvantages of scale. It is only recently that we are seeing plants close to 0.5 GW coming up. They are yet to be tested for reliability. Thermal power plants are routinely of a scale of 3 to 5 GW. Secondly, solar power needs massive amounts of land, which can be a big challenge in a country like India. The success of the Madhya Pradesh auction was due to the fact that land was already made available to the bidders. Once the land acquisition cost and risk is removed, the per-unit winning bid is low.

Since solar parks and plants are coming up in remote areas with no large consumption centre nearby, the third problem is one of evacuation and it remains. Thus, unless efficient transmission lines come up, large solar capacity remains stranded and useless. Fourthly, the success of solar power auctions depends on the length and solidity of the power purchase agreement (PPA). Most recent PPAs have been backed by guarantees of the State governments, but that is not a sustainable way of reaching 100 GW by 2022. Furthermore, in so far as the PPA is by a distribution company (DISCOM), the solar investor has to worry about the financial health of his customer. If DISCOM is in dire straits, it increases the risk of default on the PPA, which can quickly unravel all solar dreams. Unlike coal-based power, which works on higher variable cost, and hence shutting down can cap losses, the same is not true for solar power. Its viability crucially depends on the long term healthy survival of the PPA.

The fifth challenge is that solar power needs the support of storage technology, in the form of efficient, environmentally friendly batteries. Otherwise, the power supply remains confined to daylight only. And finally, solar power cannot be relied upon for process industries, as well as those which require very high amperage. For those users coal, gas or nuclear power is the only option. But despite these challenges, most of which can be feasibly overcome, the solar sector has a bright and shining future.

(The author is a senior economist based in Mumbai)