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Beehives or elephants? How should India drive its solar transformation?September 2014

Tobias Engelmeier

Tobias.Engelmeier@bridgetoindia.com

Ajay Goel

Ajay.Goel@tatapowersolar.comwww.tatapowersolar.com

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Challenges with the current scenario

India needs to look beyond coal to ensure its energy security

Issues with expanding coal based power infrastructure in India

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Cost trendsCost of power from large scale solar is already at par with imported coal

Highlights

• At the generation side, the cost of solar power for a utility scale project is already at par with the cost of power from imported coal.

• Solar power will also achieve parity with domestic coal by the year 2019.

• Even though storage is expensive, the cost of power with storage will likely become competitive with the cost of power from imported coal post 2017.

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Scenario definitionWe have modeled four distinct scenarios for solar capacity addition in India

Comparison of four scenarios of 25 GW each

Distributed generation

Centralized generation:

Solar power is unique as it can be deployed in variety of forms ranging from distributed generation (residential & large rooftops) to centralized generation (utility scale & ultra-mega scale projects)

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Potential for solar installation

India can add up to 145 GW of solar over the next 10 years

Highlights

• At 145 GW, solar could contribute about 13% to India’s power generation in 2024.

• Most grid operators today consider 20% of power from intermittent sources like solar acceptable.

• We believe that the “ceiling” will rise substantially in the next ten years as grids become “smarter”.

• Therefore, we consider 13% generation from solar plausible.

• The 144 GW would be distributed across different grid-connected system types (“bees” to “elephants”).

Distributed generation Centralized generation

Total: 110-145 GW

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LCOE vs. LCOPEconomics of solar power should be evaluated at point of consumption than point of generation

Levelized Cost of Energy (LCOE)

Cost of evacuation of power

T&D charges and losses

Commercial losses / theft of power

Additional cost of balancing the grid+ + +

Landed Cost of Power (LCOP)

Cost of land/ rooftop lease+

Cost of smart meters/ energy accounting

+

From the consumer’s (and India’s overall) perspective, what matters more is the LCOP at the point of consumption, rather than the LCOE

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Cost trendsDetailed modeling shows interesting cost trends for each scenario over next 10 years

Highlights Unsubsidized LCOE and LCOP in 2015

Unsubsidized LCOE and LCOP in 2024

• Large size projects are more cost effective today; however rooftops would witness steeper cost decline over next 10 years.

• LCOE for rooftops would fall by ~30% whereas that for utility scale by 17%.

• Gap between LCOP & LCOE is as high as Rs 2.00/unit for utility scale compared to Rs 0.20/ unit for rooftops, highlighting advantage of distributed gen.

• The gap between LCOP & LCOE would still remain at Rs 1.50 /unit for centralized projects after 10 years.

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Job creation6.75 Lakh total jobs can be created if 100 GW is implemented across the four scenarios

Highlights

• Most jobs are created in the small rooftop market, which would see a large number of small installers and a very diverse value chain.

• Most solar jobs require the regular addition of new capacity to sustain.

• Jobs in ultra-mega projects will suffer most from project related ebbs and flows.

• The industry structure will be characterized by fewer (and probably more professional) players, the larger the project size.

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Speed of deploymentSpeed of deployment is fastest for small rooftops and slowest for ultra mega projects

Highlights

• For smaller rooftops, smaller size & captive roof space imply quicker deployment of systems that can be built in days.

• Large rooftops additionally require contractual agreements and thus system can be installed in few months.

• Utility scale projects need longer time for land acquisition & clearances, hence they can be installed in 6-8 months.

• Ultra mega projects require a couple of years of time frame for deployment; increased time required for planning, land acquisition, evacuation infrastructure development, financial closure, etc.

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Implementation challenges

Implementation challenges are minimum for utility scale projects due to already developed ecosystem

Highlights

• Financing challenges are a common thread across all 4 scenarios.

• Small rooftop market is fragmented & disorganized and it needs to become more organized with standardized, ready for installation solutions.

• Things are broadly in place for utility scale projects as there is a proven track record; large rooftops are gaining pace with net-metering gradually coming in place.

• For ultra mega projects, the ecosystem needs to be developed esp. for land acquisition & transmission infra development.

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Way ForwardThe country should focus on providing broad based support across scenarios

Highlights

• Similar to the diesel gen-set market, solar could become a “default” rather than a “design” market.

• Mindset of the regulators and policy makers needs to move away from the current school of thought where power gen. happens centrally.

• Existing regulations and policies need to be re-evaluated, with due importance given to generation being at the point of consumption.

•Incentives (GBI/ subsidy/ VGF)•Setting up of “green funds” and solar/renewable focused NBFCs

Financial

•Single window clearance•New substations•Setting up of green corridors•Weather and demand forecasting

Infrastructure

•Demo projects in public places or government buildings•Standards for system quality; Performance monitoring•Stakeholder meetings•Government backing of contracts to improve bankability

Ease of business

•Regulations for net-metering & smart grids implementation•Long term clarity on regulatory & policy provisions

Regulation

Creating dependable solar policies to encourage investments & easy implementation process

While the government should continue to encourage large scale projects to add to the power generation capacity in the country, a much larger emphasis

should be given to rooftop projects which will lead to a more organic growth of the sector.

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