In 2009, when policymakers in New Delhi set a goal to produce 20,000 megawatts of solar energy by 2020, few gave India more than a slim chance. The world’s solar-savvy countries put together were generating that much solar power at the time, and India was contributing virtually nothing. But today, with acres of land in its arid, sun-drenched northwest carpeted with thousands of gleaming solar panels, analysts say India is poised to exceed its target. And the most tangible indicator of this makeover is money. In the last year, funding for solar projects in India increased seven-fold, from $0.6 billion in 2010 to $4.2 billion in 2011, a recent Bloomberg New Energy Finance report said.
On paper, India has always had a good case for going solar. Several parts of the country are endowed with an abundance of raw material – as many as 300 days of sunshine a year – much to the envy of cloud-enveloped Germany; it has vast tracts of under-utilized land on which to embed rows upon rows of solar panels; the country’s growing and grossly underserved population and expanding industry are hungry for electricity. But the deal breaker, solar’s classic Achilles’ heel, has always been the cost factor. Solar is expensive – considerably more so than the alternatives coal and wind – and a seemingly extravagant venture for a developing nation struggling with double-digit poverty and ruinous public health. For years, the global solar industry has piggybacked on generous subsidies from countries – inevitably developed and wealthy — willing to foot an enormous bill to develop clean energy. India never quite fit into this elite club.
But last year, the promise of affordable solar came one step closer to becoming a reality. First, the global price of solar panels and modules that turn sunlight into electricity plummeted 30 to 40 percent, triggered by a massive expansion in China – home to the world’s leading panel makers – and tepid demand from Europe. While this brought doom to American manufacturers unable to compete with China’s prices, it proved transformative for the industry by making solar infrastructure more accessible. Germany added a record 7.5 gigawatts of panels in 2011, more than double the government’s target. In the United States, grid-connected solar installations in the third quarter of 2011 grew 140 percent over the previous year. Indian developers too decided to join the party.
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Driven by its ambitious new solar policy, the government agreed to buy solar power at 17.91 rupees (36 cents) for a kilowatt-hour. (India’s coal-generated energy costs 3 to 4 rupees, one-fourth the cost of solar.) But to their surprise, they received an overwhelming response from developers – Indian and overseas alike. That’s when India set up a reverse auction process, making developers compete for its business. In an auction in December – the second of two — over 100 producers bid to sell solar power to a state-owned utility. The lowest bid was 7.49 rupees (15 cents) per kilowatt-hour, less than half of what the government had offered in the beginning and about 30 percent cheaper than the global average for solar projects, Bloomberg writes. The average bid price was 8.77 rupees (18 cents) per kilowatt-hour. Germany, the world’s biggest solar-power user, pays upwards of 17.94 euro cents (23 American cents) per kilowatt-hour, according to the New York Times.
In doing this, India veered from the global story by sidelining the fixed-price subsidy framework. In countries like Germany, Spain, the U.K. and U.S., governments subsidize solar power by agreeing to buy it at fixed prices for several years – a model described by solar skeptics as unsustainable and wasteful, the Economist writes. Backed by the government, solar capacities have been ramped up exponentially over the years. But this arrangement began to buckle when governments, faced with growing budget deficits and an economic crisis, started cutting subsidies, pulling the rug from under solar’s feet.
As early as 2009, Spain rolled back its subsidy program by reducing the money it paid for solar electricity and capping the amount of subsidized solar power installed each year, the Wall Street Journal reports. Following the crash in panel prices, Germany and the U.K. have been wrestling industry lobbyists to accelerate subsidy cuts. The U.S. too grapples with solar’s classic chicken and egg conundrum: developers say prices of solar energy will get competitive soon, but to achieve this they need to scale-up, for which they need generous government subsidies.
“The Indian experiment has been very successful,” says Tobias Engelmeier of Bridge to India, a New Delhi-based consultancy. Not only has India made its solar program viable, he said, but has also set a precedent by increasing competitive pressure on developers who he believes have been far too comfortable for way too long. He expects solar power in India to become competitive as early as 2016.
While solar energy is getting more attractive, what’s tilting the Indian energy market further is that coal is becoming more elusive. As the Economist notes, by 2017 domestic coal production in India will meet only 73% of demand, making imports imperative. Some $7 billion has already been spent in the past six years on acquiring coal pits in Australia, Indonesia and Africa. To ensure energy security, many in India also rely on back-up generators powered by diesel that costs between 12 and 25 rupees (24 and 40 cents), prices solar has already defeated.
This dramatic fall in prices has, however, raised some questions: are these projects, almost too good to be true, financially feasible? Analysts warn a weeding-out process is in the offing. Lured by solar’s glowing prospects, dozens of inexperienced developers and start-ups bid aggressively in the auctions and may not be able to deliver the goods at those prices, they say. Add to that the typical menu of hick-ups and teething problems: licenses and permits, land acquisition and evacuation, and financing.
Nevertheless, solar “looks like it will be a significant source of energy” going forward, says Alan Rosling, co-founder of Kiran Energy, a solar developer whose story mirrors India’s own growth trajectory. Just over two years old, the company now owns plants sprawled across 125 acres and has bagged contracts (a majority of them through competitive bidding) for 75 megawatts of solar power. Setting the bar high, Rosling says solar will have “truly arrived” in India when developers can sell it to anyone at a competitive price without relying on the government exchequer.
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