Switching on India’s solar future

But the reality is that solar energy requires capital — a lot of it. While the feed-in tariffs for phase I are attractive,investors remain cautious in the wake of the global economic crisis and need more convincing of a potential project’s viability. Unfortunately,globally,most solar capacity projects thus far have been small in scale and few in number,meaning that investors have too few precedents on which to assess risks and returns.

There are no tested financial instruments that can be “cut and pasted” for solar investments. Investors are also put off by the uncertainty or inconsistency of many governments’ policies concerning emissions reduction,tariffs and incentives. In addition,even though solar technology has been around for decades,it is still an emerging technology: the industry is rife with numerous smaller players,technologies and standards.

So India will need to pave new ground if it wishes to rapidly scale up solar capacity. Nevertheless,India’s targets are achievable,if the government pulls several levers at its disposal.

Establish a clear and consistent regulatory environment: Stable policies are critical to improve the predictability of projects,so that domestic and foreign banks and investors can gauge potential risks and returns. Investors need to be confident that regulation relating to the energy mix,emissions,or feed-in tariffs will be consistent and predictable. At the administrative level,enabling smoother processes for land applications,licences or access to existing infrastructure should be a priority. Two key issues here are clarity on the policy framework beyond 2013 and giving teeth to the Renewable Purchase Obligation (RPO) mechanism.

Encourage the development of appropriate financial instruments: The capital needed to generate 20 gw of solar power by 2022 could be as high as $30 billion,although it will depend on how quickly costs come down for the technologies. Developing public-private partnerships will require clarity around the types of risk involved,in particular payment risk if utilities are involved,but also around operational and technology risk,given the lack of experience of large scale solar projects.

The partial payment guarantees and support mechanisms offered under the ongoing NVVN tender are a step in the right direction but more will need to be done to attract larger investments. Similarly the proposed National Solar Fund needs to be set up and operationalised fast in order give investors and lenders the required comfort.

Promote best in class technologies and standards: Large-scale solar projects present challenges — but they also represent an opportunity to establish India and Indian companies as leaders in the field. In the way that companies such as Suzlon have captured market share for wind power,innovative solar technology and project know how may also come out of India.

Foreign and domestic investors will look for those sort of partners when examining public-private partnerships and consortiums. A proven track record of a few key partners will enable smaller companies to enter projects and gain experience for the future. The world already associates some of India’s leading companies with expertise and dynamism,so leveraging that association makes commercial sense.

Raising finance to fund India’s solar future is not going to be easy. The government and states will need to commit to coordinated and clear policies for investors to be confident. India is not the only country facing these challenges. Organisations such as the Asian Development Bank or the World Economic Forum are engaging with investors and governments alike to examine models that can increase investment into renewables globally — India is well positioned to play a leading role in these discussions.

The scale of the government’s ambitious renewable energy plans is laudable. Increasing power supply from renewables will not only improve future energy security and help reduce emissions,it will also improve the quality of life and economic prospects for millions. The return on investment in renewable energy will not only be in direct dollar terms but also in terms of the environment,health,skills and job creation.

* By Jon Williams,Partner,Sustainability and climate change,PwC,UK and Bharti Gupta Ramola,Partner,Sustainability Leader,PwC India