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Development in India – Rapid Changes in Rapid Development

By April 13, 2016Industry News

In the aftermath of the Paris climate talks India has been ramping up their development with particular focus on alternative energy options. The solar market is abuzz with new developments, agreements, and projects – evidence that a market shift is underway, a huge transition in the energy industry for the economic and population giant1. The relationship inside the industry between competitors and partners is changing, as is their external relationship between governments and consumers.

During the Paris talks, the government of India set the goal of 100GW of solar power to be in production in the country by 2022. This commitment has been the core driver in the shift in the market, as seen in the central and state policy changes and development incentives that followed quickly behind.

One of the most recent development announcements has come from the board of the state owned utility, NTPC, who cleared funding for two new PV projects totaling 510MW of capacity development. The investment funding will be near $467 million for the projects which are expected to be commissioned before 20172. To give context to the scope of India’s possible PV development, in today’s dollars, the country has estimated it will need to invest about 100 billion dollars in the next six years alone to boost the market and industry while development takes off.

These investments are no game either; eager to keep momentum in solar development, the government has already sought loans from Asian Infrastructure Investment Bank, which will be the first loans distributed by the bank. About 500 million is expected for this first deal, which was announced the first week of April. When asked about the borrowing, Tarun Kapur, the joint secretary at the Ministry of New and Renewable Resources said, “Financing is not an issue but we need cheaper funds,” and “In about six months, funds could start flowing from AIIB,” highlighting the issue that for India to truly kick off this solar boom they need to have the capital and fast. Presently the government is also in talks with the Asian Development Bank, the World Bank, and KfW hopefully to secure $3 billion during the fiscal year begun April 1.

There is good news though for the private sector: Welspun Energy and ABB have announced that together they have already installed over 700 MW of solar PV projects since their project was commissioned last year4. The commissioned 52MW PV plant is the first of its kind in that it is a PPP. The Baramati solar project is predicted to generate enough energy to power 240,000 households and cut CO2 emissions annually by 83,220 tones.

Critics of the rapid development and auction style contract bidding say that while the process is arguably transparent the negatives are far worse than the positives, creating issues such as bringing down costs only on paper, and creates irrational competition rather than natural competition between firms – ultimately reducing returns and rendering the model unsustainable on the market. The question is whether the government is creating a Wild West of solar development or if it can achieve development by design.