Way forward for solar energy players in india

Market Analysis Opportunities India had an installed solar power capacity of 1700 MW in 2007 which amounted to roughly 1% of its total power generation of 130, 000 MW. India is currently ranked 7th in the world in Solar PV cell production. But considering India’s geographic location and climatic conditions, this is a huge market waiting to be tapped. India receives bright sunlight almost throughout the year especially in West and Central parts of the country. Due to global warming and rising CO2 levels, average temperature in India is set to increase by 4 degrees by 2050. Given Government’s recent policy announcement which gives thrust to green and renewable energy, there is a commercial opportunity which can be exploited. Some of the incentives given by the government are: – Subsidy of Rs 12/unit on medium scale operations (1-5 MW capacity) – 100% depreciation of equipments used in 1st year itself – Other tax benefits like zero excise duty These measures though very limited as compared to other countries like USA or Germany, the world leaders in solar energy, but still it is a step in the right direction. So it is no surprise that many big companies have announced sizeable investments in this field. At present the main players are – Tata BP Solar – Moser Baer – Central Electronics Ltd. – SELCO – BHEL Many more are expected to join like DuPont, Dow Chemicals and surprisingly even Google. Improvement in PV technology, which is touching efficiencies of 30%, and development of newer technologies especially STEG (solar thermal electricity generation) are driving the energy costs down. Till now, use of solar energy in India is limited to rural areas for lighting purposes. But innovation can play a major role in expanding the scope of applications. Issues Involved Cost of setting up a PV solar cell panel Rs 16-20 cr. per MW Cost of setting up a coal fired plant Rs 4 cr. per MW Cost of setting up a hydro plant Rs 6 cr. per MW Almost 70% of cost associated with solar cell panel is wafer silicon which is polluting. So though solar power is pollution free during its use, it creates lot of toxic pollution during manufacture of PV cells. This makes cost/unit of solar energy very high at Rs. 15-25/unit as compared to Rs. 2-6/unit for other sources. This is where government subsidy helps in bringing costs down. Another issue is the requirement of lot of open space to set up the solar cell panel. There should be no shade because efficiency of panel reduces significantly even if one cell is in shade. As of now, the energy produced is not suitable for energy intensive applications thus ruling it out for industrial applications (36% of total consumption). Also agricultural applications are ruled out because of its very high costs (22% of total consumption). This limits use of solar energy for small to medium scale applications (1-5 MW) as of now. As technology is improving and costs are coming down it can be used for large scale applications (> 30 MW) viably by 2020. Demand Analysis India faces a power shortage of almost 70, 000 MW. Energy demand is increasing at 12% p. a. but the supply simply hasn’t kept pace. But to expect solar energy to step in will be too much. Right now, its usage is limited to developing innovative applications for individuals or medium scale operations (1-5 MW). The growth in this area depends upon improvement in technology and economies of scale. But it can’t happen unless someone takes initiative. So it’s a kind of catch 22 situation. Growth, thus, depends upon private player initiative with government playing the role of a facilitator. In rural areas, which are not yet connected by electric grid, the demand for solar energy is immense. Demand is also coming from environmentally conscious people who have the capacity and are willing to pay the premium for green sources of energy. This segment can be expanded by spreading awareness and making it an issue of pride. Some institutions or government warehouses located in remote locations can also be tapped. Competition At present the major players are Tata BP Solar, Moser Baer, BHEL, Central Electronics Ltd. etc. Also realizing the growth opportunities in this field, many existing players have unveiled massive expansion plans and new players are also showing interest in this market. – Tata BP Solar announced $100 mn investment in solar cells and modules – Moser Baer raised $150 mn from foreign convertible bonds for solar energy – Giants like DuPont, Google are considering entering this field – Signet Solar announced $2 bn investment to develop 3 plants in India So competition is hotting up in this field. Most of these companies are planning to use PV technology except Google which is planning to use newer STEG technology which is expected to reduce setup costs by almost 50%. Business Model Considering the issues involved with PV technology at present, it makes sense to go for small to medium scale operation at present (<5 mw). newer steg (solar thermal energy generation) technology, when available, can reduce setup costs by almost 50% and doesn’t cause pollution associated with wafer silicon production. this technology is expected to come up approximately 10 years. but an area where pv scores over miniaturization. so it logical limit the present operations small medium scale only. as we have seen, despite government subsidies, solar still about 2-4 times that of conventional sources. target those buyers sources are either uneconomical or themselves willing pay a premium for clean source energy. three such segments identified: 1. environment conscious people in high income category (earning more than rs. lac p. a.): these people, out sense duty pride, their carbon footprint. proper awareness, segment has potential become very big. will call a. 2. demand from remote locations: be form cold storage plants, educational institutions defense forces. areas, grid electricity not economically unattractive due transmission distribution losses (almost 50%). b. 3. street vendors workers working at night: innovative applications like lantern headlamps improve productivity. doing live demos introducing per use payment method, targeted. c. selection spv suppliers since dow considering entering into indian market under ‘ renaming’ model, essential reliable supplier photovoltaic equipment ensure quality its final product. also important look one two big benefit economies costs. contracts 1 year given automatic extension if no default occurs. companies bhel rajasthan electronics instruments ltd. operate large thus low cost equipments. now discuss strategy adopted each segments. fall bracket (upwards a.). they green tie real estate developers unitech sahara, involved construction luxury housing societies done. cell panel capacity 1-3 mw depending upon requirement on rooftops. power sufficient meet most demand. batteries electric backup used case cloudy days. projects endorsed organizations teri. any diesel generators otherwise. having dependence. share attracting enhancing brand image. tv campaigns promote matter pride should undertaken. 10-15% apartments then charged won’t mind paying little extra. another way tap collaborating hotels orchid hotel other chain ecotourism. help eco tourists, mostly foreigners, it. us, command 30% room rents. let us consider 2 society 100 homes. gives subsidy tune 25%, works selling typical home rs 50 lacs 10%. highlighting benefits living noise generator, customers wooed premium. responsibility maintenance replacement equipments lie providing necessary technical support. contribute 60% total revenues. b many places india yet connected grid. construct grids t&d (transmission losses) make unattractive. step in. some opportunities - located areas forces base warehouses especially presentations made officials showing advantages projects. 500 kw provide places. space problem areas. various research iisc ngo’s specific problems designing solutions them. there purchase agreements cases. this, bears building plant which comes around 6-12 cr after subsidy. only upfront agree buy rates minimum period 20 yrs. yrs, match even better though requires long gestation period, profits. see financial assessment, too attractive terms irr. intangible understanding local markets getting good books increase lobbying 20% c can’t ignored sheer vastness. according estimates, million cleaners, who work night. normally less 150 day. buying less, numbers viable segment. headlamp productivity immensely value proposition promoted besides, does away need harmful fuel lamps pollution. innovation play role properly tapping market. profit gsbf (grameen surya bijlee foundation) currently work. roped utilize network. mechanism bring down day contrary what may think, among lowest bank experience). needed awareness spread through products. highest roi irr all assessment following excel shows proposed model. future outlook industry growing 12-15% annum. targeting right segments, achieve 25% cagr next 5 then, growth depends developed status technology. realistically, aim $100 mn mark revenues 2015. steps taken further dow’s india: offering internships engineering students labs develop products mainstream customers, easy cost. competition seminars b-schools would major decision makers tomorrow office, customers. move generation (> 30 MW), R&D efforts should shift to new STEG technology: a. It will reduce setup cost by 50% b. It will not involve toxic silicon manufacturing c. It can be used for energy intensive applications 4. Carbon credits can be earned under Kyoto Protocol’s Clean Development Mechanism (CDM) and be sold in the secondary markets to earn additional revenues. 5. It should try to lobby for additional incentives in solar energy sector to enable it to meet India’s burgeoning energy demand. References 1. www. mnes. nic. in 2. www. ecoworld. com/features/2003/11/17/solar-energy-heats-up-in-india 3. http://www. solarbuzz. com/Consumer/Solarthermal. htm 4. http://www. ingentaconnect. com/content/iabse/sei/1994/00000004/00000002/art00004 5. http://techon. nikkeibp. co. jp/article/HONSHI/20080428/151154/ 6. www. domain-b. com 7. www. howstuffworks. com 8. www. indiasolar. com 9. www. ises. org/india