Here in the largest democracy in the world, 300 million people are still without full access to electricity.
That’s why our new prime minister, Narendra Modi, has made it such a priority to develop India’s vast solar-power potential. Modi, who has been in office for only a year, is pressing an ambitious agenda that aims to see India install 100 gigawatts of new solar-power capacity by 2022.
A hundred gigawatts is no small number. Such an expansion would create enough electricity to supply 200 million households in India, and it would turn our country into a global solar-energy force.
It will prove easier said than done, of course, but achieving the 100-gigawatt goal is well within the realm of possibilities. Here’s what it will take:
- Alternative forms of financing. We believe that proposed hard-currency-indexed power purchase agreements, used judiciously, might be a game changer because of their potential to attract foreign investment. Green bonds are another option, as are yieldcos, the solar-industry financing structures that are gaining momentum worldwide. Crowdfunding and community funding hold promise as well.
- Government-backed guarantees to encourage investment. Skeptics may argue that the weak financial health of India’s state electricity distribution companies (Discoms) create too much investment risk. Policymakers can assuage investors by providing certain escrow mechanisms, for instance, or by establishing guarantees to secure cash flow.
- Build-out of India’s solar manufacturing and research capacity, which has far more potential than it has delivered to date. Recent initiatives by Indian corporations to partner with foreign firms suggest a way forward.
- Consistent and stable public policy that is supportive of solar-energy development. On this point, Germany and Japan are potential role models with their feed-in tariff policies, which require utilities to fairly compensate customers who generate solar-powered electricity that feeds into the larger grid. Feed-in tariffs, in our view, are more effective than tax breaks at promoting solar-power development.
- The expansion of distributed, or rooftop, solar. India is in need of vast improvement and modernization of its electricity grid, but a full quarter of its population lives in areas beyond the reach of the grid. This area are where rooftop solar comes into vital play.
Solar-energy progress along the lines of what Prime Minister Modi envisions will work wonders for India’s national energy security. It will raise its standing as a participant in global initiatives to decrease carbon emissions and curb climate change. And it will help India become a manufacturing hub to rival any other.
The biggest challenge lies in channeling investment into this sector. Clarity, transparency and government assurances are a must. And India must walk the solar walk itself by taking strides toward public policies that support solar-panel manufacturing and the global rooftop-solar revolution.
Jai Sharda is an investment advisor and founder of Equitorials, a Mumbai-based financial-research firm. This commentary is taken from his recent paper, “India’s Solar Ambitions, Challenges and Options.”
