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Life after JNNSM: A Developers Perspective

Sourabh Sen ,  Monday, May 09, 2011, 15:34 Hrs  [IST]

Sourabh Sen.jpgIndia has officially embarked on one of the most ambitious solar initiatives in the world, and now that the first batch of solar projects have been approved under Phase I of the Jawaharlal Nehru National Solar Mission (JNNSM), serious project developers are now deciding "how" rather than "if" they will participate in Indian's solar industry.

From a developer's perspective, India already has three very critical elements in place for a world-leading solar program to be realized.

First and foremost, the natural resources (i.e. sunshine) necessary to support a sustainable solar market are more than enough to power the entire country. After the Sahara Desert, India is the sunniest location in the world - only 1 per cent of India's land would be required to electrify the nation.

Second, the technology for solar is more accessible than ever; and efficient, commercially proven solutions, are being tailored to the Indian market as we speak. In fact, one of Astonfield's technology partners is now re-centering key parts of its global solar engineering and design operation to India, given the innovation required to deliver solutions at the aggressive cost points demanded by Indian feed-in tariffs. They will now be exporting this innovation to all of their global markets as well.

Third, private sector interest and enthusiasm for promoting solar infrastructure has tremendous momentum. Commissioning the full 20,000 mw of solar power by 2022 (as outlined in the Jawaharlal Nehru National Solar Mission) will require an inflow of approximately $40-50 billion of capital, which the investment community is ready and willing to provide. This market opportunity for developers is also driving technology suppliers to consider serious investments in manufacturing and employment in India.

The government of India has successfully provided the framework (in the form of JNNSM) for serious developers like Astonfield to make the goal of 20,000 mw of solar by 2022 a reality. But with less than 20 mw of grid-connected solar installed in India today, we have our work cut out for us.

Untitled - 21.jpgFor the JNNSM to be successful, confidence in long-term scale and government support to grow, a sustainable solar market must be there. Achieving the proper scale in India is no problem. Between the growing power requirements of industrialized India, and the drive to provide electricity to the populous that is currently without, the demand for an unprecedented solar program is there. Solar is naturally well-suited to India's needs, given the versatility of the technology-we can deploy solar technology in large centralized utility scale power plants or small off-grid decentralized configurations for rural electrification.

Getting the sustainability equation right is more difficult. By sustainability I mean the ability for entrepreneurs to enter the solar market, innovate, invest, and create a long-term business that earns a reasonable profit. There are many contributing factors to achieving healthy sustainability in the solar market, but I will touch on a few that I consider the most important.

First and foremost, there must be a way to source global pools of capital at a cheap cost. In a scale market such as India, where vast implementation is required to yield a reasonable profit, the capital expenditures are huge. To this end, the Indian leadership would be well-advised to create umbrella financing frameworks with multilaterals and commercial banks that the private sector can take advantage of in small increments. Because of the time and cost of due diligence, most banks shy away from project financing deals less than $30 million, which far exceeds the requirements of a 5-10 mw solar plant. Since the average project under the JNNSM is currently between 5-10 mw, creating these umbrella frameworks would be a great facilitator toward growth in the solar sector. Thus a low cost of capital is paramount to making viable profit margins.

To keep our cost of capital low, Astonfield endeavors to remove as much perceived project risk as possible from the standpoint of both equity and debt investors. This is achieved through longterm power purchase agreements (PPAs) with credit-worthy customers, working with strong engineering and construction partners with long and successful track records installing solar plants in other markets, and ensuring that realistic assumptions are made regarding the power generation potential of a chosen site.

Untitled - 22.jpgBesides keeping financing costs low, the tariffs and financial framework supporting the JNNSM must be adequate. In an effort to manage renewable energy costs, Phase I projects were awarded to developers offering the deepest discounts. By implementing a bidding process without requiring project developers to demonstrate significant solar development expertise, the JNNSM could fail to draw companies with the necessary skill set and create a situation where developers are submitting aggressive bids. With the costs and complexities involved in developing solar projects and India's solar industry at a nascent stage, it is important that projects are executed timely and effectively and short cuts avoided. While our first project is being developed under the migration phase of JNNSM, Astonfield, along with many other serious project developers, elected to sit out the "bidding" process during Phase I. Astonfield will instead push forward the execution of its migration project in Rajasthan and focus on other state projects it is developing in Gujarat and West Bengal, at least until we see if there will be any revisions to the bidding process for Phase II of JNNSM.

If India can maintain a proactive stance on solar power and scale up the sector, the benefits to the country are tremendous - both skilled and unskilled job creation, increased energy security, growth in R&D and manufacturing, augmenting our current national energy portfolio, and providing power to the 400 million citizens without, not to mention cashing in on FDI and venture capital opportunities. While the initial "era" of solar power was dominated by the Europeans and Japanese, it is not too late for India to achieve a global leadership position in solar power generation and manufacturing. For the sake of our energy security, economic development, and citizen's welfare, it is imperative that we make the Solar Mission a success. Electrification is the cornerstone of civilization, and for India to grow, we must become a 100 per cent-electrified country.

About the author: Sourabh Sen is Co-Chairman, Astonfield Renewable Resources
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