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Vinayak Chatterjee: Sunshine over Madhya Pradesh

Well-crafted policies and smart implementation have led to a solar power surge in the state

Vinayak Chatterjee 

Vinayak Chatterjee

India is fast becoming a global hotspot for solar energy development. Even more heartening for the sector is the fact that the new government is enthusiastically pushing UPA’s Jawaharlal Nehru National Solar Mission (JNNSM). This encompasses: the largest-ever tender for solar power — 3,000 megawatt or Mw (in packets of 1,000 Mw); moves towards bundling solar power with thermal power for “pooled pricing viability”; attempts to achieve grid parity by 2017; a second batch of bidding under JNNSM to achieve 10,000 Mw of grid-connected solar power by 2017 and mission target to have 20,000 Mw of grid-connected solar power by 2022.

And this rush of solar-powered adrenalin is happening on an installed base of only 2,700 Mw, propelled with a downward spiral in prices, which have plummeted from a start-up high of Rs 17-18 per unit to today’s levels of Rs 6.5-7 a unit. Considering the current huge complications in conventional energy investments, it is not inappropriate to say solar power is at the centre stage of India’s power sector investment options.

The solar story began with the Gujarat State Solar Policy of 2009, which led to installations close to 1,000 Mw, most of it in Charanka Solar Park. With the introduction of JNNSM in 2010, investments started flowing into Rajasthan that, at 727 Mw, boasts the second-largest operating solar capacity.

But interestingly, it is Madhya Pradesh (MP) that been a dark horse in this industry with the third-largest installed capacity currently, at 355 Mw. MP, has moved from a virtual non-entity in earlier JNNSM bids and ended up garnering about a third of the winning capacity in the last round concluded in February 2014.

However, many other states have failed to attract sizeable investments. While most state policies offer decent tax exemptions, my colleagues in our energy division, Vikas Garg and Sandeep Kota – who track renewables avidly – are not upbeat about the solar initiatives of most of them. While Maharashtra’s (281-Mw installed capacity) policy appears to be targeted at meeting its regulator-determined obligations, Andhra Pradesh (164 Mw) and Tamil Nadu (100 Mw) are, apparently, case studies on how not to run a competitive bid process.

Clearly, issues such as ease of land acquisition, associated clearances, transmission pathways and certainty of power purchase are crucial factors for investment decisions. Simply put, it is the “ease of doing business” that emerges as the key differentiator. And it is here that MP appears to have stolen some of the thunder from India’s perennial favourite – Gujarat.

The implementation of MPs solar policy offers some insights into how policy innovation, a committed political leadership and an engaged bureaucracy can make a difference. By introducing a “Right to Use” concept for government land for setting up solar projects, MP has been able to drastically reduce the time and cost for land allocation. Under the state’s solar policy, the revenue department transfers identified land to the New and Renewable Energy Department (NRED), which then awards “Right of Use” to developers while retaining ownership, reducing the time of allotment to around two months. A digital land data-bank of several thousand hectares, accessible to developers, makes site identification easy. NRED has also simplified the process of clearances, approvals and inspections. MP, which was the last of the top five solar destinations to notify a solar policy, seems to have learnt well from other states. It offers a relatively superior tax incentive package, making projects in the state more competitive in national-level bids. It also offers better terms for evacuation since use of the transmission network is charged on an “energy basis”, while use of the distribution network is free.

With all this, MP’s pipeline of solar projects has acquired proportions similar to Rajasthan. MP now expects to add close to 500 Mw in this financial year with another 250 Mw under execution. From its current No 3 position (after Gujarat and Rajasthan), MP appears well set to leapfrog ahead in the solar power sweepstakes and become No 2 pretty soon.

Further investment promotion in solar power requires long-pending reforms in power distribution. The key one is the purposeful enforcement of the Renewable Power Obligation (RPO) and associated Solar Power Obligation (SPO). Enforcement of RPO/SPO will not only create a larger market for solar, it will also rejuvenate the renewable energy certificates market, which is the most efficient way to meet these obligations, provided the price bands reflect market realities. First, the central government can attempt to “pre-allocate” the capacity of solar ultra mega power projects (UMPPs) just like thermal UMPPs, with the amount of allocation based on SPO requirements. This will help achieve faster financial closure after developers are selected. “Open-access” is also critical as the industry moves towards “grid parity”. Standardisation of bid documents across states is a crying need and JNNSM documents could be a good starting point.

The other segment of the solar market with potential is distributed projects, often referred to as “off-grid”, which can power households, small commercial establishments and remote areas. They can have a far-reaching social impact, whereas large grid-connected projects are more economical in terms of cost of generation. States need to look for the right balance of large centralised solar plants and distributed solutions. With the prime minister pledging to light up 80 million households by 2019, solar power is a critical input to achieve the promise.

The sun appears to be shining on India now, and for solar power, it seems to be shining brighter over Madhya Pradesh.

The writer is the Chairman of Feedback Infra. Twitter: @Infra_VinayakCh
A shorter version of this article appeared in our print edition

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First Published: Mon, October 13 2014. 21:46 IST