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Raj Prabhu, Mercom Capital, on the Jawaharlal Nehru National Solar Mission

Raj Prabhu
Raj Prabhu

Raj Prabhu, managing partner at Mercom Capital Group, is a recognized thought leader in clean energy markets around the world. He is a sought after strategist and regularly advises clients on issues that impact their corporate strategies and overall growth.  Raj developed Mercom’s highly popular market intelligence products, and leads its consulting division. Mercom Capital Group is a clean energy communications and consulting firm with offices in the US and India.


Mercom’s consulting division advises cleantech companies on new market entry, custom market intelligence and overall strategic decision-making. Mercom’s communications division helps clean energy companies build powerful relationships with media, analysts, government decision-makers, local communities and strategic partners.


Solar Server: What inspired you to study the Jawaharlal Nehru National Solar Mission (JNNSM)?

Prabhu: Mercom Capital group does consulting and communications in the solar sector. We have operations in India, and I myself am from India - I was born there. As the market developed in solar, especially in Europe and the United States, we kept an eye on India, because there is so much of a need for power in India and the shortage is huge. We always recognized that renewable energy might be an answer there. We were pleasantly surprised by the initiative taken by the government in this direction. Once they put out the actual policy we were very excited. I think it's going to be a huge market. And along with China they are probably the two best in terms of economic growth in the next twenty years, so with economic growth the power consumption needs are going to be huge. I think this is a huge market coming up.


Solar Server: Can you summarize the conclusions of your research for our readers?

Prabhu: Specifically on the JNNSM and the Indian solar guidelines, going through in detail, it is a very good first step for India. With most policies, I cannot clearly point to anyone and say- they got it right the first time. So there is going to be some need to change in the future and adjust to the market needs. But it's a very good first step, especially for a developing country. I think China doesn't even have a policy in the national feed-in tariff, so India has taken a leadership position when it comes to this. Which is great.

But I do think there are a lot of areas where India needs to go back through and rework the policy and get it right and make it market-friendly. So I would tell everyone is that it is a huge market, and this market is worth keeping an eye on and tracking the developments very closely, because if not you could miss business opportunities on the solar side.


Solar Server: What specifically are your concerns about the local production provision in the JNNSM?

Prabhu: My first concern is that it is there in the first place, for a country that is just now starting, especially on the solar side, to put a policy together. In terms of installed capacity, India has a negligible installed capacity right now and the market is very small. During this phase it is very important to have a free market, where the ideas and technologies flow freely on both sides.

Shutting off the market at this phase will I think kind of throttle innovation. Projects will not be able to use solar panels based on the best price and the best technology. That means they might not get the best returns for their projects, which in turn will push away the investors, because their main concern is getting the best return with the least amount of risk. It is too early in the game for India to be introducing domestic content, and it has not gone well in other parts of the world when it is introduced. So I am very concerned on this and I hope this is something they will consider and probably next year pull back the domestic content clause. So that this is not going to be a problem in the future.


Solar Server: Do you feel that economic nationalist measures can be effectively incorporated into a program to promote the growth of a national solar market? Why, or why not?

Prabhu: Well It depends... first thing I would look at is, what is the goal of the program, especially when it comes to India. To take it down to a very basic level, India is a very different market compared to like, say, Europe or the United States, where solar is used mainly to supplement additional growth and capacity or peak power. India is behind. There is an 8-10% shortage of power, almost 15% peak power shortage. That is huge. I would think that the first goal would be to get the shortage situation figured out. That means that you need a lot of capacity added. So that means that the first step you would make is to create a positive environment that would promote demand.

Here I think they are trying to do a little bit of everything and losing focus on this. Instead, they are jumping two steps and going to start a solar manufacturing industry, even before they create demand. I'm sure the intention is good, they want to create a solar industry, create jobs locally, but the way they are going about it might not be the correct way.

As you are seeing in Ontario and even in the United States, there is retaliation. Japan has filed a WTO complaint against Ontario, Canada. Now what would that do? First off all it would probably freeze a lot of the plans of companies in terms of investment and their future plans, because I would spend $100 million on a manufacturing plant, not knowing where that policy is going to end up, what will be the implication at the WTO. So will Ontario have to withdraw the domestic content clause, or are they going to hold on to it? Basically I'm not going to risk such a large amount of money, I'm going to let it go. Now what does that do? That stalls the whole process. That puts the program behind.


Artificial shortages may drive the price up 

And there are other concerns like creating artificial shortages. There is no shortage for solar panels, but you would create one. If you do not have the domestic capacity to manufacture, and the demand is greater than the supply, there is going to be a shortage. Also economics says this is also going to drive the price up artificially. In the rest of the world the price might still be very good. So the economics will get skewed, and the projects will not be able to get the best products or the best prices.

What happens if a new technology comes up in Germany or the United States, a highly efficient panel or a new technology? You can't take advantage of it, because it is not going to be made in India. And why aren't companies going to go to India and start manufacturing? They might. This is too early in the solar program in India to have a domestic content clause, because India's program is just starting, it is only been a few months. All the large companies will not start making their investment plans because they are all watching India to see how the policy develops. They are not going to invest in India right away. What you are doing is, you are basically pushing back everybody's plans. I think overall it's not a good scenario for the market.

Not to mention, probably little-known fact is that India is a net exporter of solar panels right now, because the domestic market is so small. And 60-70% of their panels actually get exported to Spain or Germany. So now when you are exporting more than you are importing, why would you put a domestic content clause in? That does not make sense, because you are going to put manufacturers in a difficult situation, and bring in unwanted attention. They should still be exporting if their products are good. This would make the other countries that are importing from India take a second look, which is unnecessary at this point.


Solar Server: Also, can you speak about the issue of power interruptions in India and what this means for the economics of solar photovoltaic (PV) plants?

Prabhu: If you have not traveled to India, and you are from a developed country, the United States or Europe, you are going to be in a shock, because power interruptions are a daily fact of life. I am just coming back from a trip from India. I was there during the hot Indian summer, and four to five hours of power lost during a day is common. People have figured a way to live with it. That said, there are huge additional burdens for the people of India and the business system. Basically, every home, residence or business has to invest in some kind of a battery backup, or a diesel generator, which they all do. In the first instance, you would think, solar is awesome. Because solar is going to come in and we are going to create all this new energy and capacity, and this is going to alleviate it. And it will. But there are some details to keep in mind.


Power shutoff turns out as a dilemma, but also a huge problem

One of the important things that came out of our research is that during power interruptions, or during a power shut-off, there is no transmission. And what happens typically is that inverters shut down automatically when they can't transmit, due to safety reasons. And what happens is when there is a power shutoff, and it is 12 noon, and you are at your peak generating capacity, there is no transmission, there is nothing transmitting out of your solar plant. So it is a dilemma, but also a huge problem. We need to look at individual locations of these power plants, where they are located, and what is the power shortage scenario in that particular area.

For example, if you are losing say even just a half an hour of power, for possible five to six hours where solar electricity is generated during the daytime - I think the Indian calculation based on the guidelines is about 19% capacity utilization factor - during that time, if half an hour of power is shut down, half an hour of power is not generated. If you add that up over a year, that could mean a good chunk of money. As you know, it all adds up to the bottom line. I'm not sure if this has been taken seriously by the developers when they are factoring their economics. But they should keep this in mind, that this is a possibility. Are there ways around it? I am sure there are ways around it, but depending on where you are locating your power plant this could be a potential problem.


Solar Server: What sort of modifications to the JNNSM would you propose, in order to make the program more effective in increasing solar PV and concentrating solar power (CSP) capacities in India?

Prabhu: There are some important points I would look at right away, that could make a positive difference. India is taking a unique approach when they are allotting projects. In the first phase of the solar program in India, which is 2010 to 2013, the goal is develop 1GW of solar power. They have split that 50/50 between PV and CSP. I think that's pretty unique and I haven't seen that in other markets where they have allotted each technology a particular amount of MW. Why is this bad? The thinking was that we want to give a strong push to both PV and CSP and let these technologies develop. I think it is better to let the market decide what is best for India, what is the most efficient, and what is the best cost they can get for them. Already I can tell you, it has been a couple of months, and there is a huge rush towards solar and solar is many times over-subscribed, for the first year, which is 2010-2011.


Only Rajasthan and Gujarat are appropriate for CSP

In terms of some data, PV installations exceed CSP installations all over the world by a ration of over twenty times. That said, there has been some real really good positive steps coming out of the CSP industry. Recently, there are some big projects that have been approved in California. CSP could potentially be a problem in India. The reason being, India has only one region in terms of direct normal irradiation where it is really appropriate for CSP - the states of Rajasthan and Gujarat, in the Northwest Thar Desert.

Another huge problem is that India has a huge shortage of water. And drinking water is a real problem in India. With the amount of intake that is needed in the consumption cycle of CSP, especially if they are using a wet-cooling system, it will be very difficult for project developers to secure 25 years of uninterrupted water supply. That would be very difficult in terms of availability, politically, and in communities where there is already a shortage of drinking water. This could lead to a clash in the future. The problem is also that the places that are very good for CSP are the places that are very, very lacking in terms of water supply. That could be one of the big potential problems.


Straight 1GW goal for 2013  

That said, my point of view is to let the market figure it out. If the market figures out a way out, to successfully deploy CSP, and if the conditions are right, then CSP is going to do better than PV. But let the market decide, and it never works well when the policy-makers step in and start taking sides with technology. I think that is one of the first things they should abolish. Keep at it a straight 1GW goal for 2013 and let is develop as it may.

They are trying to be fair to a lot of solar developers and they included a clause under phasing the allocation of capacity, where they are restricting project size, especially on the PV size. The maximum is only 5MW. Each solar project developer can only develop one project. That means in one year you are only alloted one project. Even though the Indian power market is so huge, for a project developer it makes it look very small, because no matter how big the market is, they are only getting allotted one project, for 5MW.


Bureaucratic hurdles for project developers

I don't know what the theory behind this is. In the fist batch for 500MW, there would be 100 project developers, developing 5MW projects each, 100 project developers just to develop 500MW power. I would think that would create a lot of bureaucratic hurdles, with approvals and processes. I'm not saying the whole market should be between a two huge project developers. This is very restricting, especially for foreign investors and foreign developers, this might look like it is not worth it. They might say, If I am developing 5MW a year, really, this is not a big market for me to be going through all the hurdles. I think they should take that out. Of course I spoke of the domestic content, it is unnecessary at this point. I think domestic content should be pulled. If you ask for the top three or four points, those are the ones that would come to mind.

The last but not the least, which is not unique to India, they have left a lot of the permitting, land acquisition, water issues all at the state level, which adds an extra layer of bureaucracy. This could really create lengthy processes with delaying projects, again we are not sure how it is going to end up. India's history, in the last 15 years India has never been able to achieve more than 50% of its goal when it comes to planned capacity for power. That means when the government says in the next five years we are going to build 5000MW of power they have never been able to build more than 2500MW. This has happened in the last 15 years, and this has been the history. The Ministry of New and Renewable Energy should keep this in mind and do everything to make sure solar does not go that path.


Solar Server: If the program continues to exist in its present form, how much PV and CSP do you think we will see installed in India by 2013? 2022?

Prabhu: I'm a little hesitant to forecast, because again this is the first year of the policy and it is very early, but on the other side, all indications from the ground and the people we are talking to in the solar industry that there are going to be changes, and everyone feels that the policy will not exist in its present form beyond maybe a year or so. I think there is feedback going back to the policymakers, based on their comments on the guidelines that have been issued so far, and they are hoping to make some changes based on this. If those changes do happen, say for instance if domestic content rules are pulled out, and there is no 50/50 quotas between PV and CSP, all those could really skew the forecast.

While I'm not comfortable putting numbers out there, I can comfortably tell you that I don't think the policy will stay in its present form beyond a year or so.


Solar Server: Any further comments on the JNNSM?

Prabhu: One thing I wanted to go back to - one of the points I wanted to make is, and I would add this to my list of changes - for some reason, I don't know if this is an oversight, there is no qualification requirement for a PV developer. There is a limited requirement for a CSP developer. But none for PV developers. India is taking a reverse auction approach. As there is more interest than the government has alloted in terms of projects. Now what they are doing is they are setting some guidelines as to what to do if you are a project developer, but the requirements are all financial, and very little, so you could be a shopkeeper, a farmer, a jeweler, and if you have the financial means you can go out there and develop a PV project and you can get approval. They do not ask you for any experience having developed PV.


Power consumption and capacity requirements to grow by 8 to 9% per year

I know we critiqued the policy a lot, but I want everyone to remember that the power shortage situation is really bad, which means a huge opportunity for power developers in India. The country is projected to grow 8 or 9% in terms of economic growth, GDP growth for the next twenty years. The forecast in terms of power consumption and capacity requirements are also very similar - 8 to 9% per year. This is huge compared to the US where year to year growth is more in the 1 to 2% range. This is a huge opportunity, and even though India is just starting, just taking the baby steps, making some mistakes, I would again stress the huge potential future prospects and this is a market worth keeping an eye on, and getting into this market when it is appropriate.


For more information about Mercom Capital Group, visit: http://www.mercomcapital.com.

To get a copy of Mercom’s popular market intelligence reports, visit: http://mercomcapital.com/market_intelligence.php


Interview: Solar Server Correspondent Christian Roselund