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Published on June 30th, 2010 | by Mridul Chadha

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Indian Government Sets Up $70 Million Fund to Ensure Premium Returns on Solar PV Projects



The Indian government has set up a solar securities fund which would ensure that project developers of large-scale solar photovoltaic projects get paid at premium to the utility tariffs.

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The $70 million fund would be used to release finances to the project developers who are refused payments by state electricity boards under power-purchase agreements. The government now allows grid-connected solar power projects to forge independent agreements with transmission companies thus allowing them to choose to whom the project developers want to sell the electricity.

India recently announced the National Solar Mission which aims at increasing the solar energy installments to 20,000 MW by 2020. The first stage of the this Mission which concludes in 2013 could see 1,100 MW of grid-connected solar PV power plants. Since the capital cost, manufacturing cost and the payback period of investments are considerably high to attract sustainable flow of investments, the Indian government has announced several incentives and subsidies for the solar manufacturing industry as well as the project developers.

One of such incentives is the high tariff rates that the transmission companies have to pay to the project developers, this reduces the payback period and attracts investors. The tariff rates from coal-fired power plants is as low as a third of these recently announced tariff rates.

The Indian government has announced the goal of reducing the carbon intensity levels by 20 to 25 percent by 2020 from 2005 levels. This would require substantial changes in the thermal power plants and possibly move to cleaner energy resources. With thousands of villages still waiting to be connected to the grid the government must do more and take concrete steps in order to electrify the rural areas and achieve the goal of reducing the carb0n intensity as well.

The fund would also help the transmission companies, mostly state electricity boards, which are struggling to not only meet the rising demand but also pay the power generation companies their dues. And power from coal and gas-fired power have now increased, one due to the shortage of coal supplies and, second, due to the recent government action to ‘free’ gas prices from regulatory interferences. This would increase power tariffs even more.

The total grid-connected solar power capacity in India till 31st March was merely 10.28 MW. In order to increase the capacity by more than 100 times the government would need to do much more and in a more sustained manner. Although several financial incentives have been offered to attract investors, they are still apprehensive due to long payback periods and high tariffs.

There is no shortage of financial benefits and the government can offer even more whenever needed but the main incentives and the thrust areas should be technological upgrade of the transmission infrastructure, research & development in order to improve the efficiency of solar panels and building infrastructure for providing knowledge for maintenance and repair of solar energy projects.

Photo Credit: technicolorcavalry (Flickr)/ Creative Commons

Hat tip: The Indian Express

The views presented in the above article are author’s personal views and do not represent those of TERI/TERI University where the author is currently pursuing a Master’s degree.

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About the Author

currently works as Head-News & Data at Climate Connect Limited, a market research and analytics firm in the renewable energy and carbon markets domain. He earned his Master’s in Technology degree from The Energy & Resources Institute in Renewable Energy Engineering and Management. He also has a bachelor’s degree in Environmental Engineering. Mridul has a keen interest in renewable energy sector in India and emerging carbon markets like China and Australia.



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