A kicker for solar power

SMARTSHARE

More than a year back, on November 25, 2006 (Making power while the sun shines), we had articulated our thoughts on the solar power sector. Last week was a defining moment for companies in the solar power business.

The new and renewable energy ministry announced that it will provide financial assistance of Rs 12 per kilowatt hour in case of solar photovoltaic and Rs 10 per kilowatt hour in case of solar thermal power fed to the electricity grid. This move will be a shot in the arm for the industry and should result in the immediate action in creation of capacities.

The sun is the oldest and largest source of power. However, the technology to directly harness the power of the sun is only just evolving.

To put things in perspective, the entire world's energy consumption last year would be around 0.50 ZJ (zettajoules). Wind power alone can theoretically supply 6 ZJ of energy every year. Now compare that to the total solar energy available to the earth "" 3,850 ZJ.

Solar energy is a feasible proposition for India for the following reasons:

* Solar radiation falling over India is about 5,000 trillion kWh/year

* There are about 300 clear sunny days in a year in most parts of India.

* The average insolation incident over India is about 5.5 kWh/sq metre.

The annual solar energy incident on every square mile is approximately equivalent to four million barrels of oil. To capture that efficiently enough to make it commercially viable requires technologies that do not exist today.

The world currently uses poly-crystalline silicon cells to capture solar power. But as technology upgrades and the efficiency of photovoltaic cells improve, the cost per MW, which is the highest among all sources, could fall. As usage doubles efficiencies of scale could reduce cost by 18 per cent.

The operative phrase of the new incentive plan is "fed into the grid". The new scheme is an experiment in the way the incentives are structured. For the first time, a generation-linked incentive is being provided. So far, all incentives for green power have been capital subsidies, ranging from 20-80 per cent, depending on state and area. But capital funding may or may not lead to actual power generation.

The incentive scheme, however, will have some limitations. For instance, it would have a cap of 5 MW per producer, a maximum of 10 MW per state, with an overall cap of 50 MW as a nation. However, this limited initiative will still result in an investment of at least Rs 1,000 crore by this nascent industry.

This policy initiative will have a positive spin for players in the arena. Currently, more than 95 per cent of solar panels produced in India are exported because of the huge demand outside the country and the small appetite of domestic users.

As there will be enough incentive now for the producers to install solar panels, local demand will pep up, saving solar panel exporters from getting mauled by the depreciating dollar. The industry enjoys a partial natural hedge against a depreciating dollar as it imports all of its basic raw material in the form of silicon cells.

As they pay for their imports in dollars and begin to sell in Indian rupees, their margins should improve in a scenario of a depreciating dollar. The icing on the cake will be the fact that under the influence of higher capacities, raw material prices themselves, even in dollar terms, would decline, making margins fatter.

For photovoltaic cell manufacturers, the sun may have just begun to rise.