While project allocation for the first batch of phase two is set to take place before April 2013, the new guidelines are scheduled to be published by the end of 2012. How will phase two build upon phase one, what incentives will be introduced, and is there a scope for developing CSP outside of the solar mission framework?

By Heba Hashem

A two-year leap

In just over two years, India’s JNNSM jumpstarted the local CSP industry – taking it from a meagre 8.5MW in 2010, to a projected 500MW upon completion of underway projects. Bidding for CSP projects in phase one attracted more than 60 companies; seven were allocated projects with five in Rajasthan. By August 2012, all seven CSP projects had broken ground, and by September, all developers managed to achieve financial closure.

“The outcome of phase one bids has shown that the Indian solar market has a potential on a scale or in excess of that of China. The next round of bidding may see even healthier competition among bidders; however some of the market entry strategies from companies like SolaireDirect have shown the way for aggressive bidding backed by lucrative financial closure options.”, says Hari Chereddi, an independent solar energy expert and former managing director of Sujana Energy.

“Project sizes for batch two (of phase one) which have been increased to 20MW from 5MW have also helped facilitate cost reductions through economies of scale”, Chereddi adds.

But the journey was not all smooth sailing. Most of the CSP capacity scheduled to be commissioned by May 2013 is expected to be delayed, due to the lengthy time required to construct CSP plants. Other barriers that need to be dealt include the high initial capital costs – which the new incentive scheme will tackle – and developing Indian financier’s confidence in CSP projects.

Table 1: List of Plants under Phase One of JNNSM

Source: CSP Today Global Tracker

Balanced allocation

Looking ahead to phase two, the Ministry of New and Renewable Energy (MNRE) could explore three options to encourage CSP, suggests a new report by the New Delhi-based Council on Energy, Environment and Water (CEEW) and the Natural Resources Defense Council.

The MNRE “could continue fostering both technologies through the 50:50 split; divide the technology allocation into three parts, a third each for PV and CSP, with the remaining third unallocated and neutral for any technology; or allocate 1,500MW initially in phase two – rather than the entire 3,000MW target – mitigating some of the risk associated with CSP technologies and offering more information for a mid-term review of the second phase”, the report states.

This incremental approach would help establish a clearer roadmap for the development of the solar market, without locking in one technology. “It is essential that under phase 2 of the mission, the Indian government not force a false choice between CSP and PV technologies”, says Arunabha Gosh, CEO of the CEEW.

New incentives?

Concerns are also being voiced across the industry in relation to the forthcoming method of incentivizing solar projects. Because the Ministry of Power (MoP) does not have adequate unallocated power from conventional sources that can be bundled with solar power produced under the JNNSM, the MNRE needs to explore incentives other than feed-in-tariffs (FiT).

During phase one of the mission, the NVVN, which is linked to the MoP, was the government’s pivotal agency with which project developers signed purchase power agreements. However, the MoP will not play any role in phase two.

Figure 1: The current structure for selling electricity generated from solar power plants under the proposed JNNSM guidelines

Source: CSP Today Global Tracker – India Energy Market Structure

According to Bridge to India’s Solar Compass report, the Solar Energy Corporation of India will take over from the NVVN as the nodal agency. Instead of providing FiTs to solar power projects, a difficult and financially unviable scheme for the MNRE, two alternative options are being considered: the Generation Based Incentive (GBI) and Viability Gap Funding (VGF).

The GBI – which the MNRE has already used – is a less likely option, the report states. This is because the prices of solar power are falling rapidly and could soon become on par with conventional power; thereby committing the government beyond the point of time the industry needs such incentives to push installations. To avoid straining its finances unnecessarily over a long period of time, the MNRE is considering the VGF as an incentive for solar projects in phase two.

Unlike the GBI, the VGF is a short-term capital assistance, serving to support developers in the present by bearing a part of the high investment required in setting up a project. Under this mechanism, developers would be able to submit their bid for minimum capital funding required per megawatt for them to make their project viable. Moreover, the power produced by the projects under the JNNSM can now be bought directly by any obligated entity to meets it Renewable Purchase Obligation requirements.

“To set up the new bidding process, the MNRE will assume a capital cost of setting up the projects. A nominal price (currently undefined) will also be assumed at which developers will be able to sell power to obligated entities or other consumers. Based on this, a maximum figure for VGF will be determined and project developers will be asked to give a discount on the funding they require to make their project financially viable”, states the India Solar Compass report.

Overtaking foreign suppliers

Escalating prices and limited supplies of heat transfer fluid (HTF) posed serious challenges to developers during phase one, as did long lead times and delays in delivering CSP-specific turbines. While India has a turbine manufacturing base, Indian-made turbines are not designed for CSP specifications, which require turbines to be able to operate intermittently. Therefore, three international turbine suppliers were used in phase one – Siemens, GE and Areva.

“HTF is not the only problem. Critical components include good quality mirrors, receiver tubes, structures to suit the mirrors, to name a few, and most of these contribute to high costs. All these components can be manufactured (locally) not only at much lower costs but with better quality”, Hiro Chandwani, CEO and founder of Hiro Energy Tech, tells CSP Today.

In batch one CSP projects, the MNRE mandated a cost-based measure of 30% local content in all plants or installations, excluding land. This domestic content requirement (DCR) is expected to continue during phase two.

“Encouraging local technology always pays because we have control over them and they could be tried and tested and improved upon if required in a short span of time. We have neglected this option for long but still, it is not too late. Even if we start now, we shall reach far ahead of foreign technology suppliers and could overtake them in quality, as well as in costs”, Chandwani states.

A few CSP developers in India, however, found the DCR achievable. According to the CEEW’s report, steel, pylons and foundations of a parabolic trough system constitute more than 30% of the total costs, and they could be availed locally. Other technologies may use even more domestic content, such as the tower and boiler of a power tower. Moreover, both power towers and linear Fresnel collectors use flat mirrors, which can be simpler than the curved mirrors typically used for parabolic trough collectors and can be sourced domestically.

CSP beyond the JNNSM

Now that CSP has been given a dynamic push by the government’s aggressive solar mission, there may be a scope for independent development. “CSP has started seeing applications in heating/cooling in addition to opportunities in the hybridization with conventional sources like coal and biomass. This is a new area which I see as an exciting opportunity for CSP to grow in distributed or decentralized power solutions in rural areas of the country”, Chereddi explains.

He notes that biomass and solar have excellent growth potential in rural India, thereby avoiding the need for expensive storage solutions. “This is only possible outside of the JNNSM and there is a visible influx of newer business models in the area”.

Chandwani agreeing states: “There is a tremendous scope for CSP development outside JNNSM for direct Combined Heat and Power (CHP) for industries. In fact, several technocrats in India have started CSP development work locally and succeeded to a certain extent (with) CSP up to medium-temperature levels (up to 250ºC).

“Some like ourselves at Hiro Energy Tech have commenced development for high temperature applications such as power generation and direct CHP, but the progress is slow due to high finance requirements. I still feel the answer to accelerated progress in CSP lies in the promotion of indigenous technology and the component manufacture”, Chandwani concludes.

India has a target of 20GW of solar power by 2022, to be achieved in three phases. Despite the obstacles facing the industry, the country’s solar mission is well on track. There are currently 470 MW of CSP under construction, which will eventually contribute, as planned, to nearly half of the 1,000MW aimed for by the JNNSM’s first phase.

Table 2: India Energy Market Overview

Source: CSP Today Market’s Report, 2013.