‘Solar India’ to kick off tradeable certificates

The Jawaharlal Nehru Solar Mission or the National Solar Mission (NSM), launched under the brand ‘Solar India’ on Monday, is a major flag waving opportunity for India at the forthcoming Copenhagen Climate Summit and for seeking larger funds under the UNFCCC framework for the country.

Late by 10 days, the NSM does not talk money apart from mentioning that funding for the ambitious targets would be from budgetary support and multilateral mechanism under the UN system.

Encouragingly, however, beyond the apparent political dividend that the government may seek to derive ahead of the crucial international meet, the NSM lays down the ground rules for the initial impetus to the solar rush that is expected post the policy.

According to some estimates, a total investment of $42 billion would be needed to build up the targeted capacity in the country. It mandates the rollout of 1000 mw of grid connected power in the first three years of the programme by 2013 and another 3000 mw by 2017.

It also mandates the generation of 1000 mw by 2017 and 2000 mw by 2022 through off-grid applications like rooftop systems and apart from deployment of 20 million solar lanterns by 2022.

Significantly, it seeks to achieve the grid connected capacity in the initial period through an innovative system of Renewable Energy Certificates (RECs), which will be tradeable. 

The policy has suggested a renewable purchase obligation (RPO) on states that could start with 0.25% of their power offtake in Phase I by 2013 and going up to 3% by 2022.
State utilities will have to purchase this power from the NTPC Vidyut Vyapar Nigam Ltd (NVVN), the designated nodal agency by the Ministry of Power (MoP), for entering into a power purchase agreement (PPA), of 25 years.

However, the policy has suggested this could be complemented with the REC mechanism to allow utilities and solar power generation companies to buy and sell certificates to meet their solar power purchase obligations, effectively laying the framework for a power trading instruments.

Welcoming the move for RPOs of 0.25%, K Subramanya, CEO, Tata BP Solar, market leader in the Indian solar industry, said it will act as the main growth driver for utility scale solar power plants.

At the current installed base of 152,000 mw in the country, this translates into 380 mw. This will have to be progressively up-scaled to reach the target of 1000 mw by 2013, he added.

The National Tariff Policy 2006 will be modified to mandate that the state regulators fix the percentage for solar power purchase.

“The Central Elecricity Regulatory Commission (CERC), and the respective SERCs will issue the necessary directives to utilities for the RECs while the overall guidelines for operationalising the NSM will be issued by the Centre much before March, 2010,” a senior Ministry of new and Renewable Energy official told DNA Money.

The CERC will notify the feed-in-tariffs (FIT) for the grid systems soon, the MNRE official said. It is expected that the FIT would be between Rs 15 and Rs 18 per kilowatt hour (kWh), the best rate anywhere in the world which would give impress internal rates of return (IRR).

Significantly, in a bid to encourage R&D and entrepreneurship in the sector, the mission has mooted a fund with the aim of supporting at least 50 start-ups developing and deploying solar technologies across India over the next five years. The fund shall be structured as a VC and would be open to participation by private stakeholders to the extent of at least 10% while the government would put in the rest.

According to J Gururaja, former advisor MNRE, now that the policy is in place, it will spur a huge secondary and tertiary industry apart from the mainline power generation and manufacturing activity.