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Renew | April 2015

Will CSP weather the PV storm?

The Ministry of New and Renewable Energy´s (MNRE) ambitious programme-Concentrated Solar Power (CSP)-has seen no major participation from private players and has been marred by lack of implementation in a correct way. The end result, a programme which was launched in 2010, with target of executing 500 MW, is yet to see the light of day for the remaining 273 MW, with another consideration of extension from the government.

India is a market which has suffered a number of setbacks, but it is now getting back on track, putting in place a robust framework which takes into consideration the lessons from past mistakes while implementing the Jawaharlal Nehru National Solar Mission (JNNSM) Phase 1. However, in the entire exercise of realizing mistakes (one cannot obviously blame the current government), the government has overlooked one of the ambitious plans of their predecessors-CSP. The result, with continuous previous extension from the past government, we are now witnessing a likely revision of timelines from the current government (thanks to delays in execution).

That said, now with just 100 MW of projects in the pipeline, which was drastically reduced from 1,080 MW-a target for 2015ùCSP is clearly not the viable choice for private players and to some extent- the government.

There is no doubt that the energy produced through CSP is clean and reliable. In fact, CSP is known for use of reliable solar technology and energy storage that works only in high solar intensity locations with space for large installations and a good price point compared to other types of utility-scale solar energy. Then, what must have gone wrong in the entire CSP programme? POWER TODAY reasoned out why CSP is a dud project when it comes to India.

Why CSP is not a developer´s choice
In the last ten years, CSP was overshadowed by implementation of solar PV projects. And, the costs of photovoltaic energy have witnessed a considerable drop globally. The government has also helped PV through lapse of anti-dumping duty, and PV´s operation in most climates has made the technology a hit among developers. CSP was not the obvious choice for developers due to various drawbacks like the yield projections, which didn´t match the real generation data and lack of reliable meteorological data, which has caused financial calculations and return on investments turning out to be unattractive for many project developers.

Most vocal amongst the players that we had contacted was Raveesh Budania, Partner, Headway Solar. According to him, the problems in supply of CSP system components were a major issue, with a handful of suppliers unable to ship orders. Issues in procurement, he added, ´Were also coupled with lack of in-depth and local technical knowhow, (and this) added to the woes of CSP project developers.´ According to the private developers, the cost dynamics

for CSP and PV didn´t play out the way they were projected before the JNNSM was launched. PV prices plummeted at an unpredictable rate. It became a more lucrative technology compared to the technically-complex CSP. In the opinion of many experts who have closely watched the progress of CSP over the years, the technology is yet to mature, at least in India. According to them, although the cost of generation is comparable to solar PV, technical complexity is high, and so the minimum project size (meaning more investment quantum, making the game viable only for the larger players). Also, the time taken to execute solar PV project is lesser than that of CSP projects. It would be difficult to convince policymakers to spend more resources on promoting CSP in the present-day scenario.

In current renewable energy trends, solar PV has completely dwarfed CSP. As the costs are not dropping, at the same rate, it is a self-enhancing effect, say experts. As per the developers, the drop in price of PV has prompted quite a few projects to switch from CSP to PV. Gujarat had allotted CSP projects to 10 developers totalling 315 MW. Some of them such as Adani Power, Cargo Motors, Sunborne Energy and Welspun have switched their loyalties to solar PV.

Complex setup, a backlash for CSP
It´s not just the developers who have evaded CSP; even the MNRE seems to have given a step-motherly treatment to the CSP programme. Delayed for four years, the Phase-I under JNNSM by the ministry has seen severe hurdles due to lack of clear vision. Right from the stage of execution in Phase-I the number of CSP projects in the country was underestimated.

There was no clear roadmap for the project, right from Direct Normal Irradiance (DNI) data, a basic and important element of CSP projects, which was not identified accurately; short deadlines were given for projects; financing costs were high, and banks were reluctant to lend. Result: developers alone are stuck with the projects.

To this, Kirit Parikh, Chairman, Integrated Research and Action for Development (IRAD), reasoned out why CSP is not a success in India. He says, ´Neither the Central government nor the state governments are doing enough to promote CSP projects in the country.´

Meanwhile, defending his ministry, Tarun Kapoor, Joint Secretary, MNRE, informs that the Central government is always helping and backing CSP projects. His argument was that private players and state governments should not work only for profits. At times they need to work for a cause. He informed that states with the help of private players should start developing their own projects and the Central ministry can help them by giving better tariff rates.

Though the government informs that it backs CSP, a few areas that they have overlooked during Phase-I include the lack of clarity in project execution, a key reason for the delay in various projects. For example, Phase-I projects got a short deadline of 28 months, but the actual requirement was minimum of 36 months which should been extended for the completion of CSP projects.

CSP needs innovative finance
Unlike PV, the initial capital costs for CSP are much higher. In order to attract investment, experts felt that MNRE should help with nonrecourse project financing, such as government-backed loan guarantees. The government should also work with the Indian Banks´ Association (IBA) to share information on the sector´s track record, and reduce doubt among investors using CSP, say energy experts. Finance has been a problem for all renewables, informed Parikh and he stressed that there is a need for low interest long-term finance. ´To improve bankability, the solar project developers should be involved with more bankable off-takers like discoms, large power consumers; should procure quality components, which score high on quality checks such as Photon Ratings from suppliers who would last for a long term - preferably at least till the project lifetime, and should engage service providers with superior financial and technical engineering capabilities,´ says Budania.

Issues like land acquisition, infrastructure and slow pace of approvals and permissions take a toll on execution of projects, particularly when loans from banks are needed. Highlighting that well-researched project reports and plans with proven technology are the need of the hour, Manoj Kumar Upadhyay, Member, Core Committee, Solar Power Developers Association (SPDA), says, ´If the project has a backing of proven execution capability, it will provide basis for creating an improved bankable project.´

Breaking gridlocks for CSP to come back In future PV might become less pronounced as policies start to shift from grid-connected, Feed-in-Tariff (FiT) driven, to encouraging de-central solutions. There is still hope for CSP projects in the country as it has been learnt in Phase I. With the availability of DNI data improving, Indian companies have started to manufacture tube receivers, frames, curved mirrors and other key components. Costs are tending to fall, with much more potential for localization of manufacturing. CSP is expected to come back.

´Delay in completion of Phase 1 projects, rapid drop in solar PV power prices, realization of lower actual DNI conditions in India, and longer project cycles for CSP have played a part in slump in JNNSM allocation for CSP,´ Upadhyay says. He also adds that Domestic Content Requirement (DCR) projects under JNNSM and from NTPC will give a boost to the Indian module manufacturers to scale up and try to match prices of international competitors.

There is huge demand for power in India at present and the same is expected in the future. The industry has great potential compared to all other markets.

Is PV trumping CSP?
Solar PV projects have brought into sharp focus the higher costs of CSP power and lack of new capacities being released under JNNSM.

´When the JNNSM started, the power ministry was very keen that both solar CSP and solar photovoltaic technologies should progress. We had targets for both the technologies, but the advantages of the PV model made it grow by leaps and bounds. Comparatively CSP is a difficult technology to fabricate on the site. But it is difficult to predict what will happen in the future. It´s a race between CSP and photovoltaic. MNRE is pushing both. Let´s see who wins,´ says Praveen Saxena, Advisor, MNRE.

The long-term outlook for CSP will depend on how quickly cost of storing electricity comes down.

´We have seen rapid progress in PV technology and so CSP cannot compete with it. However, after solar plants reach a certain level, we will need to find ways to balance the power. If electricity storage technology remains expensive then CSP could come into play,´ Parikh says, adding that ´the state government should take measures and assure solar developers, bankers and investors of their intent and give a clear picture of the FIT.´

POWER TODAY suggestions

  • DNI data in the country is improving day by day with weather stations by C-WET from the MNRE shedding light over a previously obscure issue.
  • Price and technology adjustments can be made by developers to adapt to the real DNI conditions and respond accordingly.
  • CSP has also seen over the past months many Indian manufacturers attempt to develop a local supply chain. Companies in the dozens are starting to specialize in tube receivers, frames, curved mirrors and other key components.
  • NSM provides a strong cost reduction potential for developers, means a possible strong manufacturing base for key components to be exported, strengthening India¦s balance of payments.
  • Hybridisation is by far, the biggest opportunity for CSP technologies in India, huge niche of opportunity exists.
  • Improving the financing options and making it cheaper will also help the industry along and secure projects, ensuring that the financial models can be sustainable over time.
  • The government should enforce commissioning timelines for Phase 1 projects to avoid setting a precedent of leniency on delays.
  • MNRE should assess opportunities for hybrid CSP base load plants with sustainably-produced biomass and other fuels.
  • By providing incentives like tariff premiums, MNRE should encourage water-efficient technologies in CSP plants.

Quick bytes

  • In 2010, around 500 MW was sanctioned but till date only 200 MW was commissioned.
  • Just 100 MW of projects in the pipeline, which was drastically reduced from 1,080 MW.
  • Around 273 MW of projects are yet to see the light of day.
  • CSP was not the obvious choice of developers due to various drawbacks like the yield projections.
  • With a 500 MW size of project, the CSP programme has witnessed maximum extension of deadlines.

CSP Global Market: Outlook and Barrier

  • The building of CSP plant creates 8 to 10 jobs per megawatt of equivalent electrical solar capacity in the construction and manufacturing of components.
  • Areas suitable to CSP technologies are found between 15¦ to 40¦ parallels- and occasionally at higher latitude.
  • The deployment of CSP plants is driven by feed-in tariffs in Spain, and Renewable Energy Portfolio Standards and a grant programme in the United States.
  • Low costs of fossil fuels remain an important barrier on grid - even more so in countries where fossil fuels prices are kept below world prices by direct or indirect government subsidies.
  • CSP Suitable areas are often semi-arid and water scarcity might be an issue, unless costlier dry cooling is used.

´The yield projections for CSP projects didn´t match the real generation data´
Raveesh Budania, Partner, Headway Solar

As a private player, how do you see the progress of solar policies and on-ground implementation of solar power plants in India?
In brief, the progress that policy makers have made to increase grid-connected solar capacity is satisfactory. Policy makers have been successful in reaching 3,000 MW solar capacity by spending lesser taxpayer money than any other country û which is a feat. They have been flexible, revising the policies as they have gone along, and are aiming big. On-ground implementation of the solar power plants is slow û state policies have not lived up to expectations.

Why do you think there is a delay in the CSP project in the country?
Problems in the supply of CSP system components were a major issue, with a handful of suppliers not able to ship orders. Issues in procurement were also coupled with lack of in-depth and local technical know-how, adding to the woes of CSP project developers.

The yield projections for CSP projects didn´t match the real generation data, mainly due to lack of reliable meteorological data. Due to this, financial calculations and returns expectations have turned out to be unattractive for many project developers. The cost dynamics for CSP and PV didn´t play out the way it was projected before the NSM was launched, with PV prices plummeting at an unpredictable rate. This resulted in PV becoming a more lucrative technology compared to the technically-complex CSP.

There is a slump in CSP under the ambitious Jawaharlal Nehru National Solar Mission (JNNSM).What do you think would be the reasons?
In my opinion, CSP technology is yet to mature, at least in India. The cost of generation is comparable to PV, but technical complexity is high, and so is the minimum project size (meaning more investment quantum û making the game viable only for the larger players). Also, the time taken to execute PV projects is lesser than that of CSP projects. It would be difficult to convince policy makers to spend more resources on promoting CSP in the present day scenario.

Most of the Indian solar module manufacturers are under pressure due to decrease in market size of their biggest market...
In my opinion, the module manufacturers are counting heavily on the ´domestic content requirement´ rule in India.

The policy makers are aware that over the longer term, a stable upstream ecosystem is required to meet the 100 GW target, and they have assured the Indian module suppliers that a piece of the pie will be reserved for them.

Cost dynamics are in favour of Chinese competitors, who have more control over the supply chain, whereas most of the Indian-made modules use imported raw material (Si wafers, etc.). Adani-SunEdison partnership to manufacture modules might be a turning point for the Indian upstream solar market though.

What are the key challenges with regard to project execution in India?

  • Access to funds
  • Highly competitive landscape leading to low IRRs, which strains the quality and delivery across the value stream as well as the project life cycle.
  • Lack of long-term clarity on policies acquisition of land and grid integrity
  • Readily available technically-qualified human resource.

What can project developers do to improve the bankability of their projects in India?
To improve bankability, the solar project developers should be involved with more bankable off-takers (discoms, large power consumers), should procure quality components (which score high on quality checks such as Photon ratings) from suppliers who would last for a long term - preferably at least till the project lifetime, and should engage service providers with superior financial and technical engineering capabilities.

What potential do you see in the Indian solar market and how is India different from other markets?
India has placed too much impetus on utility-scale segment (centralized), while distributed generation, which could have a larger impact on the society, has not grown. But we expect the market forces to correct this, with distributed generation segment growing at a faster rate in a couple of years.

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