Thursday, 4 March 2010

Budget 2010 puts Money where Mouth Is for Solar Energy

By Ameet Shah and Sourabh Sen
The 2010-11 budget is great news for renewable energy, and in particular solar energy, in India. In November of last year, the Government of India took a major stride forward in driving sustainable development with the announcement of the National Solar Mission targeting 20,000MW of installed solar power by 2022. But the fact that they’ve now included it in the budget is a critical step.
While the NSM set the vision for solar in India, the Central Electricity Regulatory Commission’s tariff order laid out the details. These guidelines further strengthened the case for investing in the Indian solar sector by setting preferential feed-in-tariffs and declaring long term (25 year) power purchase agreements.
However, despite these important declarations, one of the common responses we continued to get from international investors when discussing the Indian solar sector is “Show me the money.” These groups want to see program funding before they commit capital. Well, now we can show it to them; in support of the NSM, the budget for the Ministry of New and Renewable Energy (the administrating entity) has been increased by 61 percent from Rs. 620 crore in 2009-10 to Rs. 1,000 crore in 2010-11.
In a previous post, we stated that the greatest promise of renewable energy lies in electrifying the masses. We’re very pleased to see the government explicitly recognize this promise with the Rs. 500 crore allocation to set up solar and small scale hydro projects in the Ladakh region of Jammu & Kashmir. To ensure India’s future growth is inclusive and sustainable, the government will also need to dedicate similar funding to additional locations such as Bihar and the Northeast with low rates of electrifications.
Lastly, the budget creates a framework which could, if executed well, will see significant national gains. Concessional customs duties on solar equipment can facilitate technology transfer. This will allow India’s developers, manufacturers and scientists to collaborate with their colleagues abroad in learning about the latest solar technologies and how they perform in the Indian environment. By creating a friendly import environment and establishing a Clean Energy Fund to support R&D efforts, the budget lays the foundation for a global innovation hub.
Going forward, it will be very important for the Government to facilitate NSM administration and project execution. Future budgets must also support the NSM as India’s solar capacity ramps up to 1,000MW and beyond. But for now, the ball is in the private sector’s court to make it happen.
Ameet Shah and Sourabh Sen are Co-Chairmen and Directors at Astonfield based in New York with offices in New Delhi, Mumbai and Kolkata.