Shining energy resuscitates India

Development Policy06 Apr 2009Jaideep Malaviya

India is a country of contradictions. It has the second-fastest growing economy in the world, but at the same time accounts for a third of the world’s population without access to electricity. India’s per capita energy consumption is among the lowest in the world (35 times lower than in the US), yet the country ranks sixth in total annual energy consumption.

Though rich in coal and abundantly endowed with renewable energy (solar, wind, hydro and bio), more than a third of India’s energy is imported, mainly from the Middle East. Oil consumption, which accounts for roughly a third of India’s energy use, has increased six fold in the past 25 years. India now imports about 65 percent of its petroleum. The country’s fast-growing oil demand, and the fact that India’s oil reserves are virtually exhausted, has forced India to make deals with countries such as Sudan, Syria and Iran, which raise supply concerns.

To meet its growth aspirations, India urgently needs to accelerate its energy sector development, and investments in renewable energy will have to play a crucial role. Today, wind energy is the country’s leading renewable energy source. India is the fourth largest user of wind energy in the world. But solar energy is gaining ground. Recent government announcements to boost solar power generation by way of feed-in-tariffs (FiTs) are generating more interest in the solar sector. Given India’s rich reservoir of sunlight (5,000 trillion kWh annually), this certainly makes a lot of sense.

Rural electrification programmes

Solar energy’s primary importance lies with rural electrification. The lack of infrastructure such as roads has hampered the development of power stations and grid lines in India’s vast and dispersed rural areas. In 2005, the Ministry of Power introduced a scheme to provide access to electricity to all rural households by 2012. Because 70% of India’s population earns its living from agriculture, this scheme includes supplying energy for production activities such as irrigation and rural industries. The renewable technologies available for rural electrification include small hydropower plants, biomass gasification systems, decentralized solar photovoltaic (PV) power plants and solar PV home lighting systems.

The supply of solar home lighting systems has perhaps been the most successful rural electrification program. It worked particularly well in the southern states of Karnataka, Kerala and Andhra Pradesh. Bangalore-based SELCO Solar Light and Singapore-based Orb Energy, the enterprises supplying most rural solar PV systems in India, have built up a network of rural franchises and microfinance self-help groups and worked closely with regular finance institutions too. They are now successfully operating this program. SELCO started awareness programmes in villages that lacked electricity supply. The company informed people of how off-grid solar panels could improve their quality of life by providing light in the evening for children to do their homework and for women to do the evening cooking, all while saving kerosene.

The average cost of a PV system per household ranges between US$50 for one light to US$300 for a four light system. Because this is more than most rural families can afford, financing was the key. India’s southern states have a strong system of rural banks. Two of the nationalized banks that successfully supported the home lighting program, Canara Bank and Syndicate Bank, started financing the PV systems, sometimes against mortgage of farmland. In this way, villagers could get loans for up to 85% of the cost of their home lighting system. The banks moreover offered subsidized interest on the money borrowed. Solar entrepreneurs agreed to service the systems until the banks had fully recovered their debts. The scheme – which focused on the needs of individual clients and not on standardized products – has worked wonders. SELCO claims to have achieved more than 100,000 installations, despite the fact that the majority of households did not get hold of the financial assistance offered by the government due to tedious bureaucratic formalities. India now has one of the highest numbers of installed solar home-lighting systems, numbering close to half a million.

Stepping up solar

India is probably the only country in the world with an independent Ministry of New and Renewable Energy (MNRE). It started its activities in 1980. The country runs some of the world’s largest R&D programmes and has been receiving huge funding from multilateral and bilateral agencies since the mid 1990s. Still, the share of renewable energy in India’s total energy mix is less than 8%. New government plans and incentives are intended to step up this share.

In June 2008, the prime minister announced the National Action Plan for Climate Change (NAPCC), with solar energy as one of the prime focuses with a target of more than 1,000 MW to be installed. The government also announced a 10-year FiT for solar power projects. However, the low FiT offered (around 0.25 eurocents per kilowatt (kWh), compared to up to 50 cents for FiTs in Europe) will result in rather poor Returns on Investment. This failed to enthuse many investors, unlike for wind energy projects, which had better financial returns. The government’s argument is that solar cell prices are likely to come down, which should improve investors’ balance sheets. Moreover, the FiT only applies to large power plants; unlike in Germany and other European countries, individual households cannot participate as investors.

One utility company based in West Bengal, Dishergarh Power Supply Company, nevertheless signed an agreement with the state government to implement a 2 megawatt (MW) project, which is now on the verge of completion. Subsequently the state governments of Punjab, Haryana, Rajasthan and Gujarat also announced their own FiT policies, and state agency GEDA claims that applications worth more than 3,000 MW have already been received. Currently, off-grid systems – mostly for lighting and agricultural pumping purposes – account for more than 90% of India’s solar market. So far, around 1.4 million off-grid solar PV systems aggregating to about 110 MW peak have been installed. The new FiT schemes are supposed to encourage substantial future growth in large-scale on-grid projects. According to Harish Hande, founder of SELCO, this is no done deal. So far, he observes, the Indian FiT has been mostly a paper exercise.

A growing industry

At the current pace of 20% annual growth, India may well emerge as one of the largest producers of solar energy in the coming years. Its potential domestic market – with over 50,000 villages without electricity – is enormous, and it could improve the daily lives of millions of Indians. Other promising sectors are rooftop systems for industrial and commercial buildings, grid-interactive PV power plants and backup power systems for telecom. India’s tele-density is fast catching up with the global average, and the industry is registering 50% annual growth.

At present, no Indian solar company is a global lead player, but it could be just a matter of time until India becomes an export hub for the global PV market, considering its abundance of brain power and relatively cheap labour. India’s IT industry is the largest in the world. The global PV industry has to build confidence in the Indian market and can take advantage of the fiscal incentive for manufacturing offered under the Special Economic Zone policy. With 100% foreign direct investment (FDI) allowed, the time is ripe for international companies to establish a base in India. Physicists, hardware engineers, qualitative solar inverter manufacturers, turnkey system integrators and trainers offer tremendous business potential. The country has among the best quality reserves of silicon in the states of Orissa and Andhra Pradesh.

Power for all

The energy sector clearly holds the key to accelerating India’s economic growth. The country’s energy needs are expected to increase fourfold over the next 25 years. The government’s mission is ‘Power for All by 2012’. This would mean achieving the target of 1000 kWh per capita consumption of electricity by this period. The abundant sources of renewable energy available in India will rescue its energy security and are likely to contribute nearly 20% of the energy requirements by 2020. Solar energy has the potential to power the country’s economy and transform the lives of its people.


Ministry of Power, India:
Rural Electrification Corporation Limited (REC), India:

Ministry of New and Renewable Energy, India:
Gujarat Energy Development Agency, India:


Unfortunately, due to the age of this contribution and several migrations to online content management systems, the footnotes in the text may have been lost. The footnotes below are listed in its original order of appearance in text.
  1. After China, with 7.1% in 2009.
  2. That is, 10 GJ/day, compared to the USA’s 350 GJ/day.
  3. It has, however, very small hydrocarbon reserves (0.4% of the world’s reserve).
  4. With energy demands rising, the figure could be as high as 90% by 2025, according to the Center for Strategic and International Studies.
  5. The wind energy programme began in 1995, followed by an invasion of European companies. The government realized it had the potential to offer cheaper power and announced several fiscal measures that were investment-friendly. Over these years the internal skilled manpower has developed sufficiently and local manufacturing companies would like to explore the potential of > 100,000 MW. The FiT for wind energy varies from INR 2.7 to 4.13 depending on the state.
  6. The Rajiv Gandhi Grameen Vidhyutikaran Yojana (RGGVY).
  7. As per statistics available from Rural Electrification Corporation, in December 2008, 82.3% of villages had electricity. However, the definition of electrification in India is quite strange. It states that a minimum of 10% of households in a village should have electricity for that village to be declared electrified.
  8. Under this scheme 90% Capital Subsidy will be provided for rural electrification infrastructure. The funds would be used towards setting up of distribution transformer, sub-stations and other related infrastructure. Balance 10% will be loan assistance on soft terms by REC.
  9. Hence the emphasis on exploration of ground water potential and energization of pump sets/tube wells, which has a bearing on agricultural production, the accent in respect of areas covered.
  10. It ranges between INR 20,000 and 40,000 (€320 – 645), depending on the loads and number of hours desired. Calculated @ 1€=INR62 as on 24 February 2009.
  11. The Central Financial Assistance (CFA) per household for solar lighting system varies between INR 5,895 – 20,578 (€95-€332 calculated @ 1€=INR62 as on 24th Feb 2009) depending on the region and capacity of the system.
  12. The cap was fixed at 50 MW.
  13. The utility company supplies electricity to coal mines which are feed stock to the thermal power station. Thus the generated solar PV power will help offset some of the day-time electricity demands.
  14. With FiT ranging from INR 15 – INR 15.76. The most exciting announcement came from the government of Gujarat, which announced a 500 MW Feed-in-Tariff (FiT) for solar power projects, offering INR 13/kWh for 12 years for PV projects and INR10/kWh for 13 years for solar thermal projects. Subsequently for the next 13 years the FiT will be INR 3.00/kWh.
  15. Including equity from government up to 26%, tax holidays, and custom duty waiver on import of equipment.
  16. With the targeted GDP growth rate of 8% and an estimated energy elasticity of 0.80%, the energy requirements of India are expected to grow at 5.6-6.4% per annum over the next few years.