New lands of the rising sun, and none of them is called Japan!

Knowing all that our dependence on fossil fuels costs us, any news that tells us that we will have a future that's more and more delinked from them, is a story that wins our hearts every time, but our minds are ready as ever to remind us of some very sobering realities. Solar energy is one such area, and we have often wondered whether we will ever be able to produce solar energy that's cheap enough to rid us of much of India's irrational & unsustainable dependence on coal for power.

 

Last year, a spokesperson from the nuclear energy industry bitterly objected to Business & Economy's overwhelming support for a solar energy future, and called it a pipe dream. Surprisingly, that is the common perception when you talk to a lot of people. But when you look at research around you, the writing on the wall overwhelmingly reads, “Sooner than you think!” And when you hear that iconic investor Warren Buffet's Berkshire Hathaway committed an investment of $2 billion late last year through its subsidiary MidAmerican Energy Holdings to buy a 550 MW solar energy plant built by First Solar and that (conventional) energy giant Total has bought a majority stake in solar energy company SunPower, you can say with quite reasonable certainty that we are no longer purely in the textbooks on solar energy.

The barometer that is widely accepted to decide when solar energy can go mainstream is the concept of grid parity. Very simply, that means the stage when the cost of plugging solar on the grid matches the cost of the same when we use conventional means of energy. If reports are to be believed, that moment of truth for solar is very near. Joshua Pearce, K. Branker and M.J.M. Pathak, Mechanical Engineering and Material Sciences specialists at the Queen's University have released a report that claims so. According to their calculations on levelised cost of energy, which consider the lifetime generation cost of solar vs fossil fuels, grid parity is already being achieved in certain areas. Particularly the falling cost of solar panels is a major factor (largely because China 'happened' to the solar equipment manufacturing industry!), and so is the relatively slower degradation of panels, according to the report. A Chinese think tank report has predicted that solar electricity would reach a price of 0.8 yuan/kWh by 2015, and be at par with coal powered electricity. In India, a KPMG report predicts that solar energy will achieve grid parity by 2019-20, and that solar prices will fall at a rate of 5-7% per annum over the next decade. UK officials have begun to grudgingly acknowledge that solar has the potential to meet upto 30% of their energy needs.

 

Clearly, if research says we are so close to the tipping point, there are some urgent decisions to be taken by governments across the world so that they can bring the benefits of solar energy to the masses at the earliest. This is more true for countries like India, where we are so overwhelmingly dependent on thermal power. We have to move past egoistic and status quo-oriented rhetoric and come to a consensus that there is no turning back on the solar bandwagon. The countries that grab this opportunity sooner will certainly be major power players (pun intended) in the coming future. So far, the global benchmarks in this space happen to be Germany (which did a remarkable amount of posturing in favour of solar energy by announcing that it would shut down all its nuclear power plants by 2022) and China for their own respective reasons. And there are lessons to learn from these 'new lands of the rising sun'. Coincidentally, both their solar trajectories have also been bird hit of late due to their individual reasons.

 

Germany leads the world overwhelmingly in terms of installed PV capacity of 17200 MW, as per a report by GTM research. To put that in perspective, Germany accounts for some 40% of the world’s total solar PV production and generates twice as much as the number 2 nation Spain. The country is able to service around 3.4 million homes with this capacity. The German government’s notable initiative in this regard has been that of attractive feed-in tariffs as part of the Erneuerbare-Energien-Gesetz (EEG) or the German Renewable Energy Act in 2000, though that is now being labelled as an expensive experiment in light of the current economic uncertainty that clouds Europe. Every kWh generated through renewable energy gets a feed-in tariff, and every generator has to plug the renewable energy sourced electricity on priority as compared to conventional fuels (which means a guaranteed market essentially). Rates were also determined using a scientific methodology that guaranteed that the particular renewable energy producers got their due based on their costs. Also, the idea involved successively bringing down the price benchmarks to encourage greater innovations in technology. In the midst of economic turmoil, it has been argued, however, that the proliferation of solar PV generators, which includes companies, investors as well as individual homes, has become a drain on the economy. In 2010, it was decided by the government to increase the reduction rate in feed-in tariffs from 5% to 10% to accelerate innovation and price reduction. Then, as solar PV cells became cheaper in the recession period due to excess capacity, Germany decided to accelerate the rate of reduction further to 15% by 2011. This has led to concerns in the solar industry of lost jobs and declining scope for business. Late last year, curiously enough, German Chancellor Angela Merkel seriously questioned the viability of the domestic solar PV industry and announced that feed-in tariffs would be cut more drastically. In fact, she expressed that Germany could even favour importing solar energy from other high irradiance countries rather than relying on the domestic PV industry (Germany incidentally has a fairly low irradiance), which isn’t commercially viable. That appears to be quite a few steps back. The subsidies that have been doled out amount to around $130 billion as per Ruhr University and the expansion in capacity has increased the customer’s energy power bill by around $260 (source:http://www.neurope.eu/blog/germany-s-sunshine-daydream) during that period.

 

Where Germany seems to be cooling off, China is warming up to the solar opportunity like how! No surprises there, for sure. The country doesn't have the disadvantage of Germany and has a solar radiation of 4.5-5 kW per square metre per day in most parts of the country as per United Nations Environment Program's Solar and Wind Energy Resource Assessment. While Germany leads in installed capacity, China is the world's leading manufacturer of solar cells, accounting for 47.8% of global production by 2010. From being nowhere in 2005, their companies have captured around 40% of the solar PV market globally in 2010. The government provided low interest loans through its banks and this led to massive capacity expansions and price competition, though the current downturn in solar demand due to the general economic situation in the western world is making these debts quite unsustainable. Last year, China introduced an FIT for solar panels in its domestic market (RMB 1 for projects after July 1 2011, or before July 1, 2011 but not completed by the end of last year). The Chinese government’s new feed-in-tariff (FIT) incentive program is expected to increase installations by around 1.5 gigawatts (GW) in 2011 & 2012, as per IHS iSuppli Photovoltaics (PV) Service report. The trouble that's brewing however, is a potential no holds barred trade war with the US over solar panels; the latter accusing the former of unethically dumping solar panels in the US. It really started when SolarWorld Industries America along with 7 other solar players in US filed a complaint on dumping against China. It is clear that this is not just about anti-dumping – it is about who controls the future of the solar industry, for US was upstaged by China in this sector a few years back.

 

And where is India when this battle is being fought? India has huge potential for solar energy generation again, the best states being Rajasthan with 6-7 kWh/sq. m./day followed by Gujarat at 5.5 to 6 Kwh/sq.m/day. The Jawaharlal Nehru National Solar Mission envisages installation of 20000 MW or more by 2022. And one of the critical aspects is building an indigenous industry for solar components. But as usual, it's quite late to the party, though not late enough. In terms of installed solar PV capacity, India had 100 MW compared to 900 MW for China in 2010. Worse, India is nowhere near the top 5 with respect to solar PV production. And the top five produced 82% of global PV production in 2010! In fact, Indian PV manufacturers are already facing the threat of cheap Chinese imports in these initial stages where they are nowhere near significantly penetrating the domestic market, leave alone achieving global competitiveness. On the other hand, India has also done well by resorting to a competitive bidding process for its solar projects, rather than using the subsidy mechanism.

 

Global dynamics show that a momentum is building up in the space, and India should look at even exceeding its 2022 target. Besides, solar is a kind of new age industry where our manufacturing sector needs to be developed on a priority basis. The government is talking about 100 million new jobs as an outcome of its new manufacturing policy. The fact is that no manufacturing will stay worthwhile if it isn't globally competitive in today's scenario. That should be the final objective of the government, and so should be the focus on new age manufacturing avenues that will fetch top dollars in the 21st century. And solar PV manufacturing is one very critical area where we should really look at dominating global manufacturing, or at least be competitively among the world's top three in the next ten years (China took less than five, by the way!). We didn't have the (fossil) fuel for the previous century, but we do have the fuel for this one, so developing our indigenous industry for energy equipment will help us domestically as well as in the export market. Let's make the most of it!