Two years ago, the dusty plains of Charanka were just desert wasteland that could barely sustain life, let alone create energy.
Today, the isolated area in the western state of Gujarat, about 30km from the border with Pakistan, is at the forefront of India’s solar power boom, boasting Asia’s largest solar energy park by output.
The recently inaugurated Gujarat Solar Park was developed in less than two years with the co-operation of 21 international companies. Surpassing China’s Golmud park in terms of its potential output, the $600m project marks India’s rise as a key market for global solar power developers and manufacturers.
Laurence Mulliez, chief executive of Eoxis, a solar investment fund focused on southern Europe, says India is the new frontier for solar energy. “The potential is huge,” she said on a recent visit to Gujarat.
Plagued by power shortages, India desperately needs energy. More than 400m people still lack access to electricity, and the International Energy Agency estimates that India’s consumption demands are likely to double by 2035.
Although conventional fossil fuels will fill the bulk of that demand, renewable energy is playing an ever greater role. New Delhi has directed companies to source 15 per cent of their energy needs from green resources by 2022, although sceptics doubt this measure will be enforced.
“They say they want us to use more green energy, but then they will have to deal with whatever we can get,” says one executive at a large conglomerate. “It’s not certain that we will have enough solar and wind ... to comply.”
India has a poor record when it comes to implementing reforms. However, some investors think the government has no option in this case but to proceed, given the country’s urgent power needs.
“India’s government is often criticised for not pushing through reforms that the country needs to keep growing,” says Alan Rosling, founder of solar developer Kiran Energy, whose investors include Bessemer Venture Partners, an early backer of Skype. “Solar is the one sector where the government has been forward thinking and progressive.”
India decided just two years ago to increase the capacity of solar power from virtually zero to 20,000 megawatts by 2022. That was part of a broader effort to boost the total capacity of renewable energy to 72,400MW out of the 455,000MW the country hopes to generate from all sources of energy within the next 10 years.
The new Gujarat park, for example, is capable of producing as much as 214MW.
These national targets are attractive for developers, because the government has agreed to buy the power they produce at subsidised rates, while demand from the private sector is expected to boom once companies are forced to buy green energy.
Those set to benefit include equipment suppliers in developed markets, such as Japan’s Sharp and America’s First Solar, as well as emerging market companies such as India’s Reliance Infra and China’s Trina Solar, a manufacturer of solar panels.
Early figures are encouraging. Indian investment in the solar energy sector rose to $4.2bn last year from almost nothing in 2010, according to Bloomberg New Energy Finance. This has spurred the generation of just less than 1,000MW in less than two years.
Developers will be under pressure to keep rates low, however, as India’s auction system – under which companies must bid to offer solar energy as cheaply as possible – forces energy providers to compete on prices.
In the second national auction last December the average tariff for a kilowatt-hour was Rs8.78 (17 US cents), about 30 per cent lower than the average tariff at the first auction two years earlier.
Although solar power is far from being on cost parity with more traditional sources of energy, the gap is shrinking rapidly. For example, imported coal sells at about Rs5 a KW-hour. Analysts believe that within five years the costs of solar could also be bought down to about Rs5.
Nevertheless, the sector still faces challenges. New Delhi has introduced barriers to the entry of foreign modules and cells used to produce panels as it seeks to nurture a domestic manufacturing sector that it hopes can compete with China. Developers say these obstacles could hurt investment and set back efforts to boost production of cheap and domestically generated power.
The central government’s sourcing rules are prompting many developers to set up shop in Gujarat, which has its own solar energy policy and has made a strategic decision not to impose any barriers on equipment origin.
“We think it’s better to leave the sector open,” says DJ Pandian, Gujarat’s energy policy chief. “That way it can develop faster ... [and] at a later stage manufacturing will also emerge. We don’t want to scare developers.”