India emerges as a solar superpower

Climate Energy

India emerges as a solar superpower

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Taming the power of the sun at scale 

Story highlights 

  • This spring, a devastating heatwave brought India to a standstill, reinforcing the urgent need for nations to shift rapidly away from fossil fuels to clean energy technology. 
  • Over the past decade, the country has purposefully transformed its energy sector, emerging as a global champion of solar power and providing a potential roadmap for how other emerging market countries might grow while making the leap to clean energy. 
  • While the U.S., Germany, and Japan are often cited as models for clean energy innovation, India has carved a unique path, positioning it well to lead future green innovation.
  • As India assumes the presidency of the G20 for 2023 under the theme “One Earth, One Family, One Future,” it plans to promote the faster adoption of green technologies, such as hydrogen.

Sometime this year, India will surpass China as the world’s most populous country. It is also home to 30 percent of the world’s poorest people who live on less than two dollars a day. For this reason, India has long faced the challenge of how to power its expanding economy and population without deepening its reliance on fossil fuels.  For decades, India had been challenged by an abundance of coal reserves, and prohibitively high costs for renewable energy. Steady investments in coal have made India’s cities among the world’s most polluted. 

This equation is changing rapidly as the energy-hungry nation finds new ways to balance the tension between economic development and the imperative to curb greenhouse gas emissions. 

A sun-sourced revolution

Increasingly, that answer lies in deploying solar energy at scale. For the past decade, India has quietly become one of the world’s cheapest producers of solar power. With an average of 300 sunny days a year, India is spearheading a sun-sourced power revolution, driven in part by long-term planning, capital availability, market-based solutions, inexpensive labor, and a precipitous fall in the cost of solar power. 

The emergence of a solar superpower 

A decade ago, India had less than one percent of installed solar capacity. Today it boasts over 60 GW. (That translates roughly into 3.1 million photovoltaic panels.) By 2040, India expects an 18-fold increase in the share of solar in the national power supply from current levels.

While China and the United States top the global solar rankings, India is now the world’s fifth-largest producer of solar power. It also offers the world’s second cheapest solar power behind China. In the decade leading up to 2020, the cost of India’s utility-scale solar declined by 85% to reach $0.038/kWh. 

Moving away from coal

No one should be surprised, says Dr. Ajay Mathur, Director General of the International Solar Alliance, that India’s growth in renewables has been faster than anyone expected. Going back to the 1990s, the Indian government has pursued strategic long-term decisions favoring renewable electricity over coal-based electricity. Over time, he says, through targeted regulations and the creation of solar-specific institutions and agencies, the country’s coal-dominated power market has slowly tilted toward solar.

India’s aggressive solar mandate: national security imperative, not a publicity stunt 

Despite this remarkable growth in solar, skeptics abound about India’s commitment to solar. With some 600 million Indians still using firewood for cooking, India has not turned its back on fossil fuels. However, with the cost of generating solar now cheaper than that of coal, India is now focused on less costly ways to build and run solar installations rather than to maintain existing fossil-fired power plants.

Scaling up solar and renewable energy is not a government publicity stunt, says Vivek Wadhwa, a distinguished fellow at Harvard Law School. Rather, it’s a matter of national security and economic growth. He says that the Indian government has now put the financial interest of the country ahead of the vested interests of the coal industry; coal will still play a role, but the national mandate is to move aggressively forward on clean energy.

While India’s decarbonization strategy and clean energy transition are critical to complying with the United Nations Paris Agreement to limit the rise in the atmospheric temperatures, the country cannot forge a green trajectory alone. Experts say that India won’t be able to scale up renewable energy without sufficient financing and technological assistance from richer nations to help offset the high cost of the transition.

India’s path to solar

The roots of India’s bullish solar approach began in the early 2000s with a series of legislative reforms. In 2003, the country’s new Electricity Act put in place an innovative “open access” rule which gave “off-takers” (purchasers of solar power) with capacity above 1 MW the ability to source power from suppliers — including renewable energy suppliers — other than the utility to which they were connected. In 2009 and 2011 respectively, the government created two key institutions to set aggressive targets and competitive bidding through tenders to promote a round-the-clock supply of renewable and solar energy. 

In 2012, with the cost of solar approximately four times the cost of coal, the Indian government undertook a nationwide study to examine how best to bring down the cost of solar and scale up deployment. From Assam to Karnataka, the study showed that a robust public-private partnership was needed to create a pipeline of bankable and low-cost solar projects. In response, the government made land more available while allowing the private sector to bring capital and sell power purchase agreements (PPAs) to credit-worthy off-takers.

Cost of solar plunges

By 2019, the average cost of electricity from large-scale solar had fallen by 85 percent in the previous decade. As prices fell, demand rose, encouraged by the introduction of PPAs as a standard model to help achieve the lowest electricity tariff rates through competitive bidding. India’s well-planned national grid – one of the largest operational synchronous (or interconnection) grids in the world – also helped accelerate the country’s solar uptake. 

The challenges in scaling up

While India has made significant strides in developing affordable, secure solar energy, challenges remain. These include reforming India’s ailling power distribution companies — the weakest link in the value chain of the Indian power sector — and scaling up India’s rooftop solar, storage, and manufacturing capacity.  

Burdened by significant accumulated losses and cost-reflective tariffs, India’s state-owned power distribution companies (Discoms) struggle to keep the lights on. As of October 2022, India’s Discoms owed nearly $7.5 billion in outstanding dues to the country’s power generators. In 2021, the Indian central government announced a $41 billion plan to improve Discom operations by trimming electricity losses, narrowing cost-revenue gaps, and promoting more competition. 

Looking to rooftops for power 

Another key to building India’s solar capacity is developing rooftop solar energy. The market has seen impressive growth — from 500 MW in 2015 to 7.82 GW today. Rooftop solar is targeted more towards smaller players, for whom the required enabling ecosystem — affordable finance, efficient metering, and consumer awareness – can drive the exponential growth needed to achieve the national target of 40 GW by 2022.

However, specific consumer segments — mostly the residential sector and small businesses — who lack the upfront capital needed to install rooftop solar systems have struggled to benefit. But, experts say, there is a way forward to tap the immense potential of this people-driven solar source.  

According to Simon Stolp, the Energy Practice Manager who helped lead the World Bank’s rooftop solar program in India, solar rooftop has a robust commercial case as it is much cheaper than grid-supplied electricity for bulk consumer segments. He feels that despite current rooftop subsidies, the government must work with local banks to improve affordable loan financing for residential consumers and introduce credit enhancement instruments for small and medium enterprises.

Fastest growing energy demand in  the world 

Mindful of the country’s deadly pollution and the disproportionate disruptions of climate change, India in 2019 unveiled a new target of 450 GW of renewable energy capacity by 2030.

According to IEA estimates, India’s energy demand will expand more than that of any other nation over the next two decades, making it the world’s third-largest consumer. With 270 million people set to be added to India’s urban population by 2030, the country will need to add a power system the size of the European Union. Much of that new 450 GW renewable energy target – 280 GW – will come from solar. And India’s electricity system will need to be increasingly flexible to meet supply and demand. 

More and bigger batteries

Storage batteries, a critical component of renewable energy systems, offer one solution. Battery storage increases the value and competitiveness of solar PV by storing electricity produced when the sun is shining and feeding it back to the grid at another time. Global battery production is expected to increase 20-fold by 2040, driven in large part by rising sales of electric vehicles.  

India’s energy demand will expand more than that of any other nation over the next two decades, making it the world’s third-largest consumer.

While India waits for the global battery market to catch up with the country’s vast energy appetite, in the near term, India’s large grid is able to meet the bulk of the nation’s power needs. In July 2021, the Indian government announced plans to call bids to establish 4000 megawatt hours (MWh) of grid-scale battery storage across the country.  

According to Ajay Mathur, the cost of battery storage needs to fall to $100 per kilowatt-hour for solar energy to be truly comparable to the price of coal, a benchmark he expects to happen within the next four years. When that happens, India will enter another dimension of renewable energy production.  

Meeting the 450 GW target means the country must also bolster domestic solar manufacturing. To accomplish this by 2030, India will have to install 25 GW of capacity per year. 

Importing solar infrastructure

To address this challenge, India plans to impose a 40 percent duty on imported solar modules and 25 percent on solar cells. In addition to launching a ‘Make-in-India’ campaign to boost India’s large-scale manufacturing capacity, the government plans to disburse more than $600 million over the next five years in production-linked incentive strategies to boost domestic solar manufacturing. 

The future is now 

In 2022, devastating spring heat waves brought India to a standstill, a reminder that the country remains vulnerable to climate change. Now standing on the precipice of massive economic growth, India will have to address how to sustain its green trajectory without falling back on coal.

Meeting its ambitious goals will require energy policies that not only lower pollution and carbon emissions but also create jobs for its growing workforce, especially those who have lost work in the fossil fuel industry. As India assumes the presidency of the G20 for 2023 under the theme ‘One Earth, One Family, One Future,’ it plans to promote the faster adoption of green technologies, such as hydrogen. Can the country use the lessons learned from its world-leading solar market creation to scale up low-cost green hydrogen in the next decade? My money’s on India.

Written by

Thomas Kerr

Tom Kerr is the Lead Climate Specialist, South Asia at the World Bank Group.