Energy News Monitor

More Sunshine for Solar Power

Non-Fossil Fuels News Commentary: January – February 2017

India

Energy news was preoccupied with budget expectations and budget outcomes in February even though the budget was announced about a month before its usual date supposedly to break away from colonial traditions.

The Budget did not disappoint expectations from the solar sector as it let the sun shine on solar power generators. There was an announcement of another 20 GW of solar park development in phase II and a slew of duty reductions on components for fuel cell-based power generating and biogas systems, as well as wind energy equipment. The Budget announced solar power supply at about 7,000 railway stations and also proposed massive cuts in excise and customs duties on materials used in solar and wind plants. It also announced the second phase of solar park development for 20 GW capacity. Zero BCD on solar tempered glass for use in manufacture of solar cells/panels/modules from the present BCD of 5 percent was also proposed.  Reduction of CVD on parts/raw materials for manufacture of solar tempered glass for use in solar photovoltaic cells/modules, solar power generating equipment or systems, flat plate solar collector, solar photovoltaic module and panel for water pumping and other applications, to 6 percent from existing 12.5 percent was also proposed. It also proposed to reduce the BCD, CVD and SAD of 24 percent on resin and catalyst for manufacture of cast components for Wind Operated Energy Generators to 5 percent.

Opening one more window for more sun shine, the MNRE was reported to be exploring a change in the tariff structure for electricity from solar energy. The proposal is to introduce a fixed-cost component to the tariff for electricity generated from renewable energy sources such as solar or wind so as to prevent discoms from backing off from procuring electricity generated by such projects, as they will have to pay the fixed tariff component even if they do not buy the electricity contracted for. Such a tariff mechanism already exists for electricity from conventional sources such as coal and gas which has two parts—a fixed cost, which is the investment incurred towards power generation equipment, and a variable cost or the cost of fuel. This is a step in the right direction as it will actually increase the tariff of renewable energy and bring it on par with conventional energy which include a fixed part for capacity and network maintenance. The MNRE was said to be working on a set of guidelines to provide compensation to solar power generators in case they are asked to back-down capacity by distribution companies. This would offer more sunshine for the solar sector. This was supposed to ensure that power distribution companies do not arbitrarily cut off solar and wind power or ask power generators to back-down capacities. This provision should also be extended to other generators to level the playing field.  The impending imposition of GST and its impact on the bidding rate for solar power which has become the most watched number after GDP was discussed by many.  According to CEEW the solar sector was expected to see tariffs rise by nearly 10 per cent if current tax exemptions were curtailed in the roll out of the GST. Multiple GST rates and their uncertain applicability to different equipment and services for solar projects was a growing concern from solar project developers and investors, the report said. It also observed that GST could also impact the second phase of solar park development for additional 20 GW capacity announced in the budget. CEEW also felt that GST could increase capital cost of a solar project by ` 4.5 million/MW if current tax exemptions were curtailed, setting back the sector in terms of cost competitiveness by about 18 months. Do these observations give away the dirty little secret of incentives that prop up the solar sector?

Moving to hydropower, the quiet contributor of non-fossil fuel based power, news on Pakistan’s resolution that asked India to immediately suspend the ongoing construction of the Kishanganga and Ratle hydro power projects in J&K was spotted in the international news. The two projects are being constructed on the Jhelum and Chenab rivers under the provisions of the IWT.  The resolution also asked the World Bank to set up a Court of Arbitration to mediate the dispute over the IWT between the two countries. It said that under IWT, it is the responsibility of the World Bank to play its role without further delay. It is not clear why the IWT once thought to water tight is leaking into primary domains of conflict between India and Pakistan!

The power ministry was also reported to be considering renewable energy status to supplies from large hydropower projects to help keep power tariffs low under the proposed GST.  The ministry, which has sought zero rating or deemed export status for solar power projects on the grounds that levy of GST will substantially increase tariffs, now wants the same to be extended to supplies for under-construction hydropower projects. These supplies are currently exempt from excise duty or enjoy concessional value-added tax of 0-5 percent and a central sales tax at 2 percent. Under GST all central and state taxes on goods and services are expected to be replaced by a single levy of 18 percent, pushing up the cost of these supplies, which in turn is expected to increase the cost of power. About 11 GW of hydro power capacity is expected to be added over the next five years and a GST rate of 18 percent would inflate capex by 10-12 percent.

On the nuclear side, the proposal from the DAE to construct two PFBR of 600 MW each at Kalpakkam, besides the present one of 500 MW capacity was reported.  The 500 MW PFBR, which is to be functional by October, will be the first PFBR in the world for commercial use.  It is not clear what is motivating India as it is essentially pursuing what the rest of the world has abandoned primarily on commercial and also on safety grounds. The DAE was also reported to have a proposal for building 12 nuclear reactors to ramp up power generation in the country. Of the 12 reactors 10 reactors will be indigenous PHWR while the other two will be Light Water Reactors of Kundakulam units 5 and 6 of 1,000 MW each.  Staying with Kudankulam, the second 1,000 MW unit of the power plant was expected to start commercial operations this fiscal. The second unit of the project was made critical in July 2016 and connected to the grid in August.

Rest of the World

Going by news reports, Europe is continuing to lead the charge against high carbon energy, notwithstanding Trump.  According to a new report released by the EU it is on track to reach its 20 percent renewable target by 2020, having covered 16 percent of its final energy consumption with renewables in 2014. However this does not mean that member states have reached their national goals. In 2014 all EU countries – except the Netherlands – showed a renewable energy share which was equal to or higher than their indicative pathway. In 2015, 25 Member States exceeded their indicative pathways, with some even surpassing their 2020 targets. By 2030, the EU has set a target of at least 27 per cent of renewables in energy consumption. Reaching this target would help reduce GHG emissions to meet the EU target of at least 40 per cent GHG reduction by 2030.

According to European wind association more than 12 GW of new wind capacity were added in the EU raising the installed wind capacity in Europe to 153.7 GW.  Investment in new onshore and offshore wind farms reached a record €27.5 bn. According to the GWEC, global wind additions reached 54.6 GW in 2016, raising total capacity to nearly 487 GW. Ten country accounted for 88% of total installations, with 47.9 GW installed. As in previous years, China was the largest installer in 2016 with nearly 43% of global installations. The country installed 23.3 GW in 2016 and reached 168.7 GW. This is twice the installed capacity in the US. European utilities also announced that they will not reduce their investments in renewables if US President Donald Trump lowers US climate goals.