Where is India’s Solar Sector Headed?– Issue #120
Even as the price of Chinese solar modules has crashed, India has begun boosting domestic manufacturing.
The Big Picture
Has India’s solar sector reached the “take-off” stage?
You know the backstory. Even as the price of Chinese solar modules has crashed, India has begun boosting domestic manufacturing. The country has imposed import restrictions on Chinese equipment and simultaneously rolled out incentives (like PLI and ALMM) for domestic manufacturers. Between these and the ever-dropping Round The Clock renewable power bids, India is seeing a spike in domestic manufacturing and rising ebullience that solar has reached the "take-off" stage. In this narrative, the only limits to the sector’s growth are weak transmission grids and tardy land acquisition.
Last week, CarbonCopy published a set of reports warning against such complacency. Over the last year, with protectionism, prices of domestically manufactured modules have spiked. This profiteering will push up the price of solar power. Two, given that solar developers continue to enjoy subsidies from DISCOMS, a fresh limit to growth is kicking in. In effect, before cheering India's possible doubling of solar generation, we have to ask if DISCOMS, their customers, and taxpayers can afford the accompanying doubling of subsidies.
In a nutshell, the risks and rewards of solar power are very unevenly distributed across India's electricity market. The country is subsidising a few manufacturers and developers right now. Do read. Here is Part One, which maps out the context for this series. Here is Part Two, which looks at the ground-level outcomes of high import barriers on modules and protectionism in the solar sector. And here is Part Three, which shows how India’s discoms, tax-payers, and power users subsidise the country’s solar manufacturers and developers.
News of the week
Here we go again. As the monsoon starts to withdraw, air quality is dropping over north India and flood waters are rising in Indian cities. India needs to measure a year’s progress not in seasons but in climate crises. Smog. Heatwave. Water crisis. Forest fires. Delayed rain. Cloudburst/cyclone. Urban flooding. Dengue outbreak. Smog.
The cycle of life.
In major news, nuclear is back in the news. Last year, when CarbonCopy wrote about India’s plans to boost nuclear’s share in the country’s energy mix, we were dismissive. Large nuclear was uncompetitive before renewables. Small and modular reactors were, apart from being untested, even more expensive. Even industry and power utilities seemed to think so. France’s EDF scrapped its homegrown SMR plans. Utah pulled the plug on NuScale’s maiden SMR project. Is a rethink now underway? Over the past month, we have now seen multiple announcements that firms want to harness SMRs for their energy needs. Not only are a clutch of Indian firms mulling the option of erecting SMRs along with NPCIL, firms like Google and Microsoft are thinking of using nuclear to power their AI farms. Microsoft, it was reported, wants to revive Three Mile Island for its AI operations. And the US Department of Energy is thinking of Big Nuclear once more.
That is not all. “Oracle plans to use new technology in the form of small modular nuclear reactors to power its data centres,” reported AP. Its report added: “Google is purchasing nuclear energy from small modular reactors in development by Kairos Power. Amazon bought a data centre powered by nuclear energy in Pennsylvania earlier this year and is also investing in small nuclear reactors.”
Elsewhere, old warnings are coming true. India’s City Gas Distribution (CGD) players have slipped deeper into trouble.
You remember the backstory? Despite having limited domestic gas reserves, India decided to boost gas to 15% of its energy mix. This, despite gas being costlier than each of the fuels it seeks to replace — coal, in the case of power generation; hybrids and electric cars, in the case of mobility; furnace oil, etc, in the case of industries. Compounding matters, hoping to get Indians off gas cylinders – which could be sent into rural areas – the Indian government began pushing piped natural gas, which would be delivered through city gas distributors. At that time, hoping to attract participants into the city gas market, the government redirected domestic gas supplies from core sectors like fertilisers to city gas. Assuming this state of affairs would last, a clutch of Indian firms rushed into the city gas market.
Those chickens are coming home to roost now. In April 2022, the government abruptly froze its gas allocation to city gas distributors – forcing them to buy imported gas at high rates. Two more years later, comes a second blow. With domestic production falling, the government has now slashed gas supply to City Gas Distributors by as much as 20%. Their economics will now slip deeper into shambles. Little here is unforeseen. Back in 2020, former Petroleum Secretary Vivek Rae had written: “As cheap domestic gas sources dry up… bidders will be faced with serious problems of cost recovery, thereby affecting viability and sustainability of the CGD system. This will open up Pandora’s box of legal disputes, contract re-negotiations, non-performing assets, and supply disruptions.”
At this time, CGD players are absorbing the resultant Rs 3-4 hike in their costs – imported gas is costlier – and are in talks with the government for relief. This is familiar turf as well. Reneging on its commitments, the government is pushing the sector into trouble. As CarbonCopy had written in 2020, ‘Two risks loom over India’s gas sector. Firms ignored by administered pricing suffer from price risk. Those favoured by it are haunted by political risk.”
There are large questions about accountability and opportunity costs here. India’s embrace was natural gas was always ill-advised. And yet, the government has wasted time and effort trying to use Gas as a tool to gain geopolitical points – apart from messing around with sectors like solar. The fallout? Even as China has begun cutting back on coal – thanks to its embrace of renewables – India is still adding coal capacity.
Other news. After Delhi, one more state utility – Karnataka Renewable Energy Development Ltd – is setting up a battery storage system to offset solar intermittency. There is a make vs buy question here. Should states give out RTC tenders that transfer risk to developers or should they manage intermittency on their own? With the first, states save on capex but India’s solar sector becomes the preserve of large, diversified players. New Delhi is pushing hard to start – and complete – a massive 12.5 GW dam in the Siang Valley. The stated reason is to offset the risks being created by China, which is erecting an even bigger dam – the 60 GW Motong – close to the border.
And now, some news from ecology and biodiversity. The recent landslide in Kerala notwithstanding, states continue to drag their feet on declaring eco-sensitive zones in the Western Ghats. That is not all. Despite the 2020 oil-well blowout inside the Dibru Saikhowa biosphere reserve, Assam and the Union government have allowed Vedanta’s Cairn India to look for oil in the buffer zone of the 21 square kilometre Hollongapar Gibbon Wildlife Sanctuary in upper Assam, the only protected area in India named after a species of ape, the endangered Hoolock Gibbon. On October 18, the National Board for Wildlife deferred the permit for the exploration granted to Cairns Oil and Gas, a Vedanta subsidiary.
These assaults on wild habitats come at a time when India’s wild biodiversity is already imperiled. News last week suggested inbreeding in the golden jackal population of the Nilgiris. Construction projects similarly continue to ravage the already imperiled Gangetic dolphin – and so many other species. Remember the 41% drop in central India’s elephant numbers?
PS: This newsletter was out reporting last week. Little time, ergo, to write Energy Trends for the week between 6-12 October. Here is a potted list of major developments that week. Ratan Tata passed away. So did GN Saibaba. Russia’s dark fleet made news yet again. The FT found two middlemen – one from the Middle East; the other from Pakistan – who helped create these opaque firms that own these oil tankers ferrying Russian oil. The country also wants to boost coal supplies to India. Kundan Green announced fresh investments, raising questions about its backers. A proposed expansion of the eco-sensitive zone around Gir is fomenting local worries. Adani wants to add 10 GW in hydel capacity and is exploring hydroelectric projects in countries such as Nepal, Bhutan, Kenya, Tanzania, the Philippines, and Vietnam. In a development with hints about oil’s future hardwired into it, Indian Oil Subsidiary Chennai Petroleum wants to set up a new refinery. Saudi Arabia too is reviving its plans to invest in BPCL. JSW has tied up with CarbonClean, the CCUS player, to decarbonise its steel plants in India.
Nature Elegies
“Rivers, small or big, carry stories. They are its memories. The difference lies is how we perceive them. One is as much likely to learn of them by staying put along its bank for a lifetime as one is by traversing the whole length of it. Both are vastly different, but both equally expansive. Fortunately, people have done both, and it is for an impatient mind like mine now to absorb it even as I wait to hear stories straight from the river. Patience is a virtue when waiting to be carried in the sway of a river’s narrative. There are countless, always-changing turns on this braided river, every turn a turn in the pages of a book. And there are many pages to turn till I am caught in the river’s flow.”
(From Sahyadrica)
Climate Long Reads of the Week
1 crore trees – not 8.5 lakh – could be cut for Great Nicobar project, one ecologist estimates (Scroll)
UAW Is Threatening to Strike Again — This Time Over Shelved EV Plans(Heatmap)
U.S. court approves historic settlement for Honduran farmers’ case against the World Bank’s IFC (Mongabay)
These Hurricanes Have Birthed a New Kind of Climate Denial (Heatmap). Also see this: The Ghosts of John Tanton
How Ola Electric continues to fail its customers (The Morning Context)
Powering Up the Global South: This report provides new analysis that shows the Global South is in fact adopting cleantech faster than the Global North. (RMI Insight)
Inside the Eugenics Revival: “An investor circulated the transatlantic far-right last year, meeting the secretive researchers and campaigners advancing race science. He said his name was Chris, telling his contacts that he was rich and wanted to put money into their projects.” (Hope not Hate)
BYD Is Winning the Global Race to Make Cheaper EVs (Bloomberg). Also see this: China’s EV and high-speed rail boom is curbing global oil demand, data shows.
Do Indians Really Have a Right Against the Adverse Effects of Climate Change? (The Wire)
'No Propaganda on Earth Can Hide the Wound That Is Palestine: Arundhati Roy's PEN Pinter Prize Acceptance Speech. Also on Gaza, She Exposed a Prestigious Medical Journal’s Silence on the Holocaust. Now She’s Asking About Gaza.
Spotting the winners in India’s Battery Rush (The Morning Context)
Book of the week
While working on the solar stories, this newsletter rather belatedly read SuperPower Showdown: How the battle between Trump and Xi threatens a new cold war. Its subtitle tells you all that you need to know about the book’s contents. It is an account of the tariff wars between the US and China under Trump and Xi. It’s worth a read because, like most structures that shape our world, global trade accords too can seem hopelessly byzantine and incomprehensible. SuperPower Showdown, written by two WSJ reporters, one based in Washington and the other in China, simplifies those, merging nuance and detail with a highly readable account. Here is a review.