Our success so far has been through tariff-based bids for grid scale solar projects. The pace of solar capacity addition can be ramped up by tapping the potential of decentralised small solar power installations in rural India. Solar panels can be put up in villages on roof tops, over cattle sheds, grain stores, wastelands, and water bodies. The policy instrument of a feed in tariff to tap this potential would work.
The Distribution Company would need to announce the rate at which it would buy electricity through a long-term power purchase agreement from those who put up solar panels. The offtake could be at the substation, the distribution transformer, or the consumer connection point with the purchase being limited to the Kw range and subject to absorption capacity.
The feed in tariff must be well above the price bids received for large solar projects to be able to attract private investment as there would be higher unit costs in dispersed small installations as well as greater risks. For the distribution company, any feed in tariff below four rupees would result in a saving of around three to four rupees per unit, as the cost of delivering power in rural areas is well over seven rupees per unit.
Different business models, ranging from the farmer investing and putting up the solar panels to leasing of space for aggregators, would emerge and compete in the market. India has six lakh villages, and assuming a potential of just one MW per village, there is a potential of six lakh MW (600GW) capacity. This can come up through private investment. Initial success stories in a state would lead to a surge in private investment. This would increase incomes in rural areas. Farmers would be happy to get electricity in the daytime for irrigation, resulting in more efficient use of water and higher productivity. The subsidy bill for the state government for the supply of cheap or free power to farmers for agriculture would also fall substantially. Achieving the huge 500GW target would become easier. It is also necessary as in the coming years demand would rise more as the economy regains growth momentums, electric vehicles become more popular, and recently electrified rural households in states like Bihar and UP start acquiring electrical appliances.
Unlike wind, which also blows in the night, solar power is generated only when the sun shines. As the share of solar power increases, we would need grid storage. Storage would be needed for meeting demand without using fossil fuels when the sun does not shine. Solar power with storage has now become cheaper than electricity from a new thermal power plant. Existing thermal plants, along with those under construction, would be run with increasing flexibility to meet demand round the clock by supplementing actual renewable electricity generation. This would be economical as their fixed costs have already been incurred. But for meeting additional demand new thermal plants have now become the costlier option. The earlier view that we need more coal based thermal plants for our development needs has become dated.
There are different options for storage. The easiest one would be to see the extent to which the existing hydropower capacity in the country could generate electricity flexibly to meet demand during peak hours in the day. The next would be to assess the feasible hydro pumped storage potential sites in the country and prepare detailed project reports. These sites would be with the state governments and some with central agencies. Public financing for their development would be preferable with private firms being given turnkey contracts. Alternatively, hybrid annuity contracts with partial financing by the private sector as is being done in the road sector may also work. The uncertainties around peaking tariff rates as well as actual demand for peaking power from a particular project make these unsuitable for normal private investment in power generation. These would be good candidates for funding through Green Bonds announced in the Budget.
Solar thermal power storage projects concentrate solar energy through large mirrors onto molten salt where energy is stored. This stored energy is then used to run a conventional thermal turbine to generate electricity. Costs of such plants have fallen considerably. They are, prima facie, an attractive option as the mirrors can also be made in India. The existing thermal turbine making capacity in the country would be used instead of being phased out. With volumes, costs should decline. Providing incentives for the manufacture of the mirrors for such plants would help. These could become an attractive storage option with the added advantage of our being self-reliant. Inviting tariff-based bids for a few plants would begin the journey down the cost curve.
The use of batteries for grid storage is at an early stage in the world. Lithium-ion batteries are used in electric vehicles for which demand is growing rapidly. Fortunately, other technologies for grid storage such as sodium ion and molten metal batteries have been developed. Batteries have been included in the production linked incentive program of the government. Domestic production and volumes should lead to decline in costs. Successive bids for grid storage batteries should lead to lower prices. Green hydrogen provides long term storage. When it becomes affordable it would be ideal for meeting seasonal demand spikes.
India could move to the global frontier in storage with domestic production and declining costs in this decade and achieve the 500 GW non-fossil fuel capacity target of 2030. This would also be the least costly path for meeting our growing electricity needs.