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Themes in this post: Central & state governments | Solar sector policies | International Solar Alliance

“I’m from the government, and I’m here to help you.”

These are the words that most businesses dread – anywhere in the world.

Private enterprises would ideally like to be left to themselves to chase their dreams. Any government interference can mean significant delays and many other uncertainties.

But…

I recall the meeting I had with the promoter of a large business house sometime in 2012. He was running a fairly large software and BPO firm, and was wondering if he should diversify into the renewable energy sector and get the early mover advantage.

Quite early in our discussion, I asked him, “So what would be the top three wishes you would have in your list for a new business domain you wish to diversify into?”

He thought for about 30 seconds and said, “Long term business profitability, high impact and minimal dependence on government for success”

I shot out, “How critical is the third item on your list?”

“Quite,” he said, “I do not have the perseverance to work with the government day in and day out”

“In which case,” I told him, “renewable energy is unlikely to be an appetizing bet for you.”

My blunt and truthful answer perhaps helped him to take the right decision (not to get into the solar power sector) but it curtailed the meeting and cost me a wonderful lunch that he was supposed to host for me after what he expected would be a long discussion!

Well, in the case of solar power, the government is perhaps the main actor, and will remain so for decades to come.

For basic needs of society and economy, governments will always be a key stakeholder. In the case of electricity, the role of government is a lot more because most of the electricity value chain in the country is in the hands of the government. Until 2010, except for a few hydro power plants and wind farms, most electricity generated, transmitted and distributed by India was by government owned companies.

While privatization of India’s electricity sector started in some small ways in the early 1990s, it was the Electricity Act of 1998 (that allowed for private electricity generation companies) and the Electricity Act of 2003 that brought about structural reforms to the private sector that enabled the entry of private players into the Indian power generation ecosystem.

But in spite of privatization of the sector having started over 25 years ago, the central and state governments, it should be noted, are still the largest and most powerful players in the Indian power sector, and thus hold a significant sway over how the solar power journey unfolds.

Role of government in solar

Both central state governments have had significant roles to play in solar, and will continue to have for some time to come.

As in many emerging sectors, the role of the government is on one side to incentivise the industry growth, and on the other side to pass regulations that facilitates sustainable growth of the sector.

On the incentives side, the central government had provided significant incentives over the past 15 years for the solar power sector through subsidies, tax incentives, development of solar parks etc. On the regulations side, the government had come up with concepts such as renewable purchase obligations that required prominent power distribution companies and end users to purchase at least a minimum percentage of their total power use in the form of renewable power.

Many state governments too have designed and implemented both incentives and regulations for the solar power sector.

Government departments

Multiple divisions from both central and state governments are involved in the growth of India’s solar power sector

Central Government

The central government is responsible for formulating policies and setting national objectives.

The Ministry of New and Renewable Energy (MNRE) plays a pivotal role in driving solar energy initiatives. It oversees the formulation of programs like the #HNational Solar Mission#H. This ministry also implements various schemes, provides financial incentives, and regulates the development of solar infrastructure across the country. A key part of the central government’s responsibility is working in collaboration with other bodies to ensure smooth integration of renewable energy into the national grid, which is critical for ensuring reliability and stability in energy supply. The Ministry of Power from GoI also works closely with MNRE for the various solar power policies, regulations and incentives.

At the state level, there are state nodal agencies for renewable energy that coordinate the centre’s policies at the state level.

State Governments

State governments are equally important, as they implement policies specific to their regions. In India, electricity is a state subject and this alone makes state governments powerful stakeholders in the solar power ecosystem.

Typically, it is the energy ministry along with power ministry that designs state-level policies and incentives for the solar power sector in that state.

State governments’ proactive policies can thus make a big difference. For instance, Gujarat’s proactive solar power policies created a favorable environment for solar developers, including land allocation at discounted rates and streamlined procedures for approvals. The state was also one of the first to implement large solar parks, providing a model for centralized solar infrastructure, leading to faster implementation of solar projects. Not surprisingly, Gujarat has jumped into the top 3 in solar power installations in India with about 15 GW of installations by the end of 2024.

Government-backed Financing and Auction Mechanisms

Several government agencies, such as the Solar Energy Corporation of India (SECI), play a vital role in managing the financial aspects of solar energy projects. SECI is involved in auction mechanisms, which ensure competitive pricing for solar projects and provide a transparent process for developers to secure contracts. These auctions help achieve lower tariffs for solar energy, making it more competitive with traditional energy sources like coal. SECI’s role also extends to managing and facilitating solar project financing, ensuring that developers can access the financial resources necessary to bring their projects to life. This is crucial in reducing the financial barriers to large-scale solar power generation.

It is also pertinent to include here IREDA (India Renewable Energy Development Agency), the central government agency that provides financial support (mainly in the form of loans) to renewable energy projects across India.

Energy Regulatory Bodies

Regulatory bodies such as SERCs (State Electricity Regulatory Commissions) at the state level and the Central Electricity Regulatory Commission (CERC) are integral to setting and overseeing the pricing and integration of solar energy into the grid. These commissions ensure that the pricing of solar energy remains competitive, making it an attractive option for consumers. Through the introduction of policies like net metering, these regulatory bodies enable various stakeholders to transact efficiently for solar power and in a way that makes solar energy more economically sustainable.

Research and Development Agencies

Agencies like the #HNational Institute of Solar Energy (NISE)#H under the MNRE conduct essential research into solar technology, providing technical support and helping to improve the efficiency and affordability of solar energy systems.

Policies

The National Solar Mission of the central government, and specific financial incentives from central and state governments have been the highlights of India’s solar power sector policies

There has been a range of policies from central and state governments that have driven the solar power sector growth.

National Solar Mission (2010)

Launched by the Indian central government, the National Solar Mission aimed to make India a global leader in solar power generation. The creation of this framework laid the groundwork for subsequent government initiatives, facilitating investments in solar infrastructure across the country. The mission’s success lies in its ability to attract domestic and foreign investment in solar technologies, helping to reduce costs and expand capacity.

The original target for solar power in India when the NSM was launched in 2010 was 20 GW by 2022. This was revised significantly upwards in 2014 to 100 GW by 2022.

Solar parks scheme

The Solar Parks Scheme has been instrumental in promoting large-scale solar generation. It provides the necessary infrastructure and regulatory support to set up solar parks, which are clusters of solar power plants. These parks reduce the financial and logistical barriers for developers. Rajasthan has capitalized on its vast desert land, developing solar parks like the Bhadla Solar Park, which has become one of the largest in the world.

Financial incentives and tax exemptions

Both the central and state governments have introduced various financial incentives to encourage solar energy adoption. These include capital subsidies, tax exemptions, and grants for solar installations.

Of these, capital subsidies have been perhaps the most important driver for the Indian solar power sector growth.

VGF schemes

VGF, which stands for viability gap funding, is a scheme through which the government funds a certain proportion of the capital cost of a solar power plant. This is done in order to increase the financial viability of the project, hence the term viability gap funding.

CPSU scheme

The Central Public Sector Undertaking (CPSU) Scheme Phase-II is a government program to build grid-connected solar power projects. The scheme was approved in March 2019 by the Ministry of New and Renewable Energy (MNRE).

Bundling scheme

This scheme involved combining the government’s unallocated power quota produced at the National Thermal Power Corporation (NTPC) coal plants along with solar and wind power. This method lowered the overall cost of solar power purchased by the end users while providing the solar power suppliers with a decent tariff.

Feed-in tariffs and auction mechanisms

Governments have also used feed-in tariffs (FITs) and competitive auction mechanisms to ensure that solar energy remains a financially viable option. By guaranteeing fixed payments for solar producers, FITs provide a stable revenue stream, encouraging investment. The government’s introduction of auction mechanisms has allowed for competitive pricing, ensuring that solar energy remains cost-effective compared to fossil fuels.

State government initiatives

States that have implemented impactful solar policies include Gujarat, Karnataka, Rajasthan, Tamil Nadu & Maharashtra – especially the first 3.

Gujarat has comprehensive solar policies that support both large-scale and rooftop solar projects. Incentives for net metering, encouraging consumers to generate and supply solar power back to the grid.

Karnataka solar policies have fiscal incentives for solar energy projects and support for both utility-scale and rooftop solar installations.

Rajasthan’s strong solar policies have facilitated the development of large-scale solar parks and widespread solar installations.

Tamil Nadu has not had such strong solar policies as many other states but the state has strong plans to establish large solar parks to boost utility-scale solar projects.

Maharashtra, in addition to focusing on solar parks and rooftop solar, also has unique schemes such as implementation of schemes like the Mukhyamantri Saur Krishi Vahini Yojana, targeting solarization in agriculture.

Some components of the policies of the state governments are similar to those for the central government – prominent among these being capital subsidies. But because electricity is a state subject, state governments have other levers they can use for driving solar. Prominent among these is the Net Metering policy – in this, a household or industry with rooftop solar panels can sell the excess solar power they produce to the grid and get paid a tariff for each unit they export. Other incentives state governments have provided for the growth of solar power include waiving of specific charges, enabling the banking of solar power (by which I can store the solar power I generated today to be used at a later time), enabling industrial investment in solar power plants through mechanisms such as group captive, etc.

International Solar Alliance

A significant success for India in solar power has been its leadership in establishing and nurturing the International Solar Alliance (ISA). ISA is a coalition of solar-rich countries established to promote the use of solar energy and drive the global transition to clean energy. It was conceived by India during the United Nations Climate Change Conference (COP21) in Paris in 2015 and was officially launched in 2018.

With its #Hofficial headquarters at Gurugram, Haryana#H, the ISA aims to facilitate access to solar technology, financing, and capacity building, promoting solar energy projects in member countries.  Initially, ISA was envisioned as a coalition of 121 countries located between the Tropics of Cancer and Capricorn (solar-rich countries). However, the ISA has since expanded to include countries beyond these regions, making it a global initiative.   

Key initiatives and activities include solar resource mapping to provide solar resource maps to help countries assess their solar potential and tools to scale solar financing, to mobilize funding for solar energy projects. The ISA also conducts capacity building and training programs to build local skill sets; it has also created the Global Solar Atlas that  provides accessible solar data to countries and facilitates better decision-making for solar energy projects.

Other initiatives by the ISA include #HThe One Sun One World One Grid (OSOWOG)#H Initiative that aims to connect solar energy across countries and create a unified global grid, The Solar Finance Mechanism, under which ISA seeks to reduce financing costs and simplify access to finance for solar energy projects, and the establishment of The Solar Technology Resource Centre (STRC) that aims to provide cutting-edge solar technology solutions to member countries, enabling them to meet their renewable energy targets efficiently.

The ISA collaborates with international organizations such as the United Nations, World Bank, International Renewable Energy Agency (IRENA), Asian Infrastructure Investment Bank (AIIB), and many others.