India’s Transition to a solar-powered future: Part 1
Decarbonizing energy will be essential for India’s path to Net Zero — as we continue to grow, the electricity consumption per capita is expected to increase, while the power sector is already India’s largest greenhouse gas-emitter, accounting for 49% of total emissions in 2021. To transition to a greener economy and be aligned with the recently pledged Nationally Determined Contribution (NDC) targets, it is imperative to transition power generation towards low/no carbon means. In India, solar and wind have become the lowest-cost energy sources, even without subsidy, and are also the lowest when compared globally. India needs 5,000 GW of installed energy capacity by 2050. Against this, our solar potential itself is greater than 10,000 GW and wind potential higher than 2,000 GW. India has strived for transitioning to greener modes of energy for some time now. Recently Hon’ble Prime Minister announced Modhera as the country’s first round-the-clock solar-powered village — developing a ground-mounted solar power plant and more than 1,300 rooftop solar systems on residential and government buildings. India has also recently committed to generating 50% of its energy requirements from renewable sources by 2030.
Given the abundance, affordability and scalability of solar energy, it is expected to lead the charge in India’s green energy transition. Solar energy is typically generated via two form factors — one is large utility-scale installations on the ground and the other is distributed rooftop solar which involves installing solar photovoltaic (PV) modules on vacant rooftops, typically for captive consumption. India’s current installed solar capacity is 50GW — divided as ground-mounted solar PV (84%), rooftop solar (13%), and off-grid solar PV (3%). Solar is expected to overtake coal in the energy mix in the coming future and is at an inflection point now.
In this two part blog series, we will be covering the solar energy value chain and discussing existing challenges as well as opportunities for technology-led disruption. We have structured the solar energy value chain into 5 parts as in the figure below, similar to the flow of any form of energy from source to end consumption.
1. Solar Plant Setup
Centralized plant setup
- Competing needs for real estate: Large-scale solar installations compete with other land uses, as the amount of land required for utility-scale solar power plants is about 1 km² (250 acres) for every 40–60 MW generated.
- Efficient site scoping and designing: Site Selection and Design are critical to extract the maximum potential yields for solar energy, basis the irradiance availability. Current industry standard software for scoping uses satellite data to assess the generation potential, however pollution often distorts the data, resulting in inaccurate results.
Opportunities
- We believe businesses will be built around community solar (where asset location and energy consumption are disaggregated) and thin transparent cells embeddable into the built environment, which will solve the real estate demand for utility-scale utility solar.
- There is also a whitespace for a near-scoping data service for accurate irradiance data — both before scoping, and for estimation of time forecasts and generation potential during operations.
Decentralized plant setup
- Limited access to financing, plagued by unorganized EPCs: Lenders are willing to provide project finance for large-scale solar but rooftop solar for commercial and industrial (C&I) and residential rooftop are lacking cheaper finance options (as available in the case of other asset-backed loans such as vehicle loans), due to lenders’ limited understanding of the asset. Banks are unable to underwrite small-scale solar plants and EPCs, and hence credit becomes either difficult to avail or too expensive, in spite of solar panels being a long-life asset and having a recoverable value in case of default. Interestingly, financers are willing to pay for asset monitoring as it reduces credit risk.
Utility-scale installations are made by accepting tenders from contractors which ensures quality and competitiveness in pricing. This practice is absent for the smaller rooftop projects. Since installing solar is more like a project rather than a plug-and-play off-the-shelf system, the traditional retail model fails in this space. The current ecosystem of EPCs is fragmented and lacks standardization in design processes & products, resulting in a costly, inefficient setup. - Low penetration of Net metering: Net metering enables users to export surplus energy generated back to the grid. Absence of conducive regulation around net metering limits the lucrativeness of solar for commercial and residential rooftop solar customers.
- Less efficient silicon PV cells: Current solar photovoltaic cells are silicon-based, and hence are limited by the lack of pure elemental silica in nature, and the tremendous amount of energy required to extract silicon from sand (silicon dioxide). The energy needed to run such furnaces sets a fundamental lower limit on the production cost of silicon PV cells and also adds to GHG emissions from their manufacture. Their power conversion efficiency has been stuck at 25% for the past 15 years.
Opportunities
- We expect to see solutions emerge for the rooftop solar market that can enable EPCs to provide a standardized solution at competitive pricing, along with options to avail easy, cheaper loans for installation. We also expect platform-like models to enable matching of EPCs and consumers and also offer flexible loans with a asset monitoring solutions to provide financers with visibility into the life of the asset. Such platforms are needed to unlock adoption in the rooftop solar market, solving for limited financing and the lack of standardization amongst EPCs.
- We also find a large opportunity for smart meters to replace existing meters, which would enable net metering, dynamic tariffs and smart management of the energy consumption, resulting in higher energy efficiency.
- Perovskites/organic cells are an alternative to silicon PV cells, which can address limitations related to silica availability, and make solar more affordable and efficient. These are manufactured by laying down thin films of specific organic materials, and are transparent in nature, which makes them suitable for making walls and windows which will generate solar electricity.
2. Solar Energy generation
- Low Plant Load Factors: Indian solar plants have a low PLF range, going up to 25%, due to gross underutilization of plants. This commonly occurs due to discontinuous generation and downtime resulting from factors like heating up of the system, inverter shutdowns, periodic accumulation of dirt on the panel resulting in soiling losses, etc. There is a need to extract the maximum yield out of the plant operations which can be addressed via intelligent monitoring and preventive maintenance to prevent unexpected downtimes.
- Limited storage capacity and a high levelized cost of producing solar with storage: The cost of production at the source for solar is around Rs 2.5–3 per KWh lower than the cost of production from coal at Rs 4 per KWh. However, dispatchable solar energy becomes too expensive for end consumers, due to high costs associated with energy storage, losses from T&D, etc. Due to inadequate energy storage solutions, solar generation has to be directly matched with demand, which often results in curtailment (capping the production). Hence, energy storage is key to solving for renewable intermittency.
Opportunities
- Platforms that can help plant operators, both centralized and decentralized, to monitor the operations and carry out preventive maintenance to maximize the generation yield and reduce downtime.
- Long duration energy storage (LDES) involves setting up central storage facilities with high capex for the purpose of backups for days whereas short-duration energy storage is mostly decentralized storage that can address peak demand shaving and supply backups for a few hours. Owing to the urgent need for energy storage solutions, we see an opportunity for platforms that are able to aggregate siloed storage and enable decentralized SDES to make solar dispatchable 24*7 and solve intermittency.
Solar Energy Sector Map
The Indian climate-tech landscape has evolved to create technology-led solutions for the challenges we discussed in part 1 and 2. We expect plethora of startups scaling up similar to global counterparts across the value chain. Here’s a brief snapshot of the activity taking place in the sector.
In the part 2 of the blog series, we will talk in-depth about opportunities in the remaining parts of the value chain, from energy distribution, utilization and asset afterlife.
At Avaana Capital, we believe that technology and innovation will enable unlock green power for India. We are thrilled to partner with disruptive technologies in the energy sector and would be delighted to discuss more — please reach out to us at info@avaanacapital.com if you’re building in the space.
