India’s Budget Deficit Threatens National Solar Mission

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Written by Bhupesh Trivedi
on September 04, 2013 No Comments
Categories : E-Features

India's financial woes are likely to derail the country's ambitious National Solar Mission, widely seen as a model solar development policy program.

The current Indian government's current account deficit (CAD) of $98 billion is steadily rising, as the much-touted gross domestic product (GDP) growth rate has come crashing down from highs in the double-digits to under 4%. Consequently, the CAD-to-GDP ratio of 4.9% is also experiencing new highs as the central government falters in bringing back confidence in the marketplace.

The second phase of the National Solar Mission, which was targeted to achieve installations of almost 4 GW of solar power projects under a federal scheme, and 6 GWs under state schemes, has not yet taken off. The draft policy document on the second phase was released by the Ministry of New and Renewable Energy (MNRE) in December 2012. The ministry conducted various consultative meetings with various stakeholder groups, hoping to be able to launch the program in February of this year. As of September, there is still no final policy document.
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In a related disappointment, as of February, the MNRE stopped accepting applications for the 30% subsidy it offered to all rooftop and off-grid power projects, too. And, it is not yet clear as to when this window will reopen.

The current account deficit has devalued the local currency by over 20% over the last few weeks, with pressure mounting on the government to push forward reforms and reduce subsidies. On the latter count, the second phase of the solar mission surely will take a hit as its most critical component is viability gap funding – a direct subsidy to cover the cost of a solar power project up to 33%. The cost of the subsidy may well go up to $1.5 billion – something that the nation's treasury certainly will not allow.

Absence of any such program, devaluation of the local currency by 20%, non-enforcement of solar power purchase obligations and the slow sale of renewable energy certificates will significantly impact the country's solar power sector and various stakeholders.

This scenario is actually a bitter pill that the industry will have to swallow. India's solar sector must go beyond various government and regulatory dependencies and explore opportunities in a three-dimensional matrix consisting of the local states and business segments, with time – and persistence – as the third axis.

The rising cost and lack of generating capacity of conventional power offer some solace to the solar sector, which may hope that consumers will eventually adopt solar power in a country that is blessed by the sun for over 300 days per year.

Bhupesh Trivedi is CEO of Mumbai, India-based solar services and consulting firm REECODE Energy Solutions. He can be reached at +91-9324246639, or by email at bhupesh@reecode.in.

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