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Legalese | December 2016

The Solar Boom Marches On

As India increasingly turns to solar, Dibyanshu - Partner and Prateek Bhandari - Associate, Khaitan & Co., take a look at how the country intends to fulfil its NDCs as ratified by the Paris Treaty.

Thomas Edison had in 1931 during a conversation with Henry Ford mentioned, ´I´d put my money on the sun and solar energy. What a source of power!
I hope we don´t have to wait until oil and coal run out before we tackle that.´ It appears that Government of India (GoI) is following the same spirit while implementing the largest renewable capacity expansion program in the world. The Prime Minister has emphasised this commitment and has rightly stated, ´the sun is the source of all energy. The world must turn to solar, the power of our future.´ Even while addressing the US Congress, the Prime Minister had mentioned that India´s infrastructure and economic growth will be achieved with light carbon foot print and greater emphasis on renewables.

The Ministry of New and Renewable Energy (MNRE) has pronounced a target of 100 GW of total solar energy generation capacity by 2022, under the Jawaharlal Nehru National Solar Mission JNNSM). As on September 30, 2016, the total installed capacity of grid connected solar power projects is 8,626.18 MW. Amongst the states in the country, Tamil Nadu (1,555.41 MW), Rajasthan (1,294.6 MW), Gujarat (1,136.32), Andhra Pradesh (947.05 MW) and Telangana (961.79 MW) are the highest producers of solar energy, accounting for roughly 70 per cent of the installed solar energy in India. The installed capacity at the end of 2015 was roughly 3,000 MW and in less than two years, we have seen a rise of 180 per cent. This solar boom is a reflection of the initiatives taken by the government at both the domestic and international levels. Further, the competitive module pricing reducing the overall EPC cost is helping drive the solar ambition - EPC cost is more than 80 per cent of the total project cost out of which modules account for over 65 per cent of the cost.

At the international level, India has been instrumental in the launch of the International Solar Alliance (ISA), a platform for cooperation among sunshine countries lying fully or partially between the Tropics of Cancer and Capricorn who are seeking to increase production of solar energy, thereby helping in reduction of the emission of greenhouse gases. Announced at the 2015 United Nations Climate Change Conference (COP 21), the alliance has seen 121 countries expressing their intention to be its part. It is expected that at the 2016 United Nations Climate Change Conference (COP 22) at Marrakech, the ISA would be accepted as a treaty. This Alliance will go a long way in advancing cooperative actions to increase solar energy capacity through policies, capacity building and financial assistance. India has on October 02, 2016 ratified the COP21 climate convention (Paris Agreement) which binds parties to take action to avoid global warming and climate change by reducing greenhouse gas emissions.

The Paris Agreement requires all parties to propose their ´nationally determined contributions´ (NDCs) and to base their efforts in the years ahead on these NDCs. India has prepared its first Intended NDC (INDCs) for the period 2021 to 2030. One of the key points of the NDC is to achieve about 40 per cent electric power installed capacity from non-fossil fuel based energy resources by 2030.

At the domestic level, GoI has over the years provided increased policy support. The Central government has under the National Solar Mission (NSM), launched the viability gap funding (VGF) scheme to support developers, categorise loans of up to Rs 15 crore for renewable energy projects as priority sector lending, exempted the requirement of obtaining approval from pollution control boards and implemented the UDAY scheme to improve the financial health of discoms. Additionally, state governments have also promoted solar power development and made financial relaxations in VAT, octroi, stamp duty, land conversion fee, etc., besides also providing certain procedural benefits like exemption for conversion of land, etc.

Another key development has been the initiative to address challenges regarding the availability of right land parcels especially in view of the competitive tariffs. To offset the land availability risk, the procedural hassles in procurement of land, rising costs and to also make it easier for developers to operate and establish a solar power project, the government has proposed the solar park and solar zone models. GoI envisages setting up of 10 solar zones with at least 10,000 hectare of land per zone, and the broad policy is similar to solar parks which include central financial assistance (CFA). The difference between solar parks and solar zones is that the for the latter, the developer will have to acquire land for the project and the ministry in collaboration with the states will provide input about availability of land. Solar zones will have solar power projects of small and medium scale as well as certain manufacturing units related to solar energy. Apart from these, the government has selected 56 cities to be ´Solar Cities´ with an objective to decrease projected demand of non-renewable energy by 10 per cent at the end of five years, by increasing supply from renewable sources and adopting energy efficiency measures.

During the last few years, the government has made substantial efforts to make solar energy viable, attract domestic and international investment, attain grid parity and achieve sustainable growth while trying to promote infrastructure growth and energy security in the country. With these domestic and international progressive measures including NDCs and a stable regulatory and contractual framework, one may say that this is just the beginning of India´s solar story.

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