Critical analysis of risks associated with Solar Power Projects in India
Volumn 2

Critical analysis of risks associated with Solar Power Projects in India

Dattaraj Pawar1, Dr. Ajit A. Shringarpure2

1 dattarajpawar@gmail.com,

2ajits25@rediffmail.com

Abstract:

Indian government has announced the largest renewable capacity expansion programme in the world and aiming to increase share of clean/renewable energy. In any new projects, completion of the projects within time, cost, quality and safely is utmost important as far as the developer or organization is concern. Risk is an event or unclear situation that may influence the timeline of a project.While identifying, monitoring and mitigating risks, the organization should be aware of the parameters, rules & regulation, policy framework and the environmental factors where the plant will operate. Identification and managing risks can be held responsible for the delays in the current and future projects.The organization or industry or developer should be committed to addressing the allrelated risk proactively and consistently throughout the project is the key feature for successful project. This paper attempts to define the internal and external factors to be taken into account to before start of solar power project, identify risks and setting the scope for the organization seeks to achieve its objectives.Also highlight solar potential, existing growth of solar power and risk associated with the solar power in India.

Keywords:Renewable Energy Source, Megawatts, Gigawatts India,Solar Risks, project risk, solar projects, potential

I. INTRODUCTION

To understand risk, it is useful first to understand the nature of uncertainty.Project Risk has its origins in the uncertainty that is present in all Projects. Known risks are those that have been identified and analysed and it may be possible to plan for those risks using the processes proper tools and techniques. Unknown risks cannot be managed proactively and a prudent response by the project team can be to allocate general contingency against such risks, as well as against any known risks for which it may not be cost-effective or possible to develop a proactive response. Risk systems provide a measure of the amount of capital necessary to provide a cushion against potential future losses, a vital element for industry/developer and Government/ regulators.

The failure in mitigating risks at an organisational level and as well as a project level, may affect solar projects progress.Organizations perceive risk as it relates to project success or to opportunities to enhance chances of project success. Risks are threats to the project may be accepted if the risk is in balance with the reward that may be gained by taking the risk e.g. adopting a fast track schedule by assigning additional staff for the benefit of the overall project.

Organization and persons have attitude toward risk that affect both accuracy of the perception of risk and the way they respond. Attitudes about risk should be made explicit wherever possible. A consistent approach to risk that meet the organization’s requirement should be developed for each project and communication about the risk and its handling should be open and honest. Risk responses reflect an organization’s perceived balance between risk-taking and risk-avoidance.

The reasons so few projects not materialize are many, ranging from inexperience at the hand of the developer, to site specific problems, land acquisition, political, commercial & technical issues, regulatory problems and permitting issues. All these problems affect the financial and technical viability of a project. In the end, failure to develop projects at some point in the development process comes at considerable cost for the project developer as well as the solar industry as a whole.

The solar power comes with the following advantage;

  1. It is environmentally clean source of energy.
  2. Available in adequate quantities in almost all parts of the world.
  3. Energy harnessing is free of cost.
  4. Free from noise and any pollution.
  5. Best alternative for conventional power.

Problem associated with the use of solar energy is that its availability varies widely with time. The variation in availability occurs daily because of the day night cycle and depends on seasons because of the Earth’s orbit around the Sun.

This problem can be avoid by use of new innovative practices and good engineering works. But still the use of solar energy has been regarded as a solution to the problems of climate change and current reliability on the fossil fuels, this important hurdles must be overcome with the use renewable energy by achieving targets in the near future.

II. PRESENT STATUS OF RENEWABLE ENERGY IN INDIA

In past decades the favourite source of energy was fossil fuel but due to the limited availability of the fossil fuels, increasing cost, stringent environmental norms and favorable condition for renewable energy sources areone of theimmergingsectorsof future growth in India. Among all renewable sources viz.wind energy, solar energy, small hydro power and biomass; solar energy has very potential and inexhaustible source of energy andthus immerging as main energy source for future electricity generation worldwide.This makes solar energy as a one of the most promising unconventional energy sources for future growth.The below figure no 1 shows the Renewable Energy Source (RES) installed capacity of India (all figures are in MW).


Figure1. RES Physical Progress as on 30.03.2016 (source CEA/MNRE)

III. SOLAR POTENTIAL IN INDIA

The sun could be the world’s largest source of electricity by 2050, ahead of fossil fuels, wind, hydro and nuclear, according to a pair of reports issued by the International Energy Agency (IEA). Solar energy is an essential energy resource that has the potential to provide animproved power supply in India, predominantly in remote areas.India has average 300 sunny days per year while augmenting the security of India’s energy supply.The National Institute of Solar Energy in India has determined the country’s solar power potential at about 749 GW, as per the Ministry of New & Renewable Energy (MNRE) shows. The solar power potential has been estimated using the wasteland availability data in every state and jurisdiction of India. The estimate is based on the assumption that only 3% of the total wasteland available in a state is used for development of solar power projects. Solar Energy Potential in India

India’s current solar power installed capacity is around 6.7 GW i.e. 0.9% of the estimated potential. It is very true that there exists a massive opportunity to tap this potential. As a result, the Indian government has increased its solar power capacity addition target five-fold. Instead of the initial target to installed 22 GW solar power capacity by 2022, the government now plans to add 100 GW capacity. This includes 20 GW of ultra mega solar power projects, with installed capacity of 500 MW or more, across 12 states.

Table:1  State-wise solar potential in GWp

VI. TRIGGER FOR SOLAR ENERGY

The Prime Minister of India released the country’s National Action Plan on Climate Change (NAPCC) on 30 June, 2008. There are Eight National Missions which form the core of the National Action Plan. The NAPCC consists of several targets on climate change issues and addresses the urgent and critical concerns of the country through a directional shift in the development pathway. It outlines measures on climate change related adaptation and mitigation while simultaneously advancing development. The Missions form the core of the Plan, representing multi-pronged, long-term and integrated strategies for achieving goals in the context of climate change. NAPCC set the target of 5% renewable energy purchase for FY 2009-10 and further, increase by 1% annually for the next 10 years to constitute approx. 15% of the energy mix of India in upcoming year.

NAPCC is the national strategy of India to achieve a sustainable development path that simultaneously advances economic and environmental objectives. This National Action Plan depended on the development and use of new technologies for sustainable growth for the nation. The National Solar Mission is one of the eight national missions which form the core of the National Action Plan. Based on this vision a National Solar Mission was launchedon 10 January, 2009 by the Government of India through the Ministry of New and Renewable Energy (MNRE). Resultant of this considerable growth has been seen for installation of solar power project.

V. GLIMPSE OF PLAN AND ACHIEVEMENT

The Government has up-scaled the target of renewable energy capacity to 175 GW by the year 2022 which includes 100 GW from solar, 60 GW from wind, 10 GW from bio-power and 5 GW from small hydro-power. Stepping up capacity target under the Jawaharlal Nehru National Solar Mission (JNNSM) by five times now India is aiming to generate reaching 1,00,000 MW solar power by 2022. The solar target shall be comprise of 40 GW Rooftop and 60 GW through Large and Medium Scale Grid Connected Solar Power Projects with total investment in setting up 100 GW will be around Rs. 6, 00,000 crore.

In this section has summarises the history of targets and achievements in Indian renewable energy projects. Table2 and Table 3 shows the targets and actual target achieved in the renewable and Solar Photovoltaic projects in India.

The government has set a target of 4,460 MW of power generation capacity addition this fiscal (FY15-16) from renewable energy sources, including solar, wind and small-hydro and actual target achieved was 2312. The solar power target was 1400MW and could managed to achieve 827.22 MW.

Table:2 Scheme wise Physical Progress in FY 2015-16

This section summarises the history of targets and achievements in Indian solar energy projects figure 3 shows the targets and results in the solar photovoltaic. The progress rate of solar establishments has been very slow in India and Ministry of New and Renewable Energy (MNRE) failed to achieve the desired progress in past. The size of the solar energy program in India may be the largest in the world; however, the program seems more ambitious and it requires tremendous effort to be put in to become real. Table 2 shows the recent progress in the development of India’s wind energy producing capacity.However, the progress and actual for solar energy are slow w.r.t.the wind energy sector, despite having better the policy and regulatory arrangement.

Figure 3 Yearly target and actual achievement

The ministry has chalked out massive the year wise plan and cumulative plan to achieve 100GW grid connected solar power project by 2022 under National Solar Mission.

Figure 3 Year wise and cumulative Target of Solar power

Actual progress towards achieving the 100 GW target will depend more on technology innovation/improvement viz. efficiency, falling cost, growing power demand and increasing pressure for reduction in pollution. India needs political will at both the central and state government level to overcome operational challenges like policy framework, massive land procurement, right of way issues, hugetransmission line network to accommodate generated power and financing to achieve targeted solar progress in the given timeframe.

II RISK ASSOCIATED WITH THE SOLAR POWER PROJECT

To achieve the targeted growth developer and other stakeholder has to identify the risk involved in the solar power projects is almost important. In view of the above, the list of risk involved in solar power projects are listed and deliberated in this section to overcome the problem.

Risk management refers to optimising decisions in order to reduce uncertaintyabout future events when the information is incomplete, unclear or under discussion.One of the weak points of Solar Power has been inability to produce electricity for reasonable amount of time without direct sunlight. Traditionally Solar Power technologies are not able to generate base-load electricity like fossil fuel-fired power plants, geothermal, hydro power plants.

Risk associates with the projects and executor/developer play an important role in ensuring that projects are completed by the scheduled date. Risk management refers to optimising decisions in order to reduce uncertainty about future events when the information is incomplete, unclear or under discussion. Solar projects has very challenging environment, as they havemany stakeholders with complexgovernment policies of Central as well as state and difficulties in land acquisition politically motivated by local parties, etc.The Now present situation requires detailed study of projects, lender’s faith on the promotor, knowledge of Govement’s rules and regulations in order to manage risks.

The risks affecting solar projects appear throughout the entire project lifetime, but vary greatly in character & locations to location. Mainly risksassociated with solar power projects can be classified as political, financial, social and technical. The brief descriptionsare as under;

A. Political Risks

Risk of a change in policy or regulation which may affect the profitability of the project, for example changes in levels of tax credit or tax holiday/benefit or concessional duties etc. Also, this includes changes in policy as related to permission, faster approvals and interconnection. Stable and permanent policies would improve the changes of achieving targets of solar projects. Financial closure is must for any project to be start. The risk of interruption in receiving regulatory approvals and achieving financial closure is relatively high, as per the history of delays in clearance andapproval. If a project does not obtain the necessary approvals, it is fails to achievefinancial closure on time, which definitely inflates the required funds to execute a project.There are numerous political risks associated with solar projects in India:

Table:3 Shows classification of Policy risks

B. Financial Risk

Due to the high capital cost involvement solar power generating cost is higher in India than the other sources of power. Also complete reliability on solar radiations, solar power remains an uncertain and costly alternative for power generation. The central Government of India and the state governments offer a wide range of incentives, such as feed-in tariffs, generation base incentives, renewable purchase obligations (RPO), Clean Development Mechanisms (CDM) benefits, national and state capital subsidies, and tax incentives. The lack of management and coordination between state and central programs makes it difficult for the developerto achieve the financial closure and complete project on time. Identify the location and Tide-up land acquisition is a big problem in India as the political bias issues. Solar plants have high capital costs because of expensive material and the high cost of components involved. Adequate solar radiation levels, availability of transmission facility to the nearby plant location, large stretches of flat land to avoid the showdown effect and sufficient water supply to cool the solar panel to get maximum generation output.

Risk of insufficient access to investment and operating capital. Due to high capital requirements for solar power generation, few large projects are financed by big financial institute and. tailor-made financing is achieved through project finance. Support from the relevant finance experts will be required at this stage. Banking sector constraints due to limits to lending to the power sector is equally concern for solar projects. The availability and cost of capital for funding of new projects could also be a cause of concern, given that solar power projects are capital intensive. The economic and monetary policies will need to play a key role in ensuring that these projects receive timely financial closure and require funds as required by the developer.

Table:4 Classification of Technical risk

C. Social Risks

Risk of environmental damage caused by the solar park/project including any liability due to both natural disasters, such as earthquakes, storms or man-made risks such as collapsing of ecosystem, freshwater shortages and climate change covered in social risk category. As with any construction project, during the construction phase there are likely to be noticeable impacts to the environment. It may be an affect of landscape, ecosystem and habitats, noise, and any pollution. The solar powerrequire more land as compare to other sources. If careful attention is paid during the planning, construction, and operation phases, the effects on vegetation, soil, and habitat can be minimized.

Table:5 Classification of social risks

D. Technical Risks

Solar requires special expertise for manufacturing also demands highly accurate engineering for PV cell and large inverter which are not obtainable locally.The design may varies on location to location.  The tailor made approach is required to suits the site condition as per location allocated for the project. This risk develops due to a lack of expertise and little or no experience in stimulating capital.

Most of the project location are far away from the basic infrastructures to connect the grid is one of the major risks of exporting solar power sources.The risk of time and cost overruns is reasonably high, and the effect of these stipulations is also comparatively high. However, there are standard insurance covers obtainable to moderate these risks. Project sponsors or developer may transfer this risk by outsourcing construction to a contractor through a turnkey (EPC) contract.

While execution of new project the risk of property damage or liability may occurred. Every site has its own specific characteristics including geographic location and solar radiation level, site topography, local regulations and requirements for grid connectivity. During the Design & Engineering phase, the optimal structure and choice of components will be determined, based on all input factors for tailor maid approach will adapt for cost optimization. This will require very specialized expertise.

Table:6 Classification of technical risk

VII. CONCLUSION

The India’s ambitious target of 100 GW by 2022, to achieve this robust planning mechanism required. It is obvious that this create millions of jobs. However, it is evident in past, the progress and completion rates are slow. This shows that there is an urgent need for improvements to innovation andprocesses to monitor the progress of schemes, projects and programs associated withsolar projects in India.

While the use of renewable energy has been regarded as a solution to the mountingproblems of climate change and people’s current heavy reliance on fossil fuels, someimportant hurdles must be overcome so that renewable energy targets are achieved inthe near future. One of these problems relates to the state of risk management in India.

While it recognised that the success of science- or reason-based endeavours cannot bepredicted, one the deficiencies can be pointed out because of poor risk-mitigatingstrategies. It is well within the control of Indian contractors to complete their projects ontime by successfully mitigating their project-associated risks.

The immediate impact of the presence of any of above risk factors is uncertainty around the revenue and profitability projections for the project and thus the financial viability of the project.Many of the risks mentioned above can be managed through financial instruments, insurance products, better tariff policy, clear guideline of land acquisition and faster approval by Government to support solar installation. However, for solar industry have a lots of scope for innovation & technology upgradation to become projects more viable and sustainable choice for any country. Thus the type of financing instrument and its associated risk shall play a very effective role for success of any solar power project in India.

Resulting in steep fall in the feed-in tariffs and also favourable condition of Government policies to fulfil Country’s ambitious target of 100GW of solar capacity by 2022. Now Power Sector Companies should take advantage of the rapid evolution in the solar power generation technologyfor more revenue.

Definitely, solar energy will play a very crucial role in future power growth in India.In up-coming years will be more & more technological upgradations and innovationsfor solarenergy which will make solar projects more viable. In view of this, mitigating the above risks are very crucial &important factor to achieve the targeted growth and utilise the identified solar potential of India.

REFERENCES

  1. The ocharisTsoutsos,*,Niki Frantzeskaki,Vassilis Gekas, “Environmental impacts from the solar energy technologies,” Centre for Renewable Energy Sources (CRES),Marathon Ave, Pikermi, GR-19009, Greece, Energy Policy 33 (2005) 289–296.
  2. Vikas Khare, SavitaNema, PrashantBaredar, “Status of solar wind renewable energy in India”,Renewable and Sustainable Energy Reviews27(2013)1–10.
  3. Hillson, DA 2002, ‘Extending the risk process to manage opportunities’, International Journal of Project Management”, vol. 20, no. 3, pp. 235–40.
  4. Renewables 2014 Global Status Report”(Paris: REN21 Secretariat). ISBN 978-3-9815934-2-6
  5. Central Electricity  Regulation Commission, New Delhi order on Date of Order: 23rd December, 2015“Determination of Benchmark Capital Cost Norm for Solar PV power projects and Solar Thermal power projects applicable during FY 2016-17”.
  6. Ministry of New and Renewable Energy:〈http:/www..mnre.gov.in〉.
  7. Central Electricity Regulatory Commission of India: 〈http:/www.cerc.gov.in).
  8. Solar PowerinIndia,Wikipedia,TheFreeEncyclopedia.
  9. World Economic Forum, “The Globle Risk Report 2016” 11th Edition.
  10. Beck, F. &Martinot, E. “Renewable Energy Policies and Barriers. Encyclopediaof Energy. Elsevier Science”.(2004)
  11. Grid ParityofSolarEnergyinIndia,Wikipedia,FreeEncyclopedia.

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