Lucky star

In the European Union, revisions to renewable energy targets tend to happen by increments. Each time they are tweaked by a few gigawatts, so as to fine-tune the percentage they represent in the generation mix of member states. It doesn’t mean they’re not ambitious, but time is left for governments and markets to adapt.

The Indian solar system, by comparison, seems ready for a leap forward of stellar proportions. The country is not completely starting from scratch: it already has a little more than 4 gigawatts (GW) of cumulative installed solar capacity, part of a 36GW renewables portfolio that represents about 13 percent of total power generation capacity. But Delhi last June ramped up its solar target, set at 20GW for 2022, to 100GW in the same time frame.

Details as to how it will achieve such a feat have not been fully fleshed out. But neither have potential sponsors and investors been left completely in the dark. There’s an indicative calendar: the latest data made available by the Indian Ministry of New and Renewable Energy (MNRE) states that 4.35GW of utility-scale solar and grid-connected rooftop solar capacity will be created during fiscal-year (FY) 2015-16, with FY 2016-17 numbers adding up to 10.86GW. That would help the country get close to its original 2022 target five years ahead of schedule.

A large chunk of this capacity is expected to be added through central government policies. It would work as follows: state-owned power companies, such as NTPC, will call for bids from developers for buying 15GW on behalf of MNRE that will then be sold to the states. The utility will provide a purchase guarantee, so as to make projects bankable and help achieve grid parity.

But to make sure international investors can also participate, the method has other interesting quirks.

For one, NTPC and the like will run bidding processes in foreign currency-denominated tariffs, so as to reduce investor risk. According to local reports, this will be done via a hedge fund fed by the balance between what the tariffs developers are expected to bid and the price at which NTPC will sell the power to the state. This foreign-currency denominated tariff plan may also involve bundling renewable power with unallocated thermal electricity to bring the tariff down, should the rupee depreciate beyond a certain level.

Such a move is but one of a number of initiatives taken by the government to improve the country’s business climate, which has otherwise hindered greater international investor involvement in infrastructure projects. An unwieldy tax system, restrictive land laws, corruption and political flip-flopping have long been seen as hurdles to achieving the government’s plans for bulking up the country’s economic and social infrastructure.

It will help that a sharp drop in panel prices, together with falling lending rates, have brought tariffs tantalisingly close to grid parity. The first solar auction, back in December 2010, saw developers bid between INR10.95 (€0.15; $0.17) per kilowatt-hour (kWh) and INR12.76/kWh. Its successor, staged in December 2011, got them to offer between INR7.49/kWh and INR9.39/kWh. The lowest bids for the 2012 and 2013 editions then came in at INR7.00/kWh and INR5.50/kWh, respectively.

Investors seem enthused. Emerging market-focused The Abraaj Group last month set up a new 1GW platform with domestic conglomerate Aditya Birla Group to bid for solar projects tendered at national and state auctions. In September, Infrastructure Investor reported that the UK’s Green Investment Bank was eyeing the sector as the one in which to make its first overseas investment. “India and Indian solar are the biggest market at the moment,” a person with knowledge of the institution said then.

It may be too early to say whether the government will deliver – but with New York-listed Brookfield Asset Management, Swiss-based Partners Group, US fund manager I Squared Capital and Doha-headquartered Nebras Power also counted among interested parties, the list of blue-chip firms looking for a spot under the Indian sun is clearly growing.