India Makes Push for Solar Power

online.wsj.com
DECEMBER 16, 2009

AWAN, India - - Getting money to build India's largest private solar energy plant was easy compared with getting the required 152 signatures from local bureaucrats in the state of Punjab, says eco-entrepreneur Inderpreet Wadhwa. Making a profit on the project could prove to be even tougher.

Mr. Wadhwa is the founder of Azure Power Inc., which built the plant on 13 acres of farmland in this village in northern India. The plant started generating power this month and was inaugurated by top Indian officials Tuesday. It is a milestone in India's push to make solar energy an important contributor to its energy mix.

But the challenges Azure faced in setting up the facility and the tough economics it will have to overcome to make a profit show how difficult it will be for India to meet its target of generating 20,000 MWs of solar energy, or roughly 13% of its current national power output, by 2022. Mr. Wahdwa thinks the government's target is overly ambitious. "Let's walk before we can run," he says.

India produces about 8% of its energy from renewable sources such as wind and hydropower. solar energy has great potential, experts say, because it can work almost anywhere in India. But it has been stifled here by the high costs of the technology and the inability of power companies to get tracts of land big enough for the large arrays of solar panels that capture sunlight and generate electricity.

The Indian government is trying to encourage more investment in solar energy by increasing subsidies for the projects and mandating that state utilities purchase solar energy. Big power companies such as India's Tata Power Co, and Reliance Power Ltd, say they are planning some small solar projects, while renewable energy start-ups such as New York-based Astonfield Renewable Resources Ltd, are also targeting India's solar industry.

India is among the countries at the Copenhagen climate summit asking developed countries to help finance green energy projects. Some experts say no amount of government support will help if solar technology doesn't get cheaper. "To achieve scale, you'll need private participation, and that will only happen if the projects are viable without significant state support," said Jai Mavani, head of infrastructure and government consulting at KPMG India.

Mr. Wadhwa, a 37-year-old native of Amritsar city in Punjab, founded Azure in 2007 after leaving a career in the U.S, at software giant Oracle Corp. He says he wanted to return home and do something for rural areas in India, where millions of people don't have steady electricity. After raising venture financing and cutting an initial agreement to build the plant with the Punjab government early last year, Mr. Wadhwa set out to acquire land amid the region's wheat and rice fields. He quickly ran into a thicket of bureaucratic problems. He had to negotiate terms of a 32-year lease with various village and district officials, then with several more officials in the state's rural land ministry. It took months and, "the price kept going up at every level," Mr. Wadhwa said.

He also needed sign-offs from the state pollution board and even the railways ministry, which had to approve his request to run a power cable under the local tracks. When the project stalled in various government offices, shadowy brokers offered to help speed up the process for a fee, but Mr. Wadhwa says he refused to pay. He ended up paying more than double the market rate for the land, roughly $420 per acre per year. "I didn't want them to say, 'This American company is coming in taking away our land for cheap,'" he said. "The truth is, we're helping these people. The power we're generating is going to go to their villages."

Vishwajeet Khanna, Punjab's secretary of science and technology, says the Azure project has always had strong support at the highest level of the state government. He said both the government and solar companies have naturally had a steep learning curve. "This is the first project of this scale. We're very excited," Mr. Khanna said.

Mr. Wadhwa, who was an executive in Oracle's business software division, says he came back to India with the desire "to solve a hard problem" and isn't fazed by the bureaucratic hurdles. He spends most of his time on the cellphone discussing the finer points of inverters and junction boxes. On a recent afternoon he was calling state and central government ministers, arranging their trips to the plant's inauguration. "Now I have to figure out how to build a helipad in this village," he said. Azure started building in May and took less than six months to start generating one MW of power for roughly 50 villages in the area. The company plans to ramp up to five MWs by next year, and is raising funds to build plants in the states of Gujarat and Karnataka.

After all the installation costs - - including importing Chinese-made solar panels and American-made cables - - Azure needs much more than the 19 cents per unit of power that the Punjab state utility has pledged to pay. The central government may pick up the slack. The New and Renewable Energy Ministry's latest solar policy, which will be laid out in detail in January, could guarantee companies like Azure as much as 38 cents per unit of power. Mr. Wadhwa said subsidies and falling prices of solar equipment over time will make his project viable. He is hoping to break even in about six years.

Some others in the industry aren't as optimistic. Jake Saper, senior manager of global strategy at Astonfield, which has several solar projects planned in India, said the new subsidized tariff will still be 20 or 30 cents lower than the rates solar producers get paid in European countries like Greece and Italy. "Even this new tariff might not be viable," he said.

B. Bhargava, director of the renewable energy ministry, said no new money is necessary in the first phase of the government's solar energy plans, which envisions producing only 1,000 MWs of solar energy in three years. Solar-generated power will be blended with cheaper forms, like coal, so that state utilities can afford it, he said. "We'll evaluate the success of this model and decide requirements for funds for the next phase," Mr. Bhargava said.