Tata Power: The Tesla Moment of India
Part 1: Transitioning India's energy landscape via Solar
Back in 2009, Gujarat became the first state in India and the fourth in the world to establish an independent department for Climate Change at the sub-national level under the leadership of the then Chief Minister of Gujarat, Shri Narendra Modi. Interestingly, when Mr. Modi assumed office as the Prime Minister of India on May 26, 2014, the very next day, he amended the nomenclature of the Ministry of Environment & Forests by appending ‘Climate Change’ to it, showcasing the government’s recognition of the serious challenge posed by climate change. Today, we know this ministry as the ‘Ministry of Environment, Forest, and Climate Change’, which is led by Shri Bhupender Yadav in Modi’s Cabinet.
There's a video from 2012 featuring our current Prime Minister, who was the Chief Minister of Gujarat at that time. I highly recommend watching it. Throughout the video, he doesn't come across as just a politician but rather as a top-notch strategist, economist, and engineer – all at the same time. Here's the link:
His visionary approach is evident in his words. In 2009, Gujarat launched India’s first Solar Power Policy—an initiative most states wouldn’t have even considered at that time. They entered Power Purchase Agreements (PPAs) with over 80 companies for generating 960 MW of solar power. In the subsequent years, Gujarat introduced more policies and schemes. One beneficiary of these programs was Punit Goyal, now the co-founder of BluSmart, a popular startup operating a fleet of 5,000+ Tata electric cars as cabs in India. During that period of 2012, Punit had established his second business in solar power production in Gujarat, operating under the government scheme. He engaged in a contract with the Gujarat government to sell solar-generated electricity to them at a fixed rate. In this video, he elaborates on this business, which he later sold after running it for two years and achieving substantial profits. You can find relevant content at 5:15 mins & 22:40 mins in the video:
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Under Mr. Modi's leadership in Gujarat, milestones continued to be achieved. The 'Gujarat Pollution Control Board' office building became the first in India to become energy negative. To cultivate a specialized and technically proficient workforce in solar energy, they initiated courses such as 'MTech and Ph.D in Solar Energy' at Pandit Deendayal Petroleum University, alongside other vocational training programs, aligning with their long-term vision. Leveraging Gujarat's extensive canal network, they piloted a project involving solar panels installed over a 1 KM stretch along a river near Sanand. These innovative projects happening for first time in India, received support and financing from global forums including the Asian Development Bank, IFC, OPIC, US EXIM, and others. For more insights into the initial official solar policy, the details can be found in the link to Gujarat’s Solar Power Policy - 2009. It's worth noting that numerous enhancements were made in subsequent years following its inception.
India’s commitment on Net-Zero Emissions
The rationale behind commencing today’s blog with the preceding paragraphs is that several global strategists have raised inquiries about India’s choice of setting the target for achieving net-zero emissions by 2070, while many major countries aim for achieving this milestone by 2050. Below is a table I've compiled that illustrates how various nations plan to reduce carbon emissions and attain net-zero status. According to ECIU’s Net Zero tracker, no other country in the world has declared a target year beyond 2070, positioning us as one of the last countries to achieve net-zero emissions if all the proposed targets are met:
Given our Prime Minister's strong support for renewable energy and his expertise in implementing it at the state and potentially national levels, why does India find itself among the last nations aiming for net-zero emissions? Couldn't we simply shut down all coal plants and switch entirely to solar and wind energy?
The reality is this: India stands as the fastest-growing major economy globally, and its energy demand is soaring at a remarkable rate. In 2022, Tata Power’s CEO noted a higher than expected 11% surge in India’s energy demand, a stark contrast to the average 5-6% rise seen over the past several years, largely due to a scorching summer and relatively low base. Similar instances occurred in current year of 2023 as well, with more than expected power demand, notably in February and more recently in October-November.
The Modi government’s strategic focus on luring China's manufacturing base to diversify into countries like India has resulted in significant victories, such as attracting Apple's operations. Analysts project a substantial shift in iPhone production, estimating that 25% of total iPhone manufacturing will occur in India by 2026, a remarkable leap from a mere 0% just a few years ago.
Adding value within the manufacturing sector stands as another pivotal focus for the government, now emphasized through its revised PLI (Production-Linked Incentive) schemes. The aim is to ensure India doesn't merely become a hub for contract manufacturing with low value addition. However, all these advancements require substantial power. If executed effectively, India is poised to experience an unprecedented surge in power demand in the years ahead. Here's a video featuring Tata Power’s CEO discussing the challenges of power shortages:
Unfortunately, more than 70% of India's electricity production relies on coal or thermal sources, despite the rapid growth of renewable energy. Given the substantial increase in energy demand, it's highly unlikely that the share of coal or thermal energy will drop significantly below 50% by 2030, making the target of achieving net-zero emissions quite challenging. Surprisingly, while there's talk about reducing coal usage, NTPC, the largest government entity in the power sector, is in the process of establishing another thermal power plant in Uttar Pradesh, India. This move aims to address the ever-increasing demand for power in the medium term.
Why is it tough to scale Solar at rocket speed currently?
The answer is China. China has indeed excelled in achieving economies of scale across all four crucial stages of solar panel production. They've mastered the process from producing the raw material (polysilicon), to developing wafer/ingot production capacity, manufacturing solar cells, and eventually creating the final module. The scale of China's production in each of these stages surpasses that of most countries worldwide, including India, often reaching sizes 10 to 20 times or even more. This vast scale has allowed China to dominate the global solar panel industry.
It's interesting that countries like the USA, aiming for complete solar panel production within their borders by 2026, might face challenges. According to a Mercom report, Chinese modules are 57% cheaper than those produced in the USA and the European Union. This cost disparity between solar components from different countries is widening, primarily due to China's continued advantage in scale, while other nations struggle with raw material shortages, particularly silicon or polysilicon.
Regarding India's status, a chart illustrates its current position across the four key processes of solar panel manufacturing:
It's evident from the chart that India currently relies entirely on imports for Processes 1 & 2, involving polysilicon and wafer production. However, it's gradually achieving self-reliance in stages 3 and 4, which are comparatively more manageable. This suggests that for the majority of solar panels manufactured in India, the value addition remains relatively low because most materials are imported and assembled during the module production stage.
The most significant value addition occurs in the transformation of silica into ingots/wafers, which forms the largest and most crucial part of the value chain. Presently, this critical phase is absent from the Indian market, highlighting an area where India lacks domestic production and significant value addition in the solar panel manufacturing process.
How is government trying to bridge the gap?
The Indian government introduced the PLI (Production Linked Incentive) scheme in September 2022, specifically targeting the manufacturing of solar components. Then in March 2023, they allocated a capacity of 39,600 MW for domestic solar PV module manufacturing to 11 companies, amounting to Rs 14,007 crore under the PLI scheme. This scheme was divided into three baskets, grouping the four key stages of solar panel manufacturing, and specific companies were included in each:
Polysilicon, Ingot-Wafers, Solar Cells, and Modules (P+W+C+M) Basket: Reliance, Indosol, and First Solar secured capacities of 6,000 MW each.
Ingot-Wafers, Solar Cells, and Modules (W+C+M) Basket: Waaree, ReNew, Avaada, Grew, and JSW were allocated capacities ranging from 1,000 MW to 6,000 MW.
Solar Cells and Modules (C+M) Basket: Tata Power Solar, Vikram, and AMPIN received capacities ranging from 1,000 MW to 4,000 MW.
The PLI Scheme has been lauded as a significant development in India's renewable landscape, potentially resulting in a domestic module manufacturing capacity of around 48 GW within the next three years. However, critics raise concerns that India lacks an adequate supply of silicon used in producing wafers (Processes 1 & 2 of solar panel manufacturing). This might lead to increased imports of silicon and wafers from China.
Companies manufacturing solar cells and modules, categorized in the third basket, are considered easier to achieve. Tata Power Solar, for instance, announced in their Q2 FY24 conference call that they will be receiving the PLI benefit for solar module production for meeting their successfully meeting their FY24 targets of production. The government move of imposition of Basic Customs Duty of 25% on Solar Cell & 40% on Solar PV Modules w.e.f. 01.04.2022 is also helping like Tata Power.
There are many more schemes of the government on the climate change theme for EVs, batteries, hydrogen, rural electrification via green energy, wind energy and more which we plan to touch upon in upcoming blogs.
From Gujarat's early climate initiatives under Narendra Modi to India's PLI scheme boosting solar production, the country's renewable energy journey showcases progress and challenges. While China's dominance in solar panel production poses hurdles, India's PLI initiative strives to bolster domestic manufacturing, but needs to address concerns about silicon imports. With companies like Tata Power Solar benefitting, India's quest for self-reliance in solar production unfolds amidst global shifts in renewable energy dynamics.
(This blog is Part 1 of series on ‘Tata Power: The Tesla Moment of India’, stay tuned for Part 2 in coming weeks where we shall be focusing on competitor landscape of solar companies in India & why Tata Power stands out)
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