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India’s Account Deficit Likely to Derail the National Solar Mission

The rising current account deficit (CAD) of India is likely to derail the country’s ambitious National Solar Mission (NSM).

The current deficit of US$98 billion in the calendar year 2013 is steadily rising, as the much-touted GDP growth rate has come crashing down from highs in the double-digits to under four percent. Consequently, the CAD to GDP ratio of 4.9 percent is experiencing new highs as the central government fails to return confidence to the market place.

The second phase of the National Solar Mission has not yet taken off. It was targeted to achieve almost 4,000 MW of solar power project installations under the central scheme and 6,000 MW under state schemes. Of these, 3,600 MW of installations were targeted in for 2013-14 and 2014-15.

On the action side, the draft policy document of the second phase was released by the Ministry of New and Renewable Energy (MNRE) in December 2012. The ministry conducted consultative meetings with various stake-holder groups, hoping to be able to launch the programme in February 2013. It is now September, and there is still no final policy document.

In a related measure, from February of this year, the MNRE stopped accepting applications for the 30 percent subsidy it offered to all rooftop and off-grid power projects. It is not yet clear as to when this window will re-open.

The current account deficit has devalued the local currency by over 20 percent over the last few weeks, with pressure mounting on the government to push forward reforms and reduce subsidies. On the latter count, the second phase of the solar mission surely will take a hit as its most-critical component is viability-gap funding (VGF) — a direct form of subsidy to cover the cost of a solar power project up to 33 percent. The actual figure of this subsidy could well go up to US$1.5 billion — something that the treasury will certainly not allow.

Absence of any such programme, devaluation of the local currency by 20 percent, non-enforcement of solar power purchase obligations and slow sale of renewable energy certificates (RECs) on the nation’s two energy bourses will majorly impact the country’s solar power sector and various stake-holders.

This scenario is actually a bitter pill that the industry will have to swallow, go beyond various government and regulatory dependencies, and explore opportunities in a three-dimensional matrix that would use the local states, business segments and timelines as the three axes.

The rising cost of conventional power and the non-availability of adequate power offer solace to the industry that the consumers will eventually adopt solar power in a country which is blessed by the Sun for over 300 days in a year.

Lead image: Change purse via Shutterstock

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