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Opinion: Solar thermal implementation - The hot debate
The article raises some hotly debated issues pertaining to the implementability of solar thermal in India. While there is overall optimism within the policy makers, the investors and project developers bemoan the lack of sensitivities to ground issues of implementation.
The prospective solar thermal power project developers face almost an endless list of challenges that need to be overcome to deliver a successful project. The single largest challenge hovers around the ‘bankability’ of the PPAs. Neither the Indian banks nor the investing community (incl. foreign investors) consider the current version of the proposed PPA as acceptable. NTPC has denied taking any responsibility or guarantee. GoI nominated nodal agency NVVN does not have the balance sheet to support the requisite commitment. It has clarified that the PPA would be a 3-way obligation – between NVVN, Discom and IPP. So who would be held responsible for non-performance; given the laws, time to remedy and its scope of implementation.
While the SPO obligation and a REC methodology has been announced, they seem unviable in their present form while a legal framework to enable implementation is still missing. Thus the conditions for investment, deployment and development of solar thermal power projects simply don’t exist.
Once these pre-requisites for construction of solar thermal plants are cleared, further issues would need due attention. I have touched upon some key ones below.
Trained/ skilled manpower: Indian industry has extensive experience in the construction of refineries, petrochemical and chemical plants etc; not to mention conventional power projects. There are really no challenges in installing solar projects provided good supervision, including by experienced foreign technology provider, and detailed procedure, drawing etc are provided by the foreign technology partner. Of course Indian labor may not have the specific experience, but if attention is paid to the specific skill required, installation and construction of the project would not be difficult. The involvement of foreign technology partner is of paramount importance as is procuring labor with required skills. Attention to detail during the installation procedure, detailed drawings etc would be most important items to ensure technical performance of the project.
Land acquisition: Land area required is significant. Consolidation of private land and change of land use may pose hurdles. Govt. must arrange to provide suitable sites with road and rail connectivity near grid transmission network and water supply. Preferred arrangements would be long term lease, rather than outright purchase.
Material sourcing: Vendor qualification for solar components is crucial. Preparation of RFQ, vendor evaluation and selection would determine the economic and technical performance of the project. Care must be taken to pin both the responsibilities on the technology partner. Recent experience in the industry recommends ‘open book’ policy to be agreed with partners. Project developers must have good estimation of the quantities and technical performance expected to ensure feasibility and controls.
Lack of experienced EPC providers in India - One of the hottest debated topics is the selection of EPC companies. While the Indian EPC companies have neither the expertise nor the experience required to roll out turnkey concentrated solar projects, under the supervision of the foreign technology partner it should not be difficult to utilize the services of Indian EPC companies at considerable savings. However, foreign partners may be reluctant to provide the expertise due to intellectual property protection. It would be foolhardy to use the services of Indian EPC until sufficient expertise and experience has been developed. It is rumored that even reputed global EPC companies have not been able to meet the performance parameters in recent projects; choice of EPC partner is thus of paramount importance.
Banks and investors would like ‘someone’ other than the IPP to take the overall responsibility of the performance of the project. EPC companies have typically been preferred on this front. As a result, it is conjectured that these EPC companies have started charging very high rates (almost 20% of project costs) and are steering the projects, instead of the project developer. Current dilemma is how to ensure performance, reduce EPC costs while taking care of bank/investor concerns. In lighter vein, amongst the suggestions doing the rounds are to find investors that would give a freer hand to IPPs instead of EPC companies. It is not uncommon for EPC companies to own equity in the project which they ‘sell’ after commencement of commercial production. Therefore most project developers are luring EPC companies to become an equity partner in the projects.
Lavleen Singal is a serial entrepreneur and Founder of Acira Solar, a solar thermal power producer. Acira Solar has technology partnerships with international technology companies that have been involved in the development and operation of solar thermal power projects. Lavleen has a Master’s in Physics and MBA from USA. Lavleen may be contacted at Lavleen@acirasolar.com.
The views expressed by the author are personal and based on conversations with strategic management consultants, foreign project developers and technology companies.