In case you missed it, India recently announced its intention to float a tender for 100GW of solar power.
The country is no stranger to large solar PV projects. The country’s national Solar Energy Corporation of India recently issued tenders worth over 2GW, in which solar prices fell to record lows of $3.5c/kWh. But this plan is ambitious even by India’s standards — to put it in perspective, in February 2018 India’s entire solar PV capacity was 20GW. As the article clarifies, plans for such a large tender may be just that — plans; but they reveal the true extent of India’s ambition.
Hidden in the same article is another interesting fact — that India is soon approaching surplus energy generation capacity, with solar now competitive with and crowding out traditional sources of baseload power, specifically coal.
There are constraints on how fast additional capacity can be added, not least the fact that India simply does not need much more power.
While a large part of the population remains below the poverty line, providing them access to energy will require going beyond the grid and beyond utility-scale projects. Indeed, rooftop solar has been the fastest growing segment of India’s renewable energy sector in 2017. With rooftop solar “now cheaper than commercial and industrial power in all major Indian states” expect this to accelerate, even as other sub-segments (residential or rural off-grid) pick up once supportive policies are put in place.
The expansion of the solar sector is happening at the expense of both other forms of renewable energy and traditional sources of baseload power. According to the latest Bloomberg New Energy Finance (BNEF) energy outlook, the cost of solar and wind in India is now 50% cheaper than coal. The result:
India has shelved or cancelled nearly 550 thermal coal projects in the past seven years
The implications of solar energy growth
It is expected that India shall be an energy surplus country in the very foreseeable future. The implications of that are significant, for the day is not far when India shall have a surplus of energy at zero marginal cost. What happens then?
The scenario that follows was foreseen in Jeremy Rifkin’s book, “The Zero Marginal Cost Society”, and is one that has already unfolded in Europe. Thus, we can expect India’s energy industry to be transformed in very similar ways. There changes are, in particular, either already happening or will happen soon:
- Utilities will loose — and are already loosing — their most lucrative commercial and industrial (C&I) customers to renewables. Yet, they will be required to maintain the more expensive baseload sources of power that provide stability to the system. Thus, utilities will need to re-invent themselves. Interestingly, the flatting of the value chain will also offer opportunity to other players to step into the most lucrative elements of a utilities business. The emerging virtual power plant model is a case in point.
- The grid will need to transform from being a unidirectional channel for electrons to a cloud / network architecture. Generation and consumption will take place simultaneously at different points of a vast network, akin to a telecom network, with similar network planning and management methodologies needing to be applied. Transforming the existing and vastly underinvested energy grid, through the integration of active elements, smart meters, or energy storage capacity will be a vast area of opportunity.
- Revenue and profit will not be in energy generation, but in services — in helping companies manage assets, manage energy, or optimize their energy use and costs. For instance, as countries reach peak generating capacity, new project additions will decline. Given the expected lifetime of solar panels is 20 years, revenue from projects will decline rapidly. Indeed, in the wind industry, for instance, it is expected that services in the EU will account for 75% of profits in 2020 compared to only 24% in 2014.
The rapid expansion of renewable energy is perhaps the first chapter in the transformation of India’s energy landscape. Achieving a surplus energy generation capacity would mark a second milestone — both for its economy and society. Done right, it should also open up immense opportunities for its people, by ensuring everyone has access to energy and its attendant benefits.
With that milestone, a new set of challenges and opportunities will emerge. Fortunately, India can draw on lessons from other countries to inform both policy and business. Of course, the winners and losers in the coming new wold order remains to be seen, but they will not be the same as those today. The change will be similar to how the telecom landscape was transformed at the end of the last century and before.