Electricity produced by Solar Energy

[Assignment on Micro & Macro Economics for Term I] --- Mithun Roy [2021], PGPSM, National Institute of
Securities Markets (NISM)

1) Introduction -- Indias renewable energy potential is 100,000MW from solar energy and another 85,000MW from non-solar sources. Of that, only around 17,220MW has been tapped -- India receives 4-7 KWH of solar radiation /sq. m/day. India is blessed with having most of the sunniest days in the world. -- Solar energy as a part of total energy consumed in INDIA is very less but its importance has grown over time due to the constraints in the other alternative sources of energy. -- Shortage of 20 GW compared to 172 GW of installed capacity. Indias population is increasing by leaps & bounds so it has to maximize its energy production to meet the increasing energy demand. So this need has pushed Solar energy demand growth 30% per annum. 2) Market Structure Solar Energy has a monopolistic competition [HHI Index 1213 thus less than 1800] market structure which has large number of small firms with good potential but has also some qualities of Oligopoly market as majority of the market share

is controlled only by a few firms. -- High Cost to entry. It is very difficult for small firms to compete with their global peers in terms of superior technology, deeper pockets, government subsidy and better distribution network. Initially there is huge investment for the commercial production process -- Huge govt. subsidies In global field government hugely subsidize or promote any effort in the Solar energy sphere but in Indian perspective things are new and things will take time. But Indian government has shown positive attitude this & has put in place National Solar Mission. Number of firms

2)

In India we have many small players, but mostly concentrated in specific parts of the country. There are few large players such as MosaerBaer, Azure, Reliance, Tata, Govt Entities who are controlling the majority of the market share. Companies MoserBaer Azure Reliance Industries Karnataka Power Capacity MARKET MW SHARE 30 12 6 6 29.24% 11.70% 5.85% 5.85% HHI INDEX Components 854.96 136.79 34.20 34.20

Sivaganga Tata Lanco Infratech Sapphire Chesdin Kolar Itnal ACME Jamuria Sri Power Generation NDPC Thyagaraj Gandhinagar REHPL Sun Edison C&S Electric Limited Maharshtra

5 5 5 5 4.1 3 3 2.5 2 2 1 1 1 1 1 1 1

4.87% 4.87% 4.87% 4.87% 4.00% 2.92% 2.92% 2.44% 1.95% 1.95% 0.97% 0.97% 0.97% 0.97% 0.97% 0.97% 0.97%

23.75 23.75 23.75 23.75 15.97 8.55 8.55 5.94 3.80 3.80 0.95 0.95 0.95 0.95 0.95 0.95 0.95

Ambedkar Raajratna B&G Solar RL Clean West Bengal TOTAL CAPACITY

1 1 1 1 1 102.6

0.97% 0.97% 0.97% 0.97% 0.97% TOTAL HHI

0.95 0.95 0.95 0.95 0.95 1213.16

[Source: Ministry of Alternative Energy Resources]

4) Demand side factors -- States have been allotted different renewable energy purchase obligations. (Gujarat met its target last year.) Rest of the States such as Andhra pradesh, Tamil nadu, Maharastra, Jharkhand and West Bengal are putting more efforts. The major demand is from the medium and small scale industrial set-up in different parts of the country. Moreover rapid urbanizaton has lead to a huge surge in the demand for electricity . -- Price of electricity price would be a concern for solar energy manufacturers as the scale of operation is small but combined with government subsidy, improved technology, robust demand it has

attracted new entrepreneurs and investors. -- Taste: Renewable sources are getting more popular. As the cost on alternative resources are going high & environmental awareness has increased (i.e. clean energy), so new avenues of power generation has come up. As the main ingredient / raw material for solar energy is sunlight (and which is abundantly free as a gift of nature), so it has becoming popular as one of the clean & sustainable form of energy. -- Price of related goods. Initially the price measured in per unit terms is high in case of Solar energy than other conventional sources of energy but the difference is being provided as a subsidy by the government so as retain the attractiveness of this sector. -- GDP growth leading to strong demand. Thereby abiding to the Millennium Development Goals (MDG) and the growing economic scenario, the government is on the mission of electrification of the rural villages in India. So demand curve is on the rise. 5) Supply side factors -- Price of electricity As raw material cost is rising (mainly coal & power generating equipments), so there will be a strain on supply side, and thus a better opportunity for the importance of solar energy. -- Price of Solar Cells Price of solar cells have come down in the recent years with better life quality due to advanced usage of technology and improved competition. -- Technology improvements Technology improvement has been very fast due to the

concerted efforts of different professional bodies and funding by government in domestic & global scenario. -- No of Firms The number of firms in India & globally has significantly increased due to the incentives provided and robust demand in this sector. This is the list of states with number of ongoing solar project: Solar PV Project Locations 1) Rajasthan 2) A. P. 3) Tamil Nadu 4) Maharastra 5) Jharkhand Number 44 15 09 07 08 MW 15.3 30.5 15.5 21 16

-- Expected future price The Future price is surely to come down as technology & scale of operation increases 6) Substitutes & Complements Substitutes -- Thermal Energy -- Wind Energy -- Nuclear Energy -- Hydro Energy Complements -- Inverter & Batteries -- Smart Grid -- Streetlights & Floodlights 7) Elasticity -- Demand is elastic

As Change in quantity demanded is higher than change in price, so increase in price signify decrease in revenue -- Income elasticity is positive. It measures the responsiveness of quantity demanded to changes in income, holding all other variables constant, so here the quantity demanded increases with increase in income -- Cross price elasticity is positive with respect to other renewable & non-renewable sources of energy. It measures the responsiveness of quantity demanded of one good to changes in the price of a related good, when all other variables in the generalized demand function remain constant, thus Substitute goods 9) Government Regulation & Subsidy -- Jawaharlal Nehru National Solar Mission. -- Project in 3 stages leading up to an installed capacity of 20,000 MW by the end of the 13th Five Year Plan by 2022. -- Govt. also gives capital & interest subsidy on loans availed from financial institutions. -- Government of India has mandated that 100% of the modules used in solar projects allotted in 2010-2011 have to be made in India. -- Total subsidy of $19bn. Opportunities: -----Renewable energy certificate mechanism. Clean & sustainable source of energy. Low cost of maintenance. High subsidies provided by Govt. of India. It can offset about 30% of Indias coal import.

Threats -- Input Cost is high. -- Dependence on Govt. subsidy. -- Technology becoming obsolete quickly. -- Increase in interest rate can kill further initiation & investments in the sector. Conclusion: I would like to state the abstract of the National Solar Mission of the Government of India regarding the importance & relevance of solar energy: Importance and Relevance of solar energy for India: 1) Cost: Solar is currently high on absolute costs compared to other sources of power such as coal. The objective of the Solar Mission is to create conditions, through rapid scale-up of capacity and technological innovation to drive down costs towards grid parity. The Mission anticipates achieving grid parity by 2022 and parity with coal-based thermal power by 2030, but recognizes that this cost trajectory will depend upon the scale of global deployment and technology development and transfer. The cost projections vary from 22% for every doubling of capacity to a reduction of only 60% with global deployment increasing 16 times the current level. The Mission recognizes that there are a number of off-grid solar applications particularly for meeting rural energy needs, which are already cost-effective and provides for their rapid expansion. 2. Scalability: India is endowed with vast solar energy potential. About 5,000 trillion kWh per year energy is incident over Indias land area with most parts receiving 4-7 kWh per sq. m per day.

Hence both technology routes for conversion of solar radiation into heat and electricity, namely, solar thermal and solar photo-voltaics, can effectively be harnessed providing huge scalability for solar in India. Solar also provides the ability to generate power on a distributed basis and enables rapid capacity addition with short lead times. Off-grid decentralized and low-temperature applications will be advantageous from a rural electrification perspective and meeting other energy needs for power and heating and cooling in both rural and urban areas. The constraint on scalability will be the availability of space, since in all current applications, solar power is space intensive. In addition, without effective storage, solar power is characterized by a high degree of variability. In India, this would be particularly true in the monsoon season. 3. Environmental impact: Solar energy is environmentally friendly, as it has zero emissions while generating electricity or heat. 4. Security of source: From an energy security perspective, solar is the most secure of all sources, since it is abundantly available. Theoretically, a small fraction of the total incident solar energy (if captured effectively) can meet the entire countrys power requirements. It is also clear that given the large proportion of poor and energy un-served population in the country, every effort needs to be made to exploit the relatively abundant sources of energy available to the country. While, today, domestic coal based power generation is the cheapest electricity source, future scenarios suggest that this could well change. Already, faced with crippling electricity shortages, price of electricity traded internally, touched Rs 7 per unit for base loads and around Rs 8.50 per unit during peak periods. The situation will also change, as the country moves towards imported coal to meet its energy demand. The price of power

will have to factor in the availability of coal in international markets and the cost of developing import infrastructure. It is also evident that as the cost of environmental degradation is factored into the mining of coal, as it must, the price of this raw material will increase. In the situation of energy shortages, the country is increasing the use of diesel-based electricity, which is both expensive costs as high as Rs 15 per unit - and polluting. It is in this situation the solar imperative is both urgent and feasible to enable the country to meet long-term energy needs. [Source: The National Solar Mission - a major initiative of the Government of India and State Governments under the brand name Solar India.]