No Country for Small Solar: Just Ask Arul

solar panels on a foggy day
The Ken
Tamil Nadu, India
No Country for Small Solar: Just Ask Arul

A few days ago, the kind folks at Earth Journalism network took me and a few other reporters to a workshop where we met experts and discussed the challenges and opportunities facing RE in the country. One of the most interesting parts of this program was visiting solar and wind power plants and speaking to people on the ground. 

Here's where I met Arul Balan — a longtime RE executive and small RE producer — who isn't particularly happy with how things have panned out. I hope you find this story as fascinating (albeit upsetting) as I did. 

Clean energy dream

Arul hails from Tirunelveli in Tamil Nadu, just 20 kilometers from the southernmost tip of the country. And he's always worked in the RE sector — his first full-time job was as a project manager for NEPC India, one of the country's first wind turbine manufacturers. 

In the three years since, Arul has worked at multiple RE companies, including big names like Vestas and Siemens Gamesa. 

The Tirunelveli and neighboring Kanyakumari districts are hotspots for RE development. There is ample land, much of which has lost its agricultural utility, Arul says, and multiple RE projects have flourished. On our way to Arul's project in Tirunelveli, we passed through hundreds, if not thousands of acres of wind energy projects. 

They're there for a reason. Tamil Nadu embraced RE projects as early as 1993. First wind power, and then, as the economy become more viable, solar. But its RE policies have left much to be desired. 

Just ask Arul.

In 2017, he set up his own company — SML Energy. He wanted to set up small RE projects, but found no takers for the power. Odd, you might think, considering the surfeit of RE projects dotting the Tirunelveli landscape. 

But, Arul says, he wanted to do things the right way, which meant a higher project cost.

Arul secured a client once he had set up an EPC (engineering, procurement and construction) arm — CALS Renewable Energy India — which meant he could offer a single-stop solution.

But the going hasn't been easy.

Stellar cash burn

Arul is a local; he knew which people would be happy to sell as farming became unviable. But he still spends Rs 8 lakh, (US$8,8775) per acre for the land, and he needed four acres to set up at 1MW project. Due to more advanced, automated cleaning methods, solar projects in the West and China only take 2.9 acres per MW.  

Then came the solar panels themselves. Indian-made panels are cheap, but inefficient. Which perhaps explains why almost all of the GW capacity of India’s panel manufacturers is exported to poorer countries. Chinese panels, on the other hand, have a good trade-off between cost and efficiency; they make up almost 95% of the industry estimates.

But Arul didn't stint. Wanting better efficiency, he opted for German-made panels instead. That cost Rs 2.2 crore ($US410,000), with an additional 18% in GST. Import duties would have gutted another 40%, but the government has given a tax holiday to solar energy platers for the time being. 

Another Rs lakh ($US 56,000) went to the government for transmission and maintenance charges, billed as 'line development charges.' That was a one-time cost. But due to the high loss of power during transmission, an additional Rs 1.25 (1.6 US cents) per unit is levied as transmission cost.

And lastly, there's labor for project maintenance—cleaning panels, fixing electrical issues, etc. At an average of Rs 10,000 (US$125) per month per work, Arul wanted to give employment to local people who stayed around the project. This takes the total project maintenance cost to Rs 5 lakh (US$6,250) a year.

Things are different for the big fish, though.

Big EPC companies provide the same project maintenance services at Rs 2 lakh (US$2,500) a year per MW by bringing in cheaper labor from other parts of the country, says Arul.

Smaller players also have to run pillar to post to get multiple clearances—from the District Rural Development Agency (DRDA) to the nearest major airport, even if the closest one is some four hours away by road. Arul tells me bigger companies get their clearances in bulk using a fair bit of lobbying at both the central (Central Electricity Authority) and state (Tamil Nadu Electricity Board) levels — something he can't afford.

And finally, if you need to borrow, Indian banks offer loans at roughly 12% interest to fulfill RE projects. Bigger independent power producers (IPP) can get the same cash from foreign banks at a measly 5% interest by showing they are an EST-positive business.

No country for small solar

When you speak to Arul, his passion for sustainable energy is palpable. He is equal parts agitated and upset.

"We have so much scope. And then, comes policy," he rues.

The system is geared against small producers like him every step of the way, and has been for more than a decade, he tells me. 

Until about 2010, RE power producers had just one recourse when it came to transmission infrastructure: the state power distribution company, or discom. Discoms helped with the transmission of power from the project to the main grid by constructing substations; power producers paid the discom an 'infrastructure development charge.'

However, government entities couldn't keep up with the rapid progress. So private original equipment manufacturers (OEMs) started constructing the substations themselves (in addition to the blades, turbines, etc) and passing on the costs to the developers.

This arrangement worked for all involved. except, the "all" in question here were all multi-billion dollar entities — IPPs that were taking on government projects worth hundreds of megawatts, such as the Nasdaq-listed Renew Power and Suzlon. Softbank's SB Energy was in the picture for a hot minute, and of late, the Adanis and Reliances have also entered the fray.

Such developers only cared about two things: scale and IRR (internal rate of return). And sure, they had every right to do so. They have the money, they call the shots, right?

But it left those who didn't have much money in the pits.

In Tamil Nadu, a substation can't be placed more than five kilometers from the project site. Which meant smaller players had to set up their own substations. The cost of constructing one is roughly Rs 12 lakh (US$16,300) a month, although this can be split between nearby power producers if there are any. And by law, the entire project has to be wrapped up in 18 months, though extensions aren't rare.

As of January 2022, Tamil Nadu had an installed solar power capacity of close to 4,900 MW. A lot of that comes from big power producers, but many small players such as Arul are still in the mix.

But that may not be true for long if things carry on as they are.

"Soon, there will only be the big names," he tells me, "For us people dealing in megawatts, it isn't a sustainable business model."

Shashwat Mohanty produced this story at Earth Journalism Network's Renewable Energy workshop in Kanyakumari, Tamil Nadu. It was originally published in The Ken on July 27, 2022. It has been lightly edited for length and clarity.

Banner image: Solar panels on a foggy day / Credit: Shashwat Mohanty.

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