The government has several schemes supporting and subsidizing various kinds of solar power systems.The emphasis is on encouraging manufacturing and industry rather than on installations as solar PV manufacturing is capital intensive.

Through the special incentive package scheme, the government offers capital subsidies to state-of-the-art semiconductor manufacturing and related units, including solar PV. Eligible semiconductor “fab” projects must have a net present value of at least Rs 2,500 crore. The subsidy available is 25 per cent of the capital expenditure; it is 20 per cent for projects in a special economic zone. The response was good. “Most of the manufacturers who have applied under the scheme want to invest in photovoltaic technology. Proposals roughly worth Rs 1,40,000 crore from 14 manufacturers are lying with the ministry of which 12 are photovoltaic manufacturers” said K S Chari, director in the Union Ministry of Communications and Information Technology, the nodal ministry. Most of the proposals have been forwarded to a technical evaluation committee and decision is expected “shortly”.

The recently announced feed-in-tariff incentive scheme of MNRE has also sparked considerable interest. The scheme is aimed at encouraging a small number of megawatt-level projects. Under the scheme, the project developer makes a power purchase agreement (PPA) with the state utility at the highest existing market rate. The MNRE, through the Indian Renewable Energy Development Agency (IREDA), augments this rate, to a maximum of Rs 15 per kWh. The maximum supplement incentive from MNRE is restricted to Rs 12 per kWh. This will be reduced by 5 per cent for projects commissioned from the beginning of 2010 onwards. The supplement is available for up to 10 years. Till June the ministry received applications to set up PV plants totalling 2000 mw. The proposals are currently being scrutinized.

Globally, solar pv projects are being installed in large numbers each year. In 2007, more than 2,260 mw of pv capacity was installed, an increase of more than 50 per cent over the previous year. This brought the total installed capacity to 7,800 mw. About three-fourths of the total solar pv capacity was installed in Germany and Spain alone. If Japan and the us are also included, then over 90 per cent of pv installations in 2007 occurred in four countries.

Germany Powering ahead
Germany currently accounts for about half of the world’s installed solar power capacity—3,862 mw. This growth happened due to its market support measures promoting grid-connected rooftop systems and large pv power plants.

Germany’s innovative feed-in tariff (fit) scheme has been the main driver for the solar market. The German fit scheme, governed by the country’s Renewable Energy Sources Act (EEG) guarantees generous fixed rates for all solar pv electricity generated for 20 years from completion of the project. An important feature is that the rate guaranteed for new projects decreases every year—currently by 5 per cent but this is set to increase in 2009.

The decrease in tariff is part of the policy package as it works to push manufacturers to reduce costs and to increase efficiency of their systems. This tariff reduction encourages industry to develop cheaper, more efficient systems and to lower installation costs. The precise rates given depend on the system size and location.

In 2008 they stand as shown in Table 2.
The fit scheme is backed by favourable loans from KfW, a government-owned financial institution. Loans are provided in collaboration with individual banks; interest rates are dependent on credit ratings and the value of collateral, starting at 4.63 per cent. The programme as a whole has created a very large consumer base for solar pv in Germany. This, along with special financial incentives packages for manufacturing in certain regions and funding for research, has helped to create a flourishing pv production industry in Germany.

Critics of the German scheme say it is too generous—the cost to energy consumers is too high and the use of such an expensive technology in a country with relatively low sunlight hours is inefficient. However, on the whole, it is estimated that the fit programme is responsible for an increase of €1.01 in monthly household electricity bills.

Leading the charge: California

California was the first state to introduce feed-in remuneration. Its tightly restricted feed-in programme will supply the development of up to 480 mw of total generating capacity (roughly equivalent to a small coal based power station). In all cases, feed-in contracts for 10-20 years can be entered only for installations up to 1.5 mw capacity and the range from us 8-31 cents per kWh, depending on the time the power is delivered—peak consumption time, winter or summer. As a result of this policy directive, the two big power utilities of the state—Southern California Edison and Pacific Gas and Electric Company have signed power purchase agreements—for 245 mw with eSolar and 500 mw with Bright Source, respectively. In 2007 around 70 per cent of all pv installations in the us were in California, which aims to install 3,000 mw in the next 10 years.
The California Solar Initiative provides two kinds of financial incentive depending on the system size. Systems under 50 kW are eligible for the expected performance based buy-down, a one time, up-front payment. The size of the payment is calculated from the estimated output of the system, based on rated capacity, but also an assessment of the quality of the installation, including geographical factors such as location, tilt and shading. Systems over 50 kW can receive the feed-in-tariff. For both payment methods, the rates applicable are linked to the cumulative capacity installed under the scheme, reducing in 10 steps as capacity increases.

India’s solar future

Harnessing power from the sun is one of the biggest answers to challenges of energy security and climate change. Both solar thermal and photovoltaic will play a key role in addressing energy needs of the future. It is clear that the biggest challenge is to bring down the costs of solar pv— by cutting costs or by increasing efficiency.
The government has shown commitment but implementation and the nature of schemes have been found wanting. Take for instance, the heaters promotion scheme. “The problem with such schemes is that it comes through dealers designated by the government so it is difficult to trust the quality mostly,” said Mathew Kochu SJ, director of Xavier’s Institute of Technology in Mehsana district of Gujarat, who have installed solar heaters and lights in their entire institute. A national level certification and labelling programme is a must to ensure quality and performance.
Once this is done laws and regulations like changes in building bylaws making it compulsory to install both solar thermal and pv features are the kind of reforms the sector needs. “Like Europe and the us, we should make at least two to three per cent contribution from solar generation mandatory. Then, policy-making on the same will become faster,” said an ireda official.

Finances and the limited technical know-how remain the key barriers for the solar projects in India. Innovations are needed to make solar projects financially and technologically feasible. A hybrid system or a system with high fossil fuel back-up, along with increased government technical and financial support and incentives, facilitation of technology transfer, will increase the market interest in csp technology.

The Indian government has announced a generation-based incentive scheme. It is even considering ramping up solar generation to 20,000 mw. But finances will remain a big issue. The feed-in (or preferential) tariff provides an incentive to set up the plant, but it also puts a huge burden on the exchequer. This is why governments only extend the high tariff incentives in a restricted capacity. India’s solar programme must therefore be able to source new funds—through a programmatic cdm— instead of each project applying separately for cdm. The government can collect all the carbon credits from solar projects and sell it collectively in addition to securing international finances to pay for national mitigation actions.
The money generated from selling carbon credits can then be used to fund feed-in-tariff schemes and reduce the subsidy. Reducing or even eliminating import duties, will reduce indirect costs and ease technology transfer from countries such as Germany, the us and Israel—the world leaders in technology. Its strong engineering and manufacturing foundation will surely allow India to become a leader in solar technologies in the future. After all, a massively scaled up solar programme is good for India. It is good for the world.

With inputs from Ravleen Kaur and Arnab Pratim Dutta

The trade talks at the World Trade Organization headquarters in Geneva collapsed in the last week of July. The Union minister for Commerce, Kamal Nath, said India would not accede to the demands of developed countries at the cost of Indian farmers. Nath seems to have become a hero in many quarters in the country and in other developing countries—and a villain amongst developed countries for allegedly scuttling free trade negotiations. But in reality, he has virtually complied with all conditions of the wto agriculture text, including almost zero farm subsidy reduction by developed countries. And the talks actually collapsed because the us did not want to make any commitment to cut massive subsidies to cotton growers.

India had three main demands before the commencement of the meet. It wanted reduction in subsidies to farmers in developed countries and increase in the number of special products—items on which developing countries have flexibility to raise import tariff because these items are important for food, livelihood security and rural development. India also wanted a simplified Special Safeguard Mechanism (ssm) that would allow developing countries to raise tariffs to protect farmers from surging imports. But at Geneva, India did not raise the first two issues at all. The issue of ssm was stonewalled by the us.

The real spoilsport

On the eighth day of the ministerial, the European Union brokered a proposal on ssms. The proposal said that developing countries could hike import duties/ tariffs to any level, if they could prove, in 60 days, that glut in imports or fall in prices of imported goods is inimical to domestic livelihoods, food security and rural development. The draft circulated before the meet talked of limits on hikes in import duties.

Six of the G-7 countries including China and India agreed to the proposal but the us blocked it. US trade representative Susan Schwab said ssms in the present form “were very protective for developing countries and could not be accepted”.

“This was an excuse because if all countries had agreed to the us proposal, the next issue on the agenda would have been cotton subsidies which the us wanted to evade”

said Bhaskar Goswami of the Delhi-based think tank Forum for Biotechnology and Food Security.

“In 2007, the us doles out three billion dollars as cotton subsidy. This came down to one billion in 2008 because 38 per cent of land under cotton had been diverted to corn and other bio-fuel crops. At Geneva, the us would have been asked to cut down the subsidy by 70 per cent and that would have created trouble in an election year,” Goswami explained.

The us has already lost a wto dispute on cotton subsidies. “In 2003, it was criticized for protecting its 20,000 cotton growers impoverishing millions of cotton growers in the four African countries—Benin, Burkina Faso, Mali and Chad. The impact has been also borne by Indian cotton farmers who were priced out and committed suicide under pressure of heavy loans,” said Devinder Sharma who is also affiliated with the same think tank.

Withdraw

Meanwhile, farm movements in India are demanding complete exclusion of agriculture from WTO talks.

“Developed countries want to protect their agriculture though heavy subsidies and high tariff barriers and at the same time want access for their products in the developing countries. There can be no agreement unless the developed world drastically changes its attitude. So we believe that wto has become ineffective and needs to be wind up,”

said Krishan Bir Chaudhary, the president of the nationwide farmers’ organization Bharat Krishak Samaj.

“Free market will only lead to more suicides. We have to be completely self-reliant in agriculture and food and not accede to the will of multi-national companies,” said Chukki Nanjunda swamy of another farmers’ organization Karnataka Rajya Raitha Sangha, a farm organization.

The fact that wto director general Pascal Lamy has cut short his autumn break and is visiting India on August 10-12 and the us soon after shows how desperate he is to conclude the Doha Development Round which began in 2001. The talks might restart in September.

Farmers’ associations all over India were holding protests demanding exclusion of agriculture as an agenda in the World Trade Organization (wto) talks, even as the organization’s mini-ministerial debated ways to secure “meaningful market access in agriculture, manufacturing and services”. At the time this magazine went to press, farmers’ groups were apprehensive that the Union minister for commerce might sign a deal at this meet in Geneva allowing the entry of cheap agricultural products from the developed world. “That would be the last nail in the coffin of small farming in India,” said Sheelu Francis of the Tamil Nadu Women’s Collective, an organization representing over a lakh agriculture workers in the state.

The draft for negotiations for the Geneva ministerial—the third draft on the matter—did not accede to most demands of developing countries, the principal one being substantial cuts in subsidies offered to farmers in the us and European Union. These subsidies end up lowering prices of agricultural products in the developed countries below the production cost of farmers in developing countries, giving the former unfair market advantage.

At the time this magazine went to press, the us had made an offer to reduce its permissible subsidies to US $ 15 billion—it had offered 16.4 billion last year. Washington is currently allowed to distribute more than US $48 billion in subsidies under wto’s agreement on agriculture, yes, US $48 billion. But the actual subsidies given to farmers in the us are only about US $7 billion. So the subsidy proposed at Geneva actually gives us the leeway to increase its actual subsidies—not an unlikely possibility given the recent hike in food prices.

There were more strings. The developing countries have to facilitate non-agricultural product market access. Union commerce minister Kamal Nath is not totally averse to the idea. But he also added,

“I hope the proposed subsidy cut is only their opening gambit and not their bottom-line. The subsidy cut really makes no substantial impact.”

“The Prime Minister thinks we should close this issue but unless India’s interests are met, we should not move forward,” Nath said on July 17 before leaving for Geneva. This statement has made farmers’ movements apprehensive that India might end up signing the agreement on agriculture at the mini-ministerial without any major changes.

“The minister seems keen to sign the Doha agreement of the wto when he says that it should be finalized soon. This when the Indian government knows that the us Farms’ Bill, 2008, promises up to us $ 307 billion in subsidies to farmers over the next five years,”

says Yudhveer Singh of the Indian Coordination Committee of Farmers’ Movement, New Delhi.

The Geneva meet is the latest in the Doha Round of wto negotiations—named after the venue of its first meet. The talks, which began in the Qatari capital in 2001, aim to slash subsidies and other barriers to trade “to help reduce poverty and spur economic growth in developing countries”.

According to wto’s categories, there are three kinds of subsidies of which only one is considered to distort production and trade, the Amber Box. With developing countries pressuring the developed countries to cut down on Amber Box subsidies, many subsidies have been move to the Green Box category—deemed as not trade distorting—and the Blue Box—trade distorting but permitted with certain conditions. Over 80 per cent subsidies are in the green and the blue box.

Singh put the reclassification in perspective.

“I asked farmers in Switzerland, if subsidies were cut down there. I was told that the same subsidy that was being given in the name of agriculture yesterday, comes in the name of environment now,”

he said. Bhaskar Goswami of the Delhi-based collective of scientists, policy makers and farmers, Forum for Biotechnology and Food Security offered further explanation.

“Countries are allowed to dole out subsidies to their farmers for food security. This is a Green Box subsidy. The us and the eu give out subsidies for cereals, oilseeds and pulses in the name of food security. But 60 per cent of all this is fed to dairy animals. So a subsidy given in the name of food security becomes trade distorting,”

he said.The latest text talks about disciplining such Green Box subsidies. “But there are no specifics as to how they will be disciplined. So this seems to be hogwash,” Goswami said.

In fact, if the draft for the Geneva ministerial is an indicator, some pro-developing country mechanisms of the wto could be on their way out. Amongst them is Special Safeguards Mechanism (ssms), which allows developing countries to protect their producers from losing out to imported products. Whenever a developing country faces a sudden surge in imports or a depression in domestic price beyond a given threshold, it can invoke ssms and slap additional import duties to protect its market. The new text, however, mentions that the tariff allowed under ssm cannot exceed the pre-Doha round level—they were very low then. Even Nath expressed disappointment at the new ssm rules in Geneva. “Are we expected to stand by, see a surge in imports and do nothing?” he asked in his speech on July 23. Negotiations were on when this magazine went to press.