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Solar in India is growing at a fat clip.

With many states already in the fray for increasing their energy capacities, the possibilities for solar investments seems limitless.

Unlike in wind power, in which some states have much higher potential than others, there are many states with equivalent potential in solar. But, as always, even in societies where everyone is equal, some are more equal than others.

In solar too, some states are more attractive than others, at lease from the short and medium term investor view point. These are states in which, in addition to good solar radiation potential, proactive government policies and a few other related aspects make them attractive.

This analysis by Solar Mango, discussing the top 5 states for solar energy investments in India, is mostly with regard to MW Scale Solar Power Plants rather than rooftop solar.

What are the factors that drive solar energy investments in India?

The prime reason for the focus on solar is that it is approaching grid parity. For instance, for the 1-5 MW scale solar projects, the LCOE (levelized cost of energy) has is about Rs 5.5/kWh. For power plants that are 50 MW and above, the LCOE has gone below Rs 5/kWh. Solar grid parity can be considered a significant inflection point, as it signals that from now on, investments going into power might as well go into solar instead of into conventional power.

The next big factor is the power shortage in most states. Apart from the western and eastern grids, there is a power deficit in most parts of the country. This deficit being the highest in the southern states, solar brings along a great promise of energy security at lower costs. States like Karnataka, AP and Telangana are already witnessing the change.

Then, of course, there is the factor of land availability. Solar plants require an area of around 5 acres per MW. Due to this, states like Madhya Pradesh and Rajasthan are witnessing foreign investments pouring in from all directions as land availability in large tracts is much less of a concern in these states than it is in some other.

Criteria for determining the best solar states

Three vital factors are considered in basing this evaluation.

• Solar Irradiation

Irradiance, which is a measure of solar energy falling on the earth’s surface per unit area over a period, is a decisive factor in the selection. It is measured in kWh/day. Some states have higher radiation compared to others. For example, Rajasthan, Gujarat and Madhya Pradesh have a higher irradiation level, with some parts receiving even up to  6.5 kWh/day.

• Policies/ Regulations

For the next few years at least, policies will be the most important driver of investments into the solar sector. States with more friendly and transparent policies will take the lion’s share of solar power investments.

Although most states have or are in the process of framing a solar policy, some states have solar-specific schemes and incentives which attract the common public to go solar. For example, Karnataka recently introduced the Land Owning Farmer’s Scheme for which the tariff rate is Rs 8.4/kWh and is considered very lucrative. Many states are currently easing regulations for setting up solar plants.

• Power Evacuation Infrastructure

Sometimes, due to ineffective system operation and grid management, there are significant losses during transmission and this problem is amplified in certain states resulting in the poor health of discoms.

Now let us look at top 5 states for solar energy investments, based on the above parameters among others.

1.    Karnataka

Karnataka has gained a lot of attention recently, mainly due to some of the attractive solar schemes the government has come up with. As mentioned before, the Karnataka Land Owning Farmer’s Scheme offers developers an opportunity to sell power at Rs 8.4/unit. There is also a rooftop scheme under BESCOM in Karnataka where solar power can be sold at a lucrative rate of Rs 9.56/unit on a net-metering basis.

On top of all this, things are getting in action for a 2000 MW solar park at Pavagada Taluk in Tumkur District. In fact, NTPC has already invited bids for construction of 750 MW in late Jan followed by a bid for 250 MW in early Feb.

Overall, I would rate this state as being the most attractive solar investment destination for 2016. Sure, things could be different in later years, but that is for later years!

2.    Madhya Pradesh

Madhya Pradesh, being the 2nd largest state and having large tracts of unused, undeveloped land, has seen growing interest in the solar sector. The Welspun Solar MP Project of 151 MW is one of the largest solar projects in the country. Recently, they even inked an agreement with IFC to build a 750 MW solar plant in Rewa.

While MP has not exactly been hitting the headlines as much as states such as Karnataka or AP, it has been making steady progress, and investors are more comfortable with the overall transparency of this state government, much more than they have been with state governments such as TN.

3.    Andhra Pradesh

Under the JNNSM, NTPC has successfully allocated hundreds of megawatts of projects in several large solar parks. SunEdison was allocated 500 MW under a historic low tariff of Rs 4.63/unit. This was followed by SB Energy (a JV between SoftBank, Foxconn and Bharthi Enterprises), surprisingly securing a tender for 350 MW for the same Rs 4.63/unit.

Since the new government (TDP) took over about 2 years back, things have been happening faster in this state. Most of the happenings so far have been through NTPC tenders for large scale power plants (and this is the state in which we heard about the hair raising Rs 4.63/kWh not once, but twice), but expect 2016 to ring in solar power allocations that will be of interest to the hoi polloi too.

4.   Gujarat

Without doubt, as in many other areas, Gujarat is a pioneer for solar energy in India. Their solar model is what other states look up to. Gujarat is to India what Germany is to the world. Not only does Gujarat have the first and largest solar park in India, the Charanka Solar Park, but they have also set examples with innovative endeavors like solar canal projects. With regard to installed capacity, they are slightly behind Rajasthan with close to 1 GW of installations.

Gujarat were the pioneers in solar, having a head start in 2011. But since then, they have lagged. They have a recent (2015) ambitious solar policy, but little really is happening on the ground. Being a power surplus state does not help much either in this context. I am hoping that in 2016, this state starts redoing some of the magic and climbs to a better spot in 2017.

5.    Rajasthan

Being the largest state in the country, there is a huge availability of unused land with the added appeal of irradiation levels. This was a key factor in the state receiving the maximum share of the JNNSM Phase-1 allocations with 873 MW out of 1100 MW. And under the second phase of JNNSM, 355 MW was allotted to Rajasthan out of 750 MW. In 2015, it was the first state to cross 1 GW solar capacity surpassing Gujarat as the new leader in solar power with approximately 1.2 GW capacity.

One of their highlights is the Bhadla solar park at Jodhpur being developed by Rajasthan Renewable Energy Corporation Limited (RREC). Big players like Adani Enterprises, Essel Infra Projects Ltd, Azure Power and Reliance Power have already committed to commissioning solar parks in the state.

Rajasthan has many things going for it, but it gets the fifth place in the ranking owing to the policy uncertainty. I have not seen effective, consistence and transparent policies in the state. Sure, central government (NTpC and SECI) allotments have happened and will continue to happen, but most of these allotments do not benefit the small-scale business investors. The state government keeps making announcements that are big and bold, but so far I have not seen much of these state government announcements actually convert into action on the field.

A state with good solar potential, but needs a better policy and implementation ecosystem.

Although, currently the above states seem to be attractive in general for solar in India, there are states like Punjab, Telangana and Maharashtra which are not far behind. In fact, these dynamics will keep changing over the next couple of years and will depend mostly on solar policies implemented by state governments.

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