The Formula to Fuel Energy Growth: Sun and Scale

Wall Street Journal 2010-03-03

Recognized for their leadership in the Renewable Energy marketplace, Ameet Shah and Sourabh Sen, Co-Chairmen of Astonfield Renewable Resources, have been invited as guest columnists for the Wall Street Journal Blog, India Chief Mentor.

By Ameet Shah and Sourabh Sen

Over the past five years, India’s renewable energy sector has matured significantly. In this context we are aften asked about our endurance and many things spring to mind, including supportive families, top educational programs, and wise mentors. But in countries like India and Kenya, where the two of us were raised, we must first tip our hats and give thanks that we had a light to study by at night and a fan to keep us cool and focused. Truly this was our first competitive edge, because for hundreds of millions of our fellow countrymen, the crippling lack of electricity keeps countless bright minds in the dark.

Renewable energy’s greatest promise lies in addressing this crisis. But the path to creating a viable, large scale renewables sector in any country is marked by two major hurdles: policy and cost. To secure funding, project developers must sign power purchase agreements backed by strong government policies, while simultaneously minimizing systems cost. The German solar case study is an example of what can happen when both hurdles are successfully cleared; their “Erneuerbare-Energien-Gesetz? feed-in-tariff policy coupled with technological innovation has allowed Germany to become the world’s largest solar sector, with annual revenues well in excess of 7 billion Euros. India’s renewables potential is much larger, but these hurdles must be approached with a keen understanding of the Indian landscape.

This begins with the right policy setting. With more than 500 million citizens (about 1.5 times the population of the US) who lack electricity and live in poverty, “going green? is simply not at the top of the Indian government’s to do list. To get the earnest attention of India’s leadership, you need to focus on renewable energy not as an approach to combating climate change globally, but as a crucial driver of sustainable development at home. While India lacks significant oil deposits, it does have an abundant amount of another vital fuel: Sun. India has some of the best (and, currently, underutilized) solar radiation levels in the world. And since solar plants can be erected directly adjacent to distributed population centers, it is ideally suited to electrify India’s massive, scattered populace.

Educating leaders at all levels on the potential for solar to help drive target GDP growth of 8-9% and on the policy framework required to meet those targets has to be a key part of an organization’s approach in this sector. On November 23rd, 2009, the Government of India announced the Jawaharlal Nehru National Solar Mission, targeting 20,000MW of installed solar power by 2022. Structured with bankable power purchase agreements via AAA-rated NTPC and backed by a dedicated Central budget, the Mission is well positioned to deliver on India’s solar potential while driving costs swiftly to grid parity and below.

But these public policies will not be enough. To ensure widespread electrification in an affordable and sustainable manner, the private sector must lower costs. Astonfield recognized this need upon our founding and focused on addressing it through another one of India’s vast resources: Scale. In most sectors, the Indian market is severely price constrained given its developing nature; however, what it lacks in margins it can more than make up for in volume.

Focusing on capturing this scale opportunity, can help to systematically build a large portfolio of government solar concessions in India. By leveraging this pipeline, we have been able to work with leading global technology providers to exchange margin for volume in order to meet Indian cost requirements.

As the sector continues to mature, there will be countless opportunities for savvy, determined entrepreneurs to participate and help drive growth. In whichever renewables sector they choose to focus, the first step will be to ensure the twin hurdles of policy and cost are cleared.

That said the challenge of curbing climate change will need to be a global effort, largely supported by the developed world. India has set the stage for an unprecedented deployment of solar energy, but also has pinpointed what a program such as this will cost: a cool 100 billion Euros.

Ameet Shah and Sourabh Sen are Co-Chairmen and Directors at Astonfield based in New York with offices in New Delhi, Mumbai and Kolkata.