The cumulative solar PV market potential by 2016-17 could be around 12,500 MW Currently, solar power at around INR 8 per unit is already cheaper than diesel or RLNG based power generation

Rapid fall in solar prices and increase in cost of conventional power driven by fuel shortages has brought 'grid-parity' closer, which is expected to happen at a broad scale level by 2017 in India, according to the report. KPMG in India through its latest Thought Leadership "The Rising Sun", reveals that the rooftop solar power will see parity faster with utility tariffs due to high T&D losses and cross-subsidies present today and parity in many categories can emerge as early as 2014. For this segment, the solar lease model could become a game-changer.

"Solar power technology can help India leapfrog in the energy sector as we are in a unique position in time when solar power costs are becoming competitive with alternate sources at a time when our energy requirement is going to grow two times over the next decade. The analogy is similar to what happened in the telecom sector where cellular technology helped us rapidly meet our demand for communication services," says Santosh Kamath, Partner, KPMG in India.

This year, KPMG in India's report - The Rising Sun- 2012 focuses on the solar cost trends and looks at segments of the market, which are most suitable for adoption of solar power within the coming years. Given the financial position of the power utilities, we believe that rooftop market for customer segments that already see parity with utility power tariffs has the potential to be a game changer in the coming five years.

"Given the issues of fuel shortages and import dependence of the energy sector, solar power should be given a significant strategic thrust by the Government. The National Solar Mission (NSM) has made a good beginning. The momentum should be sustained if the investments made by the country in the last few years are to give the full benefit," says Arvind Mahajan, Partner, Head of Energy and Natural Resources vertical at KPMG in India. The State Governments, utilities and Regulators should encourage solar power to realize its potential by providing critical enablers such as net metering infrastructure, energy banking facility and developing an ecosystem for rooftop market installation.

Grid Parity

The first edition of the report released in May 2011, forecasted utility-scale grid parity in the timeframe of 2017-2019 for India. Our study this year reveals that it is likely to occur at an earlier end of that range and thus solar power presents a potential disruptive change in the country's energy scenario. This could help India leapfrog the energy technology space, and enable solar power to make a meaningful and substantive contribution to our energy scene by the end of this decade.

Rooftop Market

Today, Germany has total solar PV installations of around 28 GW and over 80 per cent of the market share is contributed by solar rooftop systems. The report outlines that the rooftop market for customer segments that already see parity with utility power tariffs has the potential to be a game changer in the coming five years for India. Leasing solutions can help accelerate this market.

For example, a high-end residential consumer can install a 1 kW solar PV system - to reduce marginal power consumption - with a monthly EMI payment of around Rs 2000 for five (5) years and avoid an average discounted monthly payment of around Rs 1200 over the lifetime (25 years) to the grid. Similarly, a ten (10) year EMI would result in an outgo of only 1200 per month equal to the average discounted power cost savings over the 25 year lifetime of the asset.

This study by KPMG in India analyses different market segments with an estimated market potential for Solar PV power by 2016-17.

• Rooftop Market ~ 4,000 MW (fast approaching grid parity)
• Diesel Replacement ~ 2,000 MW (driven by economics)
• Captive and REC Market ~ 2,500 MW (driven by solar renewable purchase obligations and accelerated depreciation market - shifting demand from wind power), and
• Government Support Utility Scale Market ~ 4,000 MW (Phase-II program of Central Government and State solar programs).

As per the report, 'The Rising Sun', one of the biggest drivers of increasing solar installations has been the precipitous fall of module prices thereby encouraging forecasts of early grid parity; while at the same time, this has raised concerns about the health of manufacturing sector and sustainability of the cost reductions.

The National Solar Mission (NSM) has triggered the development of solar ecosystem capacity in India in the last two years. India's solar capacity has grown from less than 20 MW to more than 1,000 MW in the last two years. KPMG in India recommends that this initiative should be addressed by supporting solar power in the next five years to nurture the 'green shoots' that have emerged in the ecosystem and set the platform for solar power to play an important role in meeting the energy security and clean energy considerations of India. The Government should keep the momentum going by providing sufficient clarity on the market, announcing the next phase of the NSM quickly and addressing some regulatory issues which can open up the private contracts market.

The report highlights some of the key enabling measures for the Solar PV market.

• Provide market certainty and stability in the near term: A sudden withdrawal of market support can hinder this sector's growth. Thus, the next round of central program should be announced quickly so as to enable continuous growth.
• Share National Clean Energy Fund (NCEF) with State Governments: A direct subsidy from this fund can be provided to states that meet certain targets in encouraging solar power. This financial assistance can help States support solar power and mitigate payment security concerns.
• Promote retail participation in REC trade: The Renewable Energy Certificate (REC) market provides an alternate market option today for renewable energy producers. By enabling access for retail and off-grid consumers - the adoption of solar power can be increased substantially.
• Promote 'private contracts' solar power market: State Governments and Regulators can encourage deployment by providing the necessary infrastructural support, appropriate regulations such as 'banking facility' or 'net metering' facility that allow commercial viability for power.
• Consider providing a partial risk guarantee mechanism: Financing related costs can contribute as much as 45 per cent of the total cost of solar power. It is encouraging to see dollar denominated funding flowing into the sector. However, the recent volatility in the currency movements will raise the cost of such financing. A partial risk guarantee fund can be created by the Central Government to mitigate this risk
• Creation of Solar Sector Focused Manufacturing and Investment Zones: Government of India has proposed the creation of a number of National Manufacturing & Investment Zones (NMIZ) to boost growth of manufacturing sector in India. Government should consider developing solar industry focused manufacturing and investment zones to encourage investments in this clean source of energy.

KPMG in India is the Indian member firm of KPMG International and was established in September 1993. It strives to provide rapid, performance-based, industry-focused and technology-enabled services, which reflect a shared knowledge of global and local industries and its experience of the Indian business environment. KPMG in India provides services to over 2,700 international and national clients in India and has offices in Mumbai, Delhi, Bangalore, Chennai, Hyderabad, Kolkata, Chandigarh, Ahmadabad, Pune and Kochi.

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