Public Policies and Market Creation in

the Solar Energy Sector: The Case of

the Gandhinagar 5 MW Rooftop
Programme

Submitted by: Dhaval Vyas

School of Public Policy and Governance
Tata Institute of Social Sciences, Hyderabad
(A project report submitted in partial fulfilment of requirements for
the Degree of Master of Arts in Public Policy and Governance)

DECLARATION
I, Dhaval Vyas, hereby declare that this dissertation entitled Public Policy and Market
Creation in the Solar Energy Sector: The case of the Gandhinagar 5 MW Rooftop
Programme in Gujarat is the outcome of my own study undertaken under the guidance of
Dr. Chinmay Tumbe and Dr. Aseem Prakash, School of Public Policy and Governance, Tata
Institute of Social Sciences, Hyderabad. It has not previously formed the basis for the award of
any degree, diploma, or certificate of this Institute or of any other institute or university. I have
duly acknowledged all the sources used by me in the preparation of this dissertation.

23rd March 2016

Dhaval Vyas

CERTIFICATE
This is to certify that the dissertation entitled Public Policy and Market Creation in the
Solar Energy Sector: The case of the Gandhinagar 5 MW Rooftop Programme in
Gujarat is the record of the original work done by Dhaval Vyas under my guidance and
supervision. The results of the research presented in this dissertation/thesis have not previous ly
formed the basis for the award of any degree, diploma, or certificate of this Institute or any
other institute or university.

Date: 23th , March, 2016

Name of the guide: Dr. Chinmay Tumbe

Signature of the guide:

Designation: Assistant Professor

Centre: School of Public Policy and Governance

Name of the guide: Dr. Aseem Prakash

Signature of the guide:

Designation: Professor and Chairperson

Centre: School of Public Policy and Governance

II

ACKNOWLEDGEMENTS
This research would not have been completed without:
The respondent being the beneficiaries of Gandhinagar 5 MW rooftop program that formed
the part of the respondent interviewed and provided with their valuable response that helped to
understand the field better, it is also the responses and discussion undertaken with executive of
Azure Power and Sunedison that provided me with the data that I could use for the analysis of
the field findings.
Dr. Chinmay Tumbe and Dr. Aseem Prakash my research guides, for there immense support
and guidance during the whole process of doing this research. I thank them for being there
whenever I was struggling with the data and findings and helping me with all the requisite
literature and research tools appropriate from my thesis.
Dr. Omkar Jani and Mr. Akhilesh Magal of Gujarat Energy Research and Management institute
who guided me throughout the process of data collection and facilitated the process of data
collection by providing references.
Ms. Surabhi Rajagopal and Ms. Juhi Chatterjee of SELCO that helped me understand the solar
energy sector by allowing me to intern at the organization and provided their valuable guidance
during the process.
My Teachers in TISS, Hyderabad who have equipped me with knowledge and skills of doing
research, through classroom as well as field exposure as well as introducing me to literatures
that helped me build interpretations for the data findings of this study.
My Parents, who have been of great support especially during the fieldwork. I would have not
been able to efficiently finish the fieldwork without their motivation and help.

III

CONTENTS
Executive Summary ...................................................................................................................... 2
1. INTRODUCTION .................................................................................................................... 3
1.1 Literature review.................................................................................................................. 3
1.1.1 Introduction .................................................................................................................. 3
1.1.2 Need for Solar Energy Development ............................................................................... 5
1.1.3 Importance of policies for solar energy markets............................................................... 6
1.1.4 Barriers to the development of solar energy ..................................................................... 8
1.2 Literature Gap ..................................................................................................................... 9
1.3 Problem Statement ............................................................................................................... 9
1.4 Purpose Statement ............................................................................................................. 10
1.5 Research objectives............................................................................................................ 11
1.6 Methodology ..................................................................................................................... 11
1.7 Limitations of the study...................................................................................................... 12
1.8 Ethical Consideration ......................................................................................................... 12
2. Chapter on Findings ................................................................................................................ 14
2.1 CASE STUDY- 5 MW Gandhinagar rooftop program .......................................................... 14
2.1.1 Introduction ................................................................................................................ 14
2.1.2 Programme Details ...................................................................................................... 14
2.1.3 Project time-line .......................................................................................................... 16
2.1.3 Organizational Structure .............................................................................................. 17
2.2 Finding of the Case study ................................................................................................... 18
2.2.1 Brief ........................................................................................................................... 18
2.2.2 Analytical framework for stakeholder analysis ............................................................... 18
2.2.3 Finding and analysis .................................................................................................... 20
2.2.4 Conclusion .................................................................................................................. 26
2.3 Inference ........................................................................................................................... 27
3. CONCLUSION ...................................................................................................................... 29
3.1 Market Conceptualization ............................................................................................... 30
3.2 Epilogue ........................................................................................................................ 31
Works Cited ............................................................................................................................... 33

EXECUTIVE SUMMARY
For development of a nation whether economic or social, energy sector plays a crucial role.
India is in a phase of rapid economic development with an annual growth rate of 7.4% (Bank,
GDP Growth, 2014) which places it on 15th position among the fastest growing economies of
the world (Fund, 2015). Considering this, the energy demand is expected to rise by 3.1% from
2009 to 2035 more than double the world energy demand during the same period (Sun-Joo
Ahn, Understanding Energy Challenges in India, 2012). Additionally, India has its
international climatic obligations through treaties such as Kyoto Protocol and COP 21 and also
being a conscious member of global fraternity India is bound to generate power in a manner
that does not produce (or negligibly produce) greenhouse gases. It is well understood that
cities are place where the requirement of energy (through electricity and fuel for
transportation) is highest and thus they become a major source for greenhouse gas generatio n,
this establishes the need to provide green and clean power to urban spaces.
It is a well-established fact that solar energy is a socially viable source of power generation as
it guarantees power generation with least carbon footprints and provides a unique option of
decentralised energy generation for individual consumers; this also makes it a viable option for
fulfilling power needs of urban areas in a sustainable manner. However what is socially viable
might not be economically viable as well. Cost of generation of solar energy is high as
compared to the cost of thermal power. Therefore it is not yet economically feasible for
consumers to adopt solar power, and that is exactly where the need for the government to create
public policies to make investment in solar power attractive arises, which may reduce the per
unit cost of power generation and make it achieve grid parity through economies of scale.
One such public policy in India is the Gandhinagar Solar City Initiative under which a unique
Public Private Partnership (PPP) model was employed and 5 MW of rooftop solar installatio ns
were commissioned. The programme was successfully deployed under the PPP model, but
what led to the programmes success? How did the programme take care of the interest of each
of the stake holder involved in the model? What motivated the consumers to adopt these solar
installations? What was the institutional architecture of the policy that led to its successful
implementation? How did the programme impact the market creation for solar energy?
The research paper attempts to answer the above questions.

1. INTRODUCTION
Scarcity of energy production can prove to be a big hurdle for the economic development of a
nation, this is because that sources of energy for example electricity becomes a vital input for
undertaking manufacturing activities and thus it is crucial for industrial development of the
nation; and apart from manufacturing with increasing population the demand for electric ity
supply is on a constant rise. It is now that supply of power (electricity) has also become a basic
need for survival.
India being one of the fastest developing nations of the world, the requirement of continuo us
power supply to keep up the increasing growth rate is necessary but because of increasing
scarcity of conventional sources of energy like coal and gas and with the resultant pollutio n
that these sources emit, not only India but other countries in the world are switching to more
sustainable energy source for power generation.
In discussions on sustainable energy sources solar energy 1 emerges as one of the most
sustainable energy source as it does nearly no harm to the environment and is availab le
abundantly all over the world and thus it is possible to harness this source easily. But as agreed
by expert in the field of solar energy (Altenburg & Engelmeier, Boosting solar investment with
limited subsidies: Rent management, 2013), (Gevorg Sargsyan, 2011), (Atreyesh & Murthy,
2014) this technology is not yet competitive as against conventional sources of energy in terms
of cost of generation of power. Thus in order to make this socially acceptable source of energy
economical so that it can compete with other sources of energy in terms of price, it is necessary
to create a market for solar energy sector so as to attract investment in setting up power stations,
increasing R & D in the sector which will gradually bring down the cost of energy production.
For this it is necessary to create policies that promote solar energy and allow investors to reap
profits from solar power generation.
It is in the consecutive chapters of this dissertation that I attempt to establish the importance of
creation of market for solar energy and also the need of policies that promote the expansion of
market to further sustain and expand the solar energy market. For this I take the case of
Gandhinagar 5 MW rooftop initiative in the state of Gujarat and analyse the factors that led to
successful implementation of the programme and thus enabled creation of market by
conducting a stakeholders analysis.

1.1 LITERATURE REVIEW

1.1.1 INTRODUCTION
The acute energy scarcity that our nation faces hampers the growth of its industries slowing
down the economic progress (Swami Prakash Srivastava, 2013). Availability of uninterrup ted
supply of power becomes necessary not only for manufacturing but also for leading a
1

Solar energy is the energy coming from the sun in the form of solar radiation for heat or to generate electricity. (Ojha,
Gaur, Kumar, & Singh, 2014)

comfortable lifestyle. To ensure this the establishment of new power plants will require import
of highly volatile fossil fuel. For India it is important to develop renewable energy
infrastructure not only for better industrial growth and for better living standard, but also for
increasing its energy security, reduce the adverse impact on environment caused by polluting
economic and non-economic activities thereby lower its carbon emission, it can also lead to
achieving a balanced regional growth and also has a potential to place India among nations
with superior technologies (Gevorg Sargsyan, 2011).
Solar energy as a source of electricity generation can help achieve the above stated objectives.
Solar energy being a perennially available source of clean renewable energy it can be harnessed
using variety of technologies. India has tremendous potential for employing solar energy for
power generation which is around 5000 trillion kWh (kilowatt- hour) per year. India receives
an annual radiation of around 1200-1300 kWh per square meter and it is available for 250-300
days in a years. According to a study India can meet the entire nations power demand by
utilising an area of 3000 km2 which will comprise of only 0.1% of the total landmass by setting
up solar power generation infrastructure (Karan, K.Pandey, A.K.Jain, & Nandan, 2014).These
promising figures show a sign of the tremendous potential for harnessing solar energy.
The importance and benefits of using solar energy is established from above discussed points,
it is now important to establish a roadmap for the development of solar energy in India. There
are a range of barriers working against the development and deployment of solar energy in
India. The cost of setting up a solar powered electricity generation unit is high, along with this
the payback period for such an investment made in solar infrastructure are high as compared
to conventional technologies, both these issues combined make the per unit cost of power
generation through solar energy more than that of conventionally produced energy (Eisen,
2012). In order to reduce the per unit generation cost of solar energy it is important that a
competitive market for solar energy be created, which shall promote more research and
development thereby enhancing the efficiencies of solar technologies, the competitive market
shall also enjoy the benefits of economies of scale due to large scale generation, thus a
competitive solar energy market shall result in reduction of the per unit generation cost of solar
energy as the market players shall continuously compete with each other in term of generatio n
cost of electricity in order to acquire maximum market share. Thus the benefit of reduction in
the per unit generation cost than can be transferred to the final consumers. For establishing a
competitive market for solar energy it is necessary for the government to create policy rents 2
(Altenburg & Engelmeier, Boosting solar investment with limited subsidies: Rent
management, 2013) so as to attract investment into the sector. Rents as defined by the author
are the payments that the resource owner receives above the payment that he might receive for
the next best alternative (Altenburg & Engelmeier, Boosting solar investment with limited
subsidies: Rent management, 2013). Thus such policy rents which provide higher returns to
investor for the investment like preferential power generation, financial support, accelerated
depreciation, etc. can promote the market of solar energy.

Policy rents: Policies that provide a higher return for the resources of the investor in comparison of the
investment of resources elsewhere.

In the chapter of the review of literature I shall attempt to discuss in the first section the need
for the development of solar energy from the view point of it being an innovation for local
environmental protection, achieving the objective of energy security and regional developme nt,
in the next section the review shall focus on the need of government policies for the need of
market expansion for solar energy sector and the third and final section shall review articles
discussing the barriers for the development of solar energy market.
1.1.2 NEED FOR SOLAR ENERGY DEVELOPMENT
In the previous financial years India grew at an annual growth rate of 7.4% (Bank, GDP
Growth, 2014), increasing growth rate will also entail more demand for resources for economic
activities electricity being one of them. It not only the industries that have high demand for
electricity, with increasing urbanisation the demand for electricity for households is also
increasing (EfficientCarbon). The current power deficit as of January 2016 was 2.2% (Power,
2016), but this figure only applies to areas which are grid connected, according to the Integrated
Energy Policy report, 2006 more than 100,000 villages are still un-electrified and almost 400
million people are living without electricity supply (comission, 2006), it is also projected that
in order to meet the increasing demand the generation of electricity is required to be increased
by approximately 6 times of the current supply.
In India electricity is mostly generated from thermal power station (NITI-Aayog, 2014) where
coal is used as a source of power generation, this has two implications. First being the amount
of coal being used, according to the report of NITI Aayog the import of coal is expected to rise
to 45% by 2030 (NITI-Aayog, 2014) , as on February 2016 India has a total import of coal
worth 5 Million USD, this results in a hit to the countrys balance of payments. These fossil
fuel are already depleting and shall take thousands of years to regenerate on one hand, on the
other the volatile nature of these fossil fuel results in emission of polluting gases into the
atmosphere, the resultant emission of gases in atmosphere is a major contributor to climate
change, this has be described as the result of the greatest market failure by Sir Nicholas Stern3
(Benjamin, 2007). Thus India faces the problem of energy security, regional imbalance in term
of un-electrified as well as under electrified areas and the most important being the
environmental implications of production of electricity through thermal power (Gevorg
Sargsyan, 2011).
Considering the above highlighted problems of availability of electricity and generation of it
through less carbon emission are also the objectives of Indias energy policy. These two
objectives are also an issue in the current energy infrastructure where because of excess thermal
power production any of the above stated objective cannot be achieved with forgoing the
another (Sun-Joo Ahn, Understanding Energy Challenges in India: Policies, Players and Issues,
2012). Solar energy in this regard has potential to attain all these objectives. Attaining energy
security and regional balance in term of electricity supply is possible through large scale grid
3

"Climate change is a result of the greatest market failure the world has seen. The evidence on the seriousness of the risks
from inaction or delayed action is now overwhelming. We risk damages on a scale larger than the two world wars of the last
century. The problem is global and the response must be a collaboration on a global scale." Sir Nicholas Stern (Royal
Economic Society (RES) public lecture in M anchester) (Benjamin, 2007)

connected solar power plant and through net metering rooftop PV system or through standalone
off-grid PV systems (Ashwin Gambhir, 2012) respectively. Solar energy being a renewable
source of energy is perennially available and is also least polluting to the environment, thus
power generation through solar energy can help India to reduce expenditure incurred on import
of fossil fuel and also help the country to substantially reduce the levels of pollution. India
according to studies is located on a geographical location which is suitable for power
generation through solar energy and also India receives sunlight for around 250-300 days in a
years, along with this India has enough land mass available to set up solar power plant to
generate electricity (Karan, K.Pandey, A.K.Jain, & Nandan, 2014) (Sandeep Kumar Gupta,
2013). It is in order to achieve the above stated objectives it is necessary to develop solar energy
in India, which shall help India to diversify Indias energy generation portfolio.
1.1.3 IMPORTANCE OF POLICIES FOR SOLAR ENERGY MARKETS
The above section mentions the factors that substantiate the need for development of solar
energy in India, energy security, regional balance and environmental concerns being important
among them. In order to understand the importance of market development and need of market
promoting policies (vermani, 2004) it is first necessary to understand that problem that is
hampering the development of solar energy market. According to (Altenburg & Engelme ier,
Boosting solar investment with limited subsidies: Rent management, 2013) carbon efficie nt
technologies like solar energy could take a long time to become competitive in the market
place. Other studies like (Eisen, 2012), (Bank, Report on barriers for solar power developme nt
in India, 2010), (Sun-Joo Ahn, Understanding Energy Challenges in India: Policies, Players
and Issues, 2012) also argue about the high upfront cost of generation of power through solar
energy, thus this substantiates the fact. The solar energy sector has to function and compete
on the terms of energy infrastructure which is based around conventional energy sources
(Timilsina, Kurdgelashvili, & Narbel, 2011). The fiscal barriers in terms of the setup cost, cost
comparison in terms of conventional energy technologies which has more industry experience
as compared to solar energy sector creates an un-even playing field (Timilsina, Kurdgelashvili,
& Narbel, 2011). Another fiscal barrier as pointed out by (Ansari, Kharb, Luthra, S.L.Shimmi,
& S.Chatterji, 2013) is that because of high set up cost of solar installations and less effic ienc ies
of solar PV modules the payback period of these installation is high as compared to
conventional technologies and these payback periods differ with the location of the plant and
orientation of the modules. The conclusion that can be derived from the arguments presented
above is that though solar energy has potential to provide energy security, reduction in
environmental pollution and regional balance, there are barrier in term of cost of power
generation through solar energy, this means that the high upfront cost of setting up a solar
power plant, cost of acquiring land and other related costs, makes the solar energy market
unattractive for private players to invest in, this shall result into low levels of private investme nt
in the solar energy sector (Altenburg & Engelmeier, Boosting solar investment with limited
subsidies: Rent management, 2013) as the cost of power generated per unit shall not be
competitive to conventional technologies. Thus this creates a vicious circle, where due to high
financial burden the level of private investment in solar energy sector remains considerably
low, this does not allow the sector to get advantage of economies of scale (Sharma, Tiwari, &

Sood, 2011) which in turn does not let the prices go down and the circle comes back to low
levels of investments.
The issues of high set up cost of solar power plant and longer payback period makes investme nt
in solar sector unattractive not only for private players but also makes these projects unbankable and thereby the option of attaining finance from financial institution also becomes
narrower (Altenburg & Engelmeier, Boosting solar investment with limited subsidies: Rent
management, 2013). To tackle the issue of finance it becomes necessary to develop the solar
energy market, as the market grows the process of innovation shall also become market driven
and then promote the solar energy market furthermore, but the important outcome of the growth
of the market shall be that with more private players investing in the market the solar sector
shall achieve economies of scale which then will reduce the per unit production cost of solar
energy and thereby the cost of procuring power generated through solar energy shall also go
down and this will ultimately make solar energy competitive to other conventional sources of
energy enabling it to replace these conventional sources (Choudhary, Sadhu, & Chakraborty,
2014). According to (Altenburg & Engelmeier, Boosting solar investment with limited
subsidies: Rent management, 2013) the market for solar energy being an environme nta l
innovation shall take certain amount of time to develop and as a result of which its social
value for the present and future generation is not reflected in cost of generation (Altenburg &
Engelmeier, 2013, p. 867) (Stern, 2007). Thus there is need for public policies to promote the
solar energy market according to (Altenburg & Engelmeier, Boosting solar investment with
limited subsidies: Rent management, 2013) . It is necessary that policies must create rent to
attract private investment, as according to (Tollison, 1982, p.577) rents are payment[s] to a
resource owner above the amount his resources would command in their next best alternative
use. When the government create policies for the solar sector that creates rents as defined
above, it makes the market attractive for the investors this leading to more investments, this
entails mass production and deployment of innovative solar technologies at huge scale, with
industry gaining experience the producers shall reap the benefit of the learning in terms of
economies of scale (Altenburg & Engelmeier, Boosting solar investment with limited
subsidies: Rent management, 2013) and thus with time shall establish solar energy as a
competing source of power generation against the conventional sources.
For this it is necessary for the government to establish market creating and market
complimenting policies, the difference between the two is that market creating policies works
towards creation of policies for promotion of the market which in this context shall mean to
make solar sector attractive to investors and market complimenting policies shall works for
correcting the inherent weakness of the market thus enabling smooth functioning of the markets
(vermani, 2004). But it is important to understand that market promoting policies shall fail if
not complimented by necessary infrastructure, which means establishment of necessary
institutions that are equipped to implement policies that are being created to promote the market
(vermani, 2004). It is also necessary for the government to create policies for solar technologies
from the view point of the end user as well, in this case public policies in term of bench market
cost, capital and interest subsidies make application of solar technology financially viable for

the customer, this may help in achieving the objective of balanced regional growth in areas
which are not grid connected.
1.1.4 BARRIERS TO THE DEVE LOPMENT OF SOLAR ENE RGY
Solar energy is a socially acceptable environmental innovation, but its deployment and
development faces barriers. The literature available identifies a range of barriers that constrain
the deployment of solar energy (Karan, K.Pandey, A.K.Jain, & Nandan, 2014). It is since the
3rd five years plan that solar energy has got recognition, but it was only after 2009 when the
government declared the National Action Plan for Climate Change (NAPCC) and started the
Jawaharlal Nehru National Solar Mission (JNNSM) that solar energy sector got a boost. India
under JNNSM has an ambitious target of deploying 20 GW of solar energy in India (Kaushal,
Unni, Pant, & Venkataramani, 2003) but according to (Karan, K.Pandey, A.K.Jain, & Nandan,
2014) certain issues shall work as the road block for the development of solar energy. The
authors have categorised the barriers to the development of the solar energy sector, thus the
categories are technical barriers, policy barriers, socio-economic challenges and institutio na l
barriers (Karan, K.Pandey, A.K.Jain, & Nandan, 2014), this categorization is further
substantiated by (Ansari, Kharb, Luthra, S.L.Shimmi, & S.Chatterji, 2013) and (Choudhary,
Sadhu, & Chakraborty, 2014) in their respective literatures.
Under the aspect of technical barriers the main barriers are relating to the efficiency of the solar
module, storage and backup devices and unavailability of solar irradiation data according to
(Ansari, Kharb, Luthra, S.L.Shimmi, & S.Chatterji, 2013). According to (Blakers, et al., 2009)
the solar modules with flat plate crystalline Si cell modules have an efficiency of around 15%
i.e. the conversion rate from sunlight to electricity, this shall result in requirement of more
module for producing a certain amount of power generation which ultimately results in greater
cost. The sunlight falling on the earths surface differs according to geographic location,
earthsun movement, tilts of the earth's rotational axis and atmospheric attenuation due to
suspended particles. (Ansari, Kharb, Luthra, S.L.Shimmi, & S.Chatterji, 2013) According to
studies this data is scarcely available which add to the technical barriers. Other studies like
(Bank, Report on barriers for solar power development in India, 2010) (Sandeep Kumar Gupta,
2013) (Timilsina, Kurdgelashvili, & Narbel, 2011) also argue in support of the above argument
that the availability of data on solar radiation is scarce, thus this substantiates the point
mentioned above.
The policy and regulatory framework related problems are the most important barrier for the
growth of the solar energy sector (Ansari, Kharb, Luthra, S.L.Shimmi, & S.Chatterji, 2013). If
adequate policies and institutional mechanism complimenting the policies are not set up then
it shall become difficult to set up the market necessary for the development of solar energy
sector (Bank, Report on barriers for solar power development in India, 2010) and this shall not
let the solar sector reap the benefit of economies of scale and thereby the market share of solar
energy in the total energy mix shall remain low as compared to other conventional sources.
Other literature like (Shrimali, Goel, Srinivasan, & Nelson, 2014) and (economy & Trade,
2013) also argue on the same point saying that due to insufficient or inefficient policies the

solar sector shall not look attractive to investors thereby it shall be unable to lure investme nt
from the private sector thereby stalling its growth.
As mentioned above to promote the solar sector along with market promoting policies
(vermani, 2004) it also becomes necessary to set up complimentary institution. The topic of
institutional challenges talks about varied issues that create obstacles for growth of solar
energy. It talks about setting up of institutions for extending credit to private players as initia l
capital for setting up of solar plant, it also talks about research and development for increasing
efficiencies solar modules and it talks about insufficient training and research institute which
results in shortage of technical workforce in the industry (Karan, K.Pandey, A.K.Jain, &
Nandan, 2014).

1.2 LITERATURE GAP

Numerous scholars talk about the benefits of adoption of solar energy and how it can prove to
be a sustainable power generation technology, only a few talk about the need for policy support
required for the promotion of solar energy. Not a lot of authors talk about the policy support
extended to the sector and its relation to the development of the market. Therefore in this study
I attempt to study through the example of a case of solar city initiative in the city of
Gandhinagar in Gujarat the relation between policy support extended to solar power producers
and it impact of the creation of the market for solar energy.

1.3 PROBLEM STATEMENT

On one hand India is growing at rate of 7.4% (Bank, GDP Growth, 2014) annually and claims
its position to be 15th among the fastest developing economy of the world, thus this proves that
India is on a fast track of development and is going to continue developing probably at faster
rate in the future, the process of development means more industrialization, therefore leading
to migration to urban areas and thereby giving a push to urban development as well, all this
together shall increase the requirement for powers for the purpose of manufacturing, daily
activities, smooth functioning of business and organisations and for a better standard of living,
accounting to all this India already has an annual power deficit of 2.2% (Power, 2016), along
with this there are around 80,000 villages that still remain un-electrified. On the other side the
problem is of carbon emission, and production of electricity through conventional sources like
coal and natural gas which are the major contributors to the emission of carbon into the
atmosphere, such emission have already started showing their effects. Along with this India is
a signatory for transnational attempts to reduce carbon emission like Kyoto Protocol and COP
21 therefore it is obligatory for the nation to reduce carbon emission.
Solar energy is a sustainable solution to the twofold issues that India is facing, but being a
sustainable technology solar energy is yet to compete into the power generation market as the
price of generation of electricity through solar energy is higher as compared to conventio na l
sources, in order to commercialise this green technology it is necessary to develop the market
by increasing investment in the sector thus more investment will lead to more R & D and more

power generation thereby gradually reducing the cost of power generation, but in order to
achieve it, policies that help creation of market is necessary.

1.4 PURPOSE STATEMENT

Solar energy is a socially acceptable source of energy as it does not harm the environme nt
while generating electricity thereby reducing carbon emission into the atmosphere, it is also
capable of solving the issue of regional imbalance in terms of power supply to areas that are
un-electrified and setting up a grid to those areas is virtually impossible, also it being a
perennial source of energy that is abundantly available therefore there is no issue of it
exhausting in the future as compared to coal and natural gas which are swiftly exhausting
leading to a lot of its import within the country and thereby punching a hole in the country
balance of payments.
Though it is socially acceptable, it is not economically viable in term of unit cost of power
production considering the high upfront cost for setting up a power plant, the cost of generatio n
of power through the solar modules and conversion and storage of power for making
environmentally sustainable technology like solar energy to become competitive in comparison
to conventional sources of energy, scholars (Altenburg & Engelmeier, Boosting solar
investment with limited subsidies: Rent management, 2013), (Eisen, 2012), (Sun-Joo Ahn,
Understanding Energy Challenges in India: Policies, Players and Issues, 2012) have
unanimously agreed that a strong policy base that promotes investment in the sector in fields
of research and development (R & D) and power generation is necessary, policies that promotes
deployment of solar power generation capacity by creating policy rents (Altenburg &
Engelmeier, Boosting solar investment with limited subsidies: Rent management, 2013) will
attract more investment into the sector, where by policy rents the author means that farming
such policies that can provide the resource owner the payment that are above the payment that
he shall get for using the same resources in next best alternative . Thus it is logical to infer that
a policy strong or weak is bound to impact the commercialization process of solar energy.
In relation to this the study intends to understand how the policy, its related institutio na l
structure can affect the market creation process for solar energy sector. This has been studied
through a case study of the city of Gandhinagar where a total of 5 MW of power was generated
through means of solar energy on gross metering4 basis. Through the entire study an attempt
to understand the institutional structure, the interaction between various stakeholder and the
outcome of the interaction has been explored, an attempt to understand the impact of the
programme on various stakeholder like government organisations, private solar power
generation, customers have also been made.

When the cumulative power generated from the s olar rooftop installation is fed into the grid without consuming any of it,
a nd the consumption of the household is still done from main grid. Thus the payment received for gross amount of electricity
fed i nto the grid is called gross metering. (Bhattacharjee, 2015)

10

1.5 RESEARCH OBJECTIVES

The following forms the objective for the research project:
1. To conduct a socio-economic survey of the different stakeholders (Governme nt
agencies, developers, rooftop owners and distribution licensee) involved in the 5 MW
Gandhinagar Photovoltaic Rooftop Programme.
2. To understand the institutional architecture of the policy and understand the factors that
contributed to the successful implementation of the policy.
The above mentioned research objectives have been further specified into specific research
questions on the basis of which the data collection and analysis have been done. The research
questions are as follows:

What are the factors that led to the successful implementation of the Gandhinagar 5 MW
rooftop programme?
1. What are the different institutions government/private, formal/informal that have
functioned in the implementation of the Gandhinagar 5 MW rooftop programme?
2. What were the roles of these institutions?
3. How the interaction among these institutions did take place?
4. What is the impact of the Gandhinagar 5 MW rooftop programme on various
stakeholder associated with it?

1.6 METHODOLOGY
The purpose of the study is to understand how the policy, its related institutional structure can
affect the market creation process for solar energy sector. This has been studied through a case
study of the city of Gandhinagar where a total of 5 MW of power was generated through means
of solar energy on gross metering basis. Through the entire study an attempt to understand the
institutional structure, the interaction between various stakeholder and the outcome of the
interaction has been explored, an attempt to understand the impact of the programme on various
stakeholder like government organisations, private solar power generation, customers have also
been made.
For the data collection relating to the above mentioned research question the method of
Interview with the consumer that have provided their roofs of lease to solar power generatio n
company has been used, the sample size for the interview of the consumers is 20 and the method
of selection of sample is random sampling which has been divided into two groups of 10
consumer in each group where one group is of the consumers are under contractual obligatio n
with Azure power whereas the second group of consumers are under contractual obligatio n
with Sunedison. With an objective to understand how the interest of other stakeholder has been
taken care off, discussions regarding to understand the nuances of the programme has been
undertaken with government departments like Gujarat Energy Research and Manageme nt
Institute and with non-governmental organisation which include discussions with executive of
International Finance corporation that acted as the transaction advisor of the programme,
discussions with executive of Azure power and Sunedison that are the two companies that have

11

been allotted the contract of setting up the solar panels on rooftops and generate power and
with Torrent power that is the solar off-taker under the programme. For the purpose of
discussion the selection of sample has been by following snowball sampling technique.
The questionnaire used for interview of the consumers is a semi-structured questionna ire,
where a few broad questions to be discussed have been mentioned in the questionnaire and
further on the basis of response of the consumers that are recorded further questions have been
asked to the consumers. In order to carry out the discussions with the above mentio ned
governmental and non-governmental organisations the method of unstructured questionna ire
has been followed, in the questionnaire major head to be discussed have been mentioned and
as the discussion develops further questions have been asked.

1.7 LIMITATIONS OF THE S TUDY

One of the major limitations of the study is available time for collection of the data, as in order
to understand the nuances and the way the policies and markets function in the field of solar
energy it becomes necessary to spend more time working on the field more than the time
allotted for the process of data collection, which considering the academic schedule of the
institutions has not been possible. Also the collection of data includes discussion with certain
governmental and non-governmental organisations where executive have at times not disclosed
a certain information or either have not provided complete information on certain aspects.
Being qualitative in nature the study has the risk on missing out on concrete data and also the
analysis of the finding can be subjective in nature, also because of the objective and research
question of the study it has not been possible to collect quantitative data. Considering the lack
of literature available on the topic that research faces the risk of being misled from the path
envisioned for the same.

1.8 ETHICAL CONSIDERATION

As mentioned in the methodology section, in order to understand the importance of markets
and the role of the policies in promoting the market of solar energy, a case study of the city of
Gandhinagar in the state of Gujarat has been undertaken. In this case study various stakeholder
have been contacted and discussion have been carried with them to understand the
implementation and the impact of the project for setting up solar panel. Therefore the
respondents included in collecting data for the case have been informed beforehand regarding
the research project, it objectives and purpose, the set of question to be asked to them and
information about the usage of the data collected from them. Thus an attempt to take infor med
consent from the respondent have been made, the keys point of the same include:
1. Introducing the study, stating the purpose and the objectives of the study so that the
respondents are fully aware before beginning the discussion.
2. Respondents have been made fully aware of the data expected to be collected from them
and the method in which the data is to be used for further analysis.

12

3. Respondents have been assured that the information supplied by them shall remain
confidential and in no circumstances shall their identity be revealed while drafting the
dissertation.
4. The participant have been duly informed about their right, to ask question related to the
project as well as withdraw from the discussion at any point of time.

13

2. CHAPTER ON FINDINGS
2.1 CASE STUDY- 5 MW GANDHINAGAR ROOFTOP PROGRAM
2.1.1 INTRODUCTION
In order to cope up with the increasing power demand and to meet the international obligatio n
for reducing greenhouse gas emission, India since 2008 has been promoting solar power
generation under various policies so as to increase investment and thereby increase the
generation of electricity through solar power. Currently because of increased industrializa tio n
and urbanization the demand of power is further increasing in urban areas. Solar energy
provides two option in order to achieve the dual task to provide for increasing power demand
in urban areas and to generate this power through with minimum greenhouse gas emissio n.
Either solar power can be generated by installing solar panels covering a large land mass and
then providing power to customer through means of power grids or either by making small
scale panel installations on residential, industrial and commercial establishments. However
considering the requirement and the cost attached to land, cost of additional apparatus for
setting up ground mount solar panels as well as the chance for a 30% T&D loss, makes rooftop
solar panels more lucrative.
Solar energy is a socially desirable source of energy as it virtually produces zero greenhouse
gas, however though it is socially desirable but it is not economically feasible. Rooftop solar
installations are not economically viable, considering the large upfront cost of installatio ns
which every household cannot afford. Thus in order to electrify urban spaces through solar
energy it is necessary that the government create public policy for subsidising cost for
households and encouraging private companies to make investments.
Such case of public policy is that of the capital city of Gandhinagar, where the governme nt
under Jawaharlal Nehru National Solar Mission did solar rooftop installation worth generatio n
capacity of 5 MW under the private public partnership (PPP) model.
The Gandhinagar 5 MW solar rooftop programme (referred to as programme from now) is
being referred to as a Kilowatt programme at a megawatt scale, the reason for this is that the
panel installation were done in distributed manner on rooftops of government and residentia l
building. The programme was initiated under the Gandhinagar Solar City Initiative with an aim
of promoting clean and green energy.
2.1.2 PROGRAMME DETAILS
The programme was approved in August 2010 and promoted by the department of Energy and
Petrochemical of the Government of Gujarat under the solar city initiative under the JNNSM.
The programme was structured so as to deploy 5 MW generation capacity in distributed manner
on the rooftops of residential and government buildings and for the same a Public Private
Partnership model was to be adopted which makes this programme first of its kind in the

14

country. Initially a total number of 40 companies showed there interest to invest in the
programme during the first investors conference in 2011.
The structure of the programme is so that the deployment of 5 MW capacity of solar power
generation on the rooftops of residential and government building is divided into two equal
generation capacity therefore the project was supposed to be allotted to two different developer
each with a capacity of 2.5 MW. 80 percent of generation capacity i.e. 4 MW was hosted on
government buildings and remaining 1 MW of generation capacity allotted to residentia l
buildings. The power generated by these solar establishment was then to be purchased by
Torrent power, which has been functioning as the distribution utility for Gandhinagar and
Ahmedabad. Torrent power signed the agreement for solar off taking in 2011 with Gujarat
Power Corporation Limited that was to function as the implementing agency for the
programme.
The invitation for sending bids and the detailed project proposal from the potential investors
was invited on August 2011, out of 40 companies that showed there interest for developing the
project during the first investors conference only 4 companies sent their final project proposal
along with the bids on January 2012. The companies that placed their bids for developing the
project were Azure Power, Sunedison, Mahindra Susten Pvt. Ltd., Lanco Solar Energy Pvt.
Ltd. During the opening of the bids in February 2012, Azure power and Sunedison were allotted
the contract and selected as L1 and L2 respectively. The amount of per unit tariff for supplying
power to the solar off-taker i.e. Torrent power was quoted as Rs.11.21/Kwh and
Rs.11.793/Kwh by Azure power and Sunedison respectively. The tariff as per the guidelines
of GERC are Rs.11.14/Kwh and Rs.12.44/Kwh for projects not acquiring accelerated
depreciation and acquiring accelerated depreciation respectively. GPCL which is the
implementing agency of the programme and being under a project implementation agreement
with Azure power provides the deficit of Rs. 0.07/Kwh to the company and torrent power
purchases the power at the Rs. 11.14/Kwh.
The rooftop owners are provided a green incentive of Rs.3/Kwh for installing solar panels on
their rooftops which is directly deposited in the bank accounts of the consumers by the
developers, the programme was structured in a manner that the rooftop owners were supposed
to enter into lease agreement directly with the developers, this did not include the hassle of
frequenting GPCL and made the process simple.
Doubts were raised regarding the potential damage to water proofing on the roofs and the
sustainability of the roof to adopt to the additional weight of the solar structure, for this reason
a non- penetrating type of design was implemented while setting up the panels on the roofs and
the structure was given a lower tilt than the ideal which minimises the impact of wing on the
panels but on the other hand affect the generation of power. (Agravat, 2015)

15

2.1.3 PROJECT TIME-LINE

Date

Activity

Aug
2010

In-principle approval of Gandhinagar Photovoltaic Rooftop Programme.

Nov
2010

Kick-off meeting under chairmanship of Chief Secretary participation from

various Government Stakeholders.

Jan 2011

Invitation of EoI from potential Developers/ Investors.

Feb 2011 First Investors conference with participation from 38 companies.

Apr
2011

Invitation for participation sent to Government Departments.

May
2011

In-principle agreement with Torrent for off-taking solar power.

May
2011

Declaration of GPCL as Project Implementation Agency.

Jun-Jul
2011

In-principle approval from Government Departments for leasing of rooftop/

terrace.
Floating of draft bid documents including:
-Request for Proposal

Aug
2011

-Power Purchase Agreement

-Project Implementation Agreement
-Green Incentive Lease Agreement

Aug
2011

Investors Pre-Bid Conference.

Nov
2011

Submission of petition to GERC for approval of Programme

Transaction Structure including PPA.

Dec
2011

Approval by GERC on Transaction Structure including PPA and to invite bids

from Developers via two hearings. Unresolved issues with Torrent Power Ltd.
resolved by GERC.

Jan 2012

Bids received from 4 Parties: (i) Azure, (ii) SunEdison, (iii) Mahindra, and (iv)
Lanco.

Feb 2012

Financial bids were opened, where (i) Azure (Rs. 11.21 /kWh) and

16

(ii) SunEdison (Rs. 11.793) were found to be L1 and L2.

Mar
2012

LoA issued to Azure and SunEdison.

Apr
2012

Signing of PPA between Azure/ SunEdison and Torrent Power.

Signing of PIA between Azure/ SunEdison and GPCL.

May
2012

Authorizing Solar Project Developers to start Implementation activity.

Signing of Lease Agreement between Azure/ SunEdison and R&B
Dept.

Jan 2013

Source: (Jani, 2014)

2.1.3 ORGANIZATIONAL STRUCTURE
GoG/EPD

GEDA

IFC & Consultants

(Project Proponent)

(Nodal Agency)

(Transaction str. Advisor)

Funding

G.R

.
GPCL

GERMI

(Implementing agency)

(Project str., Bid process)

GoG
(For govt. approval)
Selection
through
RFP

2 MW Govt. Rooftops

2.5 MW

0.5 MW Private Rooftops

2 MW Govt. Rooftops
0.5 MW Private Rooftops

Green Incentive

2.5 MW

Selection

Approvals

Screening &

GERC

(For regulatory approval)

Azure Sun Energy

(Capacity: 2.5 MW)

PPA based on GERC solar tariff

Torrent Power Ltd.
(Off-taker)

Sunedison
(Capacity: 2.5 MW)

Source: (Jani, 2014)

The 5 MW Gandhinagar Photovoltaic Rooftop Programme was formulated and promoted by
the Energy and Petrochemical Department of the Government of Gujarat in consultation with

17

other stakeholders. Gujarat Energy Development Agency (GEDA) and Gujarat Power
Corporation Limited (GPCL) have been assigned as the Nodal Agency for the Programme, it
is with GPCL that the developers have a project implementation agreement therefore in this
programme GPCL becomes responsible for implementation of the programme. The
programme being first of its kind in India, International Finance Corporation (IFC) has
functioned as the programmes transaction advisors, which has further hired Deloitte Touche
and Tohmatsu India Pvt. Ltd. as its technical and commercial consultants, and a consortium of
CMS Cameron McKenna LLP and Hemant Sahai Associates as the legal consultants (Institute,
2011). As transaction advisors IFC has analysed the programme from its technical and financ ia l
viability considering the interest of various stakeholder in the programme and gave the GoG a
green signal for launching the programme. Gujarat Energy Research and Management Institute
(GERMI) in the entire process of the programme has functioned as the bid process co-ordinator
and technical advisor.

2.2 FINDING OF THE CASE STUDY

2.2.1 BRIEF
In the previous chapter, the case study for Gandhinagar 5 MW solar rooftop programme has
been presented. In this chapter an attempt to discuss the factors behind successful
implementation of the Gandhinagar 5 MW solar rooftop programme (referred to as programme
from now) has been made. For this the method of stakeholder analysis has been used to present
the findings i.e. the factors for successful implementation of Gandhinagar 5 MW solar rooftop
programme.
2.2.2 ANALYTICAL FRAMEWORK FOR STAKEHOLDER ANAL YSIS
The method of power interest grid has been used for undertaking the stakeholders analys is,
the method is used for identification of major stakeholder and knowing the interest of the
identified stakeholder in relation to the project. Post categorization and interest identifica tio n
it is analysed how has the initiative has fulfilled those interest and to what extent. Power interest
grid is a method of stakeholders analysis where in the beginning the stakeholder of a project
are identified, after identification of the stakeholders they are plotted on the power interest grid
on the basis of their interest in the project and there influence through which they hold the
capability to change the outcome of the project, after being identified on the basis of these two
parameters, the specific interest of the stakeholders is charted out and then the programme is
proceeded with accordingly. In context of the case of Gandhinagar 5 MW rooftop programme,
the power interest grid framework has been used to identify the stakes/interests of the major
stakeholders and analyse how the initiative has took care of these stakes of the stakeholders
and thereby it can be concluded to be a successfully implemented programme.
The major stakeholder identified that can be categorised as the direct beneficiaries of the
programme are governments being the promotor of the initiative, Azure power and Sunedison
being the companies to whom the project has been allotted for implementation thereby setting
solar panels on the rooftop of government building and residential buildings and the consumers

18

whose rooftops are used to set up the solar panels to generate electricity and sent to the offtaker which in this case is Torrent power. They can also be identified as the consumers of the
power generated from those solar panels as the project being a gross metering set up the power
is directly transferred to the grid and consumed by the same consumers who are producing it.

Low

Power

High

Below is the depiction of the stakeholder into the power interest grid.

Legal
associates of
the initiative
(for
explanation)

Government
Solar power producers
and solar off-taker

Technicians of
the Azure power
and Sunedison
(for explanation)

Low

Consumers

Interest

High

In the above depiction, government, solar power producers i.e. Azure power and Sunedison
and solar-off taker Torrent power have been placed under high power, high interest section as
it is the government and related governmental institutions have been acting as the promotors
of the programme, where the solar power producers are stakeholders in terms of this being a
business venture for them and this being a PPP model they hold equal influence on the project
outcome and same goes for solar off-taker torrent power. Consumers being the one who are
supposed to use the power generated are included under high interest, low power section as
their capability to influence the outcome of the project is limited.
In the high power, low interest group legal advisory of the programme are included i.e.
consortium of CMS Cameron McKenna LLP and Hemant Sahai Associates, the reason behind
the same is that they do not have a crucial role to play in the programme and would not be
benefitted with either the success or failure of the programme as their interest shall be in
receiving the advisory fees which irrespective of the programme being implemented or not will
be paid to them for the services rendered by them. Similarly the technician working with the
solar power companies shall be getting their reimbursement for providing their service in
setting up the apparatus on the roofs of households in form of wages, this shall be given to
them irrespective of the programmes implementation and thus they are not directly benefitted
by the implementation of the programme. Adding to that their capability to influence the
outcome of the programme is also limited which includes them in low power, low interest

19

category. These both categorization are not part of the analysis as they are not the major
stakeholders with the programme, they are included in the grid only for the purpose of
explanation of the concept of power interest grid theory.
The following analysis mentions how are the interest of these stakeholder have been achieved
through the programme, which around the framework discussed here.
2.2.3 FINDING AND ANALYSIS
STAKEHOLDERS ANALYSIS

1. Household owners perspective

Stakeholders interest: The setup of the project as mentioned in the case above where
the household owners provide there roof on lease to the solar power companies unde r
a lease agreement and they are provided with a green incentive of Rs. 3/kWh, the
green incentive received is correlated with the power generated by the panels thus the
stakeholders interest can be mentioned to acquire higher green incentive so as to set
it off against the electricity consumption.
On an average every household has a setup of around 10-20 panels on their rooftops, with
the panel capacity ranging from 3.6-6 watts per panel. This enables the households to
generate an average of 300-1200 kilowatts of solar power, this being in direct relation to
the number of panels and capacity of the each panel to generate power. The setup of the
programme is such that the solar power producers i.e. Azure power and Sunedison have
entered into an average of 5 years contract with the households, where the terraces have
been given on lease and as a returns the power generation companies provide green
incentive to the households at Rs. 3/kwh power generated by the panels installed on the
roof. As a result of this mechanism the households that were surveyed mentioned that they
get a considerable amount of monthly rental. In comparing the monthly electricity bills and
the approximate amount of green incentive received by the households it was observed that
average usage of electricity in an household was 600-800 kw for every two months as a
result of which the residents got the a bill (2 months bill) of approximately Rs. 2500-4500,
comparing it with power generated by solar panel and the green incentive received, the
households produced power ranging from 300-1200 units (kilowatt) in two months thereby
getting a green incentive of approximately Rs. 1000-2000 thereby enabling the households
to recover around 40-45% of the amount spent on electricity bill.
As a result of the programme the level of awareness regarding the benefits of solar energy
increased amongst the households. The reason for increased awareness regarding solar
energy is because of the inclusion of general public in the generation process thereby
information regarding the benefit of adoption of solar energy has been communicated to
them, this has the possibility of have a positive impact on the solar energy market as due to
increased information the demand for sustainably generated power shall increase. During
the process of interview the household owner mentioned their interest that the governme nt

20

should allow them to increase the capacity of power generation at their own cost so as to
produce more power and earn more rent as produce green electricity.
2. Solar power producers perspective
Stakeholders interest: To achieve break even within few years of commissioning of
the project and reap profits out of the venture.
The panels installed on the terraces of government buildings and residential buildings will
generate 15,00,000 units (kWh) per year individually thereby generating a total of
30,00,000 unit (kWh) combined, the electricity generated is directly fed into the main grid
through the transmission line this does not result into transmission loss as the power is not
transmitted from a on the out-skirts of the city but produced with the city by the people
themselves for their own consumptions.
For understanding that whether the venture was a profitable one or not from the perspective
of Azure power and Sunedison a simple payback period calculation was undertaken, the
payback period for both the companies at their respective tariff rates have been mentio ned
below.
Company
Azure
Power

Total
Investment

Power
Generation

Unit tariff
(kwh)

Total
Revenue

Payback

20365,52,970

2.5 MW

11.21/-

3735,93,384

5.45 Years

Sunedison 20365,52,970

2.5 MW

11.79/-

3929,22,926

5.18 Years

From the above table the payback period of Azure power and Sunedison comes out to be
5.4 and 5.1 years respectively, this means that that both these companies shall earn a
revenue equivalent to their investment within a period of around 5 years from the
commissioning of the project. Post that the companies shall start earning profits, the actual
amount of profit have not been disclosed during the discussion process with the company
executive of both Azure power and Sunedison, but executive of both the companies were
of the opinion that this venture has proved profitable for the company and adding that such
project where governmental bodies and private companies are equal decision makers
should be promoted in order to promote market for solar energy. Further commenting on
the future prospect of the solar energy market the executive of Sunedison mention that the
companies have individually entered into a contract for solar power generation for 25 years
with Gujarat Power Corporation Limited (GPCL) and according to the contract the tariff
being charged by the companies shall remain the same whereas the cost of power generated
through coal shall keep raising because of its fast depletion and so it is a matter of time that
solar power shall achieve grid parity.
Also, because of the solar modules being set up on the rooftops of households and
government building Azure power and Sunedison got a readymade base structure for

21

setting up the panels on the roof, thereby helping the companies to reduce the set up cost
up to 25% of the actual set up cost as this did not require the purchase of land considering
the power to be generated the investment in acquiring the land fixing structures to mount
the panels would have increased the cost for the company and this would have led to
increase in the payback period for the company.
3. Governments Perspective
Stakeholders interest: The interest of the government on the initiative was to promote
deployment of solar energy based power generation thereby expanding the solar
energy market. Along with this the governments objective is to reduce the level of
emission into the environment.
Out of the total solar installed capacity of 1686.44 MW in India, 66.9% of installed capacity
is in Gujarat making it the highest producer of solar energy in India (Ojha, Gaur, Kumar,
& Singh, 2014). The Gandhinagar 5 MW solar rooftop programme shall help to reduce the
states electricity bill by an average of 25% and this in turn will help reduce the citys
carbon emission by a minimum of 6000 tons per year. Both of these form the major
objective of Gandhinagar 5 MW solar rooftop programme that aimed at reducing the
consumption of the electricity generated by conventional source of energy thereby by
reducing the states electricity bill and this shall also help the state to reduce the carbon
emission substantially, along with this the programme aimed at increasing awareness
regarding adoption of environmentally sustainable technology like solar energy among
people as mentioned in the section of consumers perspective, the benefits of which are not
widely recognized among the general population as a result of which the adoption of such
technologies has been limited, this also has an adverse impact on the market creation effort
for solar energy technologies.
On the basis of the information acquired on the basis of discussions with the governme nt
departments, the tariff as prescribed by the Central Electricity Regulatory Commiss io n
(CERC) that are being charged by the solar power generation companies from the solar offtaker can be identified as preferential tariff and thus is a an apt example of policy rent
created by the government thereby attracting investment into the sector under this initiative.
It is with such policy rents which attracts the investors the government achieves its target
of market expansion of solar energy sector.
4. Institutional analysis
Analytical framework:
Benefits of solar energy have been accepted worldwide, solar energy is a social acceptable
technology with a capability to end the issue of energy crises and issues of environme nta l
pollution (IRENA & CEM, 2014) (Chinnammai, 2014). However it is argued that carbon
efficient technology will take time to become market competitive (Altenburg &
Engelmeier, Boosting solar investment with limited subsidies: Rent management, 2013).
Additionally, the author also mentions that in order to make the solar energy market

22

competitive it is necessary to bring in more investors and thereby fetching more investme nt,
but for this it is necessary to create policy rents (Altenburg & Engelmeier, Boosting solar
investment with limited subsidies: Rent management, 2013) so that the investor can earn
above average profits. This calls for creation of policies that has a market promoting
impact by mean of subsidies, tax exemption, preferential tariff thereby reducing the cost of
production which have a ripple effect by reducing the per unit cost of power generatio n
making solar energy competitive with other sources of energy.
Two things become clear from the above argument, first being it is necessary for the
growth5 of solar energy that a competitive market for power generation from solar energy
be created and second being that the creation of market should be backed by creation of
policies which shall attract investment in the sector. What is necessary to be understood is
what sort of policies shall promote the market of solar energy? It is understood that policies
play a major role for market creation and therefore there is need for policies that are market
creating (Virmani, 2004), such policies shall correct the inherent weakness of the market
and create newer market, which in this context is reducing the per unit cost of power
generation by achieving economies of scale and thereby increasing deployment of solar
energy in India. According to the author these market creating policies should be
accompanied by such market creating institutions complimenting these policies by ensuring
proper implementation. Here institutions are defined as laws and rules in their exclusivity
and organizations charged with implementation of such rules and laws (Virmani, 2004).
These institutions work as the organs of government body which ensure adherence to the
guidelines prescribed as well as proscribed in the policy document, it is these organizatio ns
that ensure that the policies as mentioned above are applied in practice and thus ensuring
investment in the sector. Thus in simple understanding these institutions work as bridge
connecting the policy creators and the stakeholder and vice-versa.
It is with this framework that I attempt to undertake institutional analysis of the institutio na l
structure of the case which is one of the factors that lead to success of the 5 MW
Gandhinagar rooftop programme.
Analysis:
The Gandhinagar 5 MW solar rooftop programme was promoted by the Department of
Energy and Petrochemical of the Government of Gujarat under the Solar City Initiative.
Thus situating the argument of (Virmani, 2004) the solar city initiative works as
superstructure thus becoming an overarching institution that set out the guidelines in
accordance to the national objective of promotion of solar energy i.e. reducing the carbon
emission by adoption of green technology and the programme forms the microstruc ture
under the superstructure which in line to the objectives of the superstructure and
implements a specific initiative.

The explanation of what is taken as growth of solar energy sector has been described in the end chapter.

23

There are various institutions involved in the process of project implementation, this being
a PPP initiative the function of carrying out the process was divided among various
institutions which were either governmental, semi-governmental or non-governmental but
the entire project was implemented under the supervision of the government departments
i.e. Gujarat Energy Development Agency (GEDA) and Gujarat Power Corporation Limite d
(GPCL) the reason behind the same is that GEDA function as the SERC which under the
electricity act, 2003 is responsible for the promotion of renewable energy sources within
their respective states (The Electricity act, 2003) and GPCL is the agency with whom the
agreement has been signed by the solar power generation companies and thus it is the
implementing agency for the programme. GPCL works as the project implementa tio n
agency with whom Azure power and Sunedison have entered into a contract with, being
the implementation agency GPCL ensures provision of tariff to the power generators, in
case of Azure power it is GPCL that provides the deficit of Rs. 0.07/Kwh as the tariff quoted
by the company is higher than the tariff limit approved by GERC. Apart from governme nt
organisation Gujarat Energy Research and Management Institute (GERMI) being a semigovernment institution worked as the bid co-ordinator and technical advisor during the
implementation of the project. As a bid co-ordinator GERMI invited bids from the investors
and allotted the project to the highest bidder, it also provided technical assistance to power
companies during the implementation of the project as the nature of project demanded
different technical specification like the tilt of the solar modules, implementing nonpenetrating design for mounting solar modules. Being first of its kind project, Internatio na l
Finance Corporation (IFC) functioned as the transaction advisor for the project. Thus IFC
functioned as an advisory to the GEDA and GPCL regarding the financial feasibility of the
project. Lastly torrent power becomes the solar off-taker for the power generated and
becomes liable to pay the prescribed tariff to Azure power and Sunedison, this helps torrent
power to achieve the prescribed 2.5% RPO target as specified by GERC.
Here situating the institutional structure of the programme into (Virmani, 2004) theory,
GPCL can be identified as a market creating institution as it being the promotor for the
project under the superstructure of the Department of Energy and Petrochemical works for
bringing in investors and pitching in with the proposal there by attracting the investme nt
for the project, it interacts with the power generation companies and DISCOM with a
formal agreement for power generation and power off-take for 25 years, along with
facilitating with provision of deficit tariff to Azure power. In this manner GPCL creates the
market for solar energy, along with functioning as market creating institution GPCL and
GEDA also function as market regulating institutions in this case as implementation agency
they make sure that the project process is transparent and fair, in line with the objectives as
envisioned by superstructures and supervise the process of bidding. Institutions like
GERMI and IFC in the project have functioned as market facilitating institutions something
that has not been discussed in (Virmani, 2004), they have been identified as such because
they ensure smooth functioning of the market created by the market creating institutio ns,
situating this in practice as mentioned above GERMI was the bid co-ordinator and technica l
advisor of the project ensuring no technical glitch in the implementation and IFC did a
feasibility analysis for the project before implementation. Here market facilita ting

24

institutions
institutions
institutions
functioning

have been defined as those institutions that assist the market creating
in the process of market creation by rendering their technical expertise, these
do not directly affect the market creation process but are vital for smooth
of the market creating institutions and the policies preceding them.

Two important policies have been implemented in the implementation of the project, first
being accelerated depreciation policy. Accelerated depreciation method can be defined as
the method of depreciating6 the assets that a significant depreciation is allowed in the initia l
few years, by this method the solar power company can reduce projects start-up cost in the
initial years (solar, 2014). Due to this policy the investor can claim up to 80% of
depreciation, which allows investor to write off the investment quickly, due to this the
investor can show less taxable profit thereby reducing the amount of tax payment this has
a ripple effect on the profit generated from the investment i.e. amount of profit increases.
If the effect of accelerated depreciation is accounted for the payback period for the project
comes to be much less, this policy in the proposed theoretical framework can be situated
as both market creating policy and market complimenting7 policy, the reason behind can
be cited as because of the accelerated depreciation is available as an option in solar energy
project the investors can claim lesser amount of profit thereby this enables them to pay less
tax as the amount of profit is less thereby this attracts investors to invest in the solar energy
project because as this methods allows them to retain higher amount of profit. The reason
behind also situating it as market complementing policy is that as discussed earlier the cost
power generation through solar energy is higher because of the high initial set up cost and
lower technological efficiency of the solar modules, therefore the return on investment on
solar power project takes time but it is through the mean of accelerated depreciation policy
the investor can avail the return on investment in less time as the amount of tax on the
revenue is less, thereby allowing the investor to retain more profit. Another policy that has
been successfully implemented through the project is the policy of renewable purchase
obligation (RPO). Every state in order to promote power generation through renewable
energy authorise the state electricity regulatory commission (SERCs) to mandate the
distribution companies to purchase a certain percent of power generated from renewable
energy, in Gujarat the RPO for solar energy is 2.5%, therefore it is obligatory for torrent
power to source 2.5% of the total supply of power in Gandhinagar and Ahmedabad from
solar energy, this initiative help torrent power to adhere to the RPO target, the official while
discussion did not disclose the amount of RPO the programme helps torrent to achieve.
This policy can be situated as market creating for solar power producers but on the other
hand can prove to be a market distorting policy for torrent power, this is because on one
hand it is because of the RPO mandate by SERCs that there is a large scale demand for
solar power in the country, this policy along with other market creating policy like
subsidies, accelerated depreciation, feed in tariff, etc. make the solar energy market

Depreciation is the assigning or allocating of a plant asset's cost to expense over the accounting periods that the a sset is
l i kely to be used. (Investopedia)
7

Ma rket complimenting policies can be defined as policies that correct the inherent weakness of the market. (Virmani,
2004)

25

lucrative for investors thereby fetching more investment into the sector, but on the other it
makes it mandatory for distribution companies to acquire power generated form solar
energy which increase the cost for the companies for supply of power, even in the future
when the cost of solar power generation shall reduce at the same time when the cost of
conventional power generation will increase because of the constant increase in the fuel
prices and at a point renewable and conventional source of energy shall achieve grid parity
but it is after that point when the price for conventional power keeps increasing and price
of renewable energy keep reducing that people will shift to renewable power thereby
reducing the revenue and increase the cost for solar power producer, this shall result in
transfer of these increased cost to final consumer which will again lead to migration from
conventional source of energy to renewable energy like solar power, which will create a
vicious cycle of increasing cost for conventional power producer, which is known as utility
death cycle.
(Virmani, 2004) in his paper talks about institutional innovation, he mentions that
institutional innovation is necessary because market complimenting institutions can
deteriorate with time due to change in market circumstances. Contrary to that understand ing
the as the market for solar energy is in its nascence stage the case for institutional innovatio n
is adoption of a public private partnership model (PPP). How is it an institutio na l
innovation? The answer to it is twofold embedded into each other, first being the adoption
of PPP model for implementation of the programme where the institutions of the
government body plays the role of the facilitator, where the private organisation and
government institutions become equal partners in decision making process. The second fold
is in terms of the implementation of the programme where the electricity through solar
energy was produced on such a large scale by setting up panels on government build ings
and residential terraces thereby saving the cost for the companies charged with the
implementation of the project. On the basis of discussions with the executive of Azure
power and Sunedison the company already had a basic structure, as the rooftops on which
the solar panels were set up reduced the set up cost considerably as this did away with
requirement of purchase of land for production on such a large scale, the cost of
maintenance of the solar panels and this being a gross metering type set there was no need
of battery for power storage as the generated power was directly fed into the grid.
2.2.4 CONCLUSION
On the basis of the above arguments it can be well established that the Gandhinagar 5 MW
rooftop programme has thus took care of the stakes of the major stakeholder. The major
achievement of the programme can be attributed to market creation, as from the arguments
mentioned by the authors quoted in the section of literature review the necessity of market
creation for solar energy sectors growth is established, and it is also established how necessary
market promoting policies are for solar energy market creation.

26

2.3 INFERENCE
It is understood from the above analysis that it is necessary that creation of solar energy market
is strongly supported with policies that can promote the market, create new markets for solar
energy and correct the inherent weakness on the solar energy sector. Here the understanding of
solar energy market is neither only from the supply side or producers side, but also from the
demand side or consumers side which may be industries, organizations, government itself or
households, as it is necessary for demand and supply to exist simultaneously for a market to
come into existence, where presence of one without another is not a sufficient condition for
existence of market. Thus what is inferred is that the creation and implementation policies and
related institutions can affect the market of solar energy.
It is on the basis of the analysis of the stakeholders interest in the previous chapter that I bring
out the broad inferences necessary for growth of the solar energy sector and divide it in broad
topics of decentralised power generation, policy implementation and environment.
Decentralised power generation
Firstly, an inference that can be drawn from the above case is regarding the cost benefit analys is
of solar energy project and inclusion of final consumers in solar energy production. In the
above case of Gandhinagar the project design allowed inclusion of the customers in generatio n
of power, the project uniquely made customer the power generator without them investing in
setting up the solar panels, the result of this was that awareness regarding the benefits of solar
energy among the general public increased, this was evident in the response of the customers
where few particularly mentioned as the reason for registering for the scheme by saying by
taking part in this initiative we are the producers of electricity and we are getting return for
that, we are happy to go green whereas others also said we are happy that we are doing our
bit for saving the environment, we have become self-reliant in terms of electricity supply. We
are planning to increase the power generation capacity by adding modules at our own cost.
Thus it can be inferred that the policy has successfully created awareness among people that
can positively affect the demand for solar energy; now when solar energy policies of differe nt
states are including guideline for net-metring scheme that will allow people to generate their
own power and sell the surplus to DISCOMs, such a scenario where people are aware and
willing to invest for setting up panels on their own and this being supported by policies is what
can be for a growing market of solar energy.
Policy Implementation
Drawing inference from the above case study and its analysis, the 5 MW Gandhinagar solar
rooftop program was helping the DISCOM8 which in this case is torrent power to achieve its
solar based RPO target, this policy of renewable purchase obligation can be identified as a
demand creating policy as the policy stipulates a target on DISCOM to acquire power generated
8

DISCOM- Di stribution company

27

from renewable sources of energy, thereby creating market for solar energy sector, but the issue
with the RPO policy is as discussed with policy makers of Gujarat Solar Energy policy 2015
is that the target for RPO specified in certain policies very low or not as per the standard
specified by Central Electricity Regulatory Commission (CERC) or either there RPO target is
stagnant among years and not specified in an increasing trajectory in the policy documents,
certain policies are lenient when it comes to RPO target application which mentions as a
guideline in the policy document to provide relief to DISCOMs if they are not able to meet the
RPO target or either the target are carried forward to next year and lastly the RPO targets
mentioned in the policy documents are not mandatory meaning that there are no repercussions
for DISCOMs if they are not able to meet the RPO target. This sort of lacuna in policy has
implication on market growth for solar energy and also on market of renewable energy
certificate9 , the cost of generation of solar energy is high which discourages DISCOMs from
purchasing solar power which does not increase the demand for solar power and along with
that if the policies does not increase the RPO target gradually then this shall not create demand
for the same and thus not attract investment. Thus for creating a market for solar energy it is
necessary that a mandatory RPO target that is sustainable from the perspective of both solar
power producers and DISCOMs be applied.
Along with this under the initiative two apt example of policy rents can be observed. One
being accelerated depreciation and another being preferential tariff. Through accelerated
depreciation the power producers shall be able to write off 80% of its assets for the first few
years thereby reducing their taxable income and increasing their net profits and through
preferential tariff policy the investor shall earns above average profits for its investment. This
is important as the investor gets better off by investing their resources in this initiative than
elsewhere thus this boost market creation.
Environment
The project in the span of its life of 25 years, shall reduce the carbon emission by 6000 tons
every years, this shall have a major impact on the levels of reduction in the environme nta l
pollution in the city. Also because of the set of the programme the infrastructural set which
includes setting up of the panels is not done on land thus as generally argued that solar plants
cover a large land mass has been an exception in this case. Thus through this project some
portion of one of the major polluting factor in urban area i.e. power generation plants has been
reduced.

The concept of REC seeks to address the mismatch between availability of RE sources and the requirement of the obligated
enti ties to meet their RPO. It is also expected to encourage the RE capacity addition in the States where there is potential
for RE generation a s the REC fra mework s eeks to create a national level market for s uch generators to recover their cost.
(India)

28

3. CONCLUSION
From the arguments presented in the previous sections, few things become clear, for
development of a country whether social or economic, power sector plays a crucial role,
considering the particular case of India, according to the 2006 integrated energy policy report
India will have to increase the power generation capacity by five to six folds in order to
maintain a growth rate of 8 percent (commission, 2006). But the simultaneous issue is of power
deficit, because of increasing industrialization, urbanization and adoption of various power
consuming technologies the demand of power is increasing at a rate faster than the power
producers can generate, leading to an acute power shortage in the country. Along with this
increasing power supply raises the risk for increasing use of fossils fuels which are swiftly
depleting and also the increasing emission from power generation using these fossil fuels is
increasing the danger of acute environmental pollution levels. Solar energy, wind energy,
biomass, geothermal energy provide an option of production of power on a sustainable basis
as well as the opportunity to reduce the power deficit, but their adoption and deployment faces
issue, this case is especially applicable to solar energy sector where the cost of generation of
electricity is higher not only from conventional sources of energy but also from other renewable
sources of energy, and it will take time when such sustainable power generation technologies
will develop so as to generate power at a cost that is competitive with conventional sources of
power generation.
Therefore, it is necessary to give them a push in terms of creation of policies that can promote
solar energy investment and thereby the sector achieving growth, by the growth of solar energy
sector I mean that the investment in the sector not only in term of power generation but also in
term of manufacturing of modules increases which shall lead to reduced cost of setting up large
solar power generation plant which will reduce the per unit generation cost thereby increase
the share of solar energy in the national energy mix and the sector shall become self-suffic ie nt
requiring minimum government support. Therefore it is necessary that a market for solar
energy be created because in case of India the problem of high per unit cost of power generatio n
can be solved only if economies of scale is achieved and this is only possible if investment in
the sector is increased leading to high generation of solar energy and increasing research and
development thereby by leading to cost efficiency. If the generation of electricity from solar
energy is restricted to government investment the process of achieving economies of scale
would be delayed and the benefits of the market like efficiency shall not be achieved and this
shall also increase the spending of the government into the sector which is better off if it is
functioning on the fundamentals of a market. This can also be understood on the basis of past
experience of Indian power sector, when it was restricted for government investment that led
to the power sector becoming inefficient and eventually the government had to allow private
investment to stabilise the sector.

29

3.1 MARKET CONCEPTUALIZATION

On the basis of the analysis and inference drawn from the above case study the market of solar
energy has been conceptualised, as the authors cited in the literature review and through the
analysis of the case study the correlation between market creation and growth of the solar
energy sector is well established. There are policies that are created by the government for
market creation for solar energy sector, but there are certain lacunae either in implementa tio n
of the policy or either in the guidelines mentioned in the policy. Thus in an attempt to a
conceptualise a growth promoting solar energy market it is necessary to do away with such
lacunae and thus in relation to the inferences and analysis the market for solar energy has been
conceptualised.
The sector of power generation by whatever source it may be, is not only about achieving
efficiency in terms of per unit cost of power generation but also about achieving equity in terms
of equal power distribution even to the most inaccessible and remote area. Considering this is
possible with solar energy while conceptualising its market one of the important thing to derive
from the case above is decentralised generation of power. Solar energy can make an urban
space self-sufficient in term of power generation thereby the people that are the consumer are
also the generators of power. More over this can be immensely beneficial for the for
electrification of remote areas where it is not possible to set up a grid infrastructure, but the
prominent barrier for such a decentralised market for solar energy is that the cost of setting up
such solar set up is an expensive affair, this considering the meagre income levels of rural
population becomes unviable. This is where there is need for market promoting policies, it is
necessary to develop low interest financial instruments that can be provided to the people of
rural areas to acquire the apparatus to set up a stand-alone solar power generation system on
their houses, this financial instruments can either be transferred through governme nta l
machinery i.e. rural electrification programmes or either through private financial institutio ns.
Similar initiative can be taken in urban spaces where just like the case of Gandhinagar 5 MW
rooftop programme, decentralised energy generation could be promoted through means of PPP
model, the benefits of which shall be two fold, on one hand a considerable amount of
sustainable energy shall be generated with equally considerable reduction in emission levels
without lot of government investment and because of the design of the programme the
awareness among the people at large regarding adoption of green technology shall increase.
Both of these shall together create a positive impact on the market creation for solar energy.
Solar energy is a socially acceptable source of generation of power, but the issue with the sector
is that it has been functioning around architecture built for conventional power generation, here
by architecture I mean that the issues that create a barrier for development of solar energy
sector to name a few are the lack of will among the investors to invest in the sector because of
high upfront cost and longer payback periods, amongst DISCOMs to purchase solar power at
a higher cost, both these issues are prevalent because the a comparison is done with already
established conventional technology which has acquired industry experience as a result of
which has achieve economies of scale. For doing away with these barriers it is necessary to
pitch in with a combination of market promoting and market complimenting policy
infrastructure, this indicate towards a policy mix for promotion of solar energy. Policy mix in

30

terms of RPO targets, subsidies, preferential tariffs, accelerated depreciation shall promote the
investment in the market by making the solar market attractive for investors as such sort of
policies result higher levels of profit for investors and thus they shall divert their resources to
solar energy sector. But there are lacunae in some of such policies, for instance RPO. The state
policies either have no long term trajectory of RPO target, or if there is one than it is not as per
the standard prescribed by the CERC or the RPO target is stagnant throughout the mentio ned
trajectory even the enforcement is lenient where in policies of certain states a relief in the
achievement of RPO targets is provided if not achieved. Thus for a growing solar energy market
it is necessary that such lacunae in the RPO policy be done away with thereby mandating a
RPO target with a growing trajectory of the target which is sustainable not only for the solar
power producers but also for DISCOMs as it is them on who are supposed to purchase power
from solar producers as a result of which their power purchase cost increases because of high
generation cost of solar energy. Along with attracting investment in solar energy sector through
a policy mix it is necessary that while undertaking cost benefit comparison of solar technology
with conventional technology that environmental and social benefits should be accounted as
benefits of solar energy and should be added as cost for conventional technology in financ ia l
terms, internalisation of such cost and benefits shall equalise the cost and benefit comparison
between solar technologies and conventional technologies.
To internalise the benefits of the policy mix discussed above shall take time. Till that is
achieved the cost of solar project shall still remain high as compared to conventional sources
as a result of which there is lack of will among financial institutions to lend solar power
generation project, this is because such projects are considered riskier. Thus along with
increasing investors confidence it is necessary to increase lenders in the solar energy sector.
In order to increase lenders confidence risk sharing measure can be undertaken by the
government by sharing lending risk with private lending institutions to solar energy project.
Public sector investment can become a huge source of financing solar energy technology, India
can learn from the innovative Clean Energy Renewable Bonds under federal energy policy act
2005 of the US government (Timilsina, Kurdgelashvili, & Narbel, 2011) where by governme nt
raised $ 2.2 billion through public debt to invest in clean energy.
Thus the growth of solar energy sector can be achieved through policy support. The sector
faces the major issue of high cost of power generation in comparison with conventio na l
technologies. Thus it is necessary to create a market for solar energy sector in order to achieve
economies of scale through large scale production.
3.2 EPILOGUE
Through the entire course of this thesis project I have attempted to establish the importance
and need for deployment of solar energy in context of India, I have also tried to argue regarding
the need for policies and its importance for market creation for solar energy. It is indeed a fact
that generation of power through solar energy is expensive, but with constant attempt through
policy creation and implementation which will attract investment into the sector and thus with
more R&D investment and more power generation economies of scale shall be achieved and
cost of solar power generation shall reduce.

31

It is our environment and our resources and so it is in our hands either to pollute it immens e ly
in the present by using polluting sources for power generation and then face tremendous cost
because of irrecoverable environmental impacts, or to adopt a sustainable way for energy
production now and save ourselves from gruesome environmental pollution in the future!

32

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