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Cover Story

“This is Energy’s Sputnik Moment”
Kameswara Rao, Executive Director - Government & Infrastructure, PWC
Issue Date - 23/06/2011
There is an ongoing debate as to which is the better mode of sustaining long term energy requirements of a nation like India which for years has been in power deficit syndrome. B&E’s virat bahri speaks to Kameswara Rao, Executive Director-Government & Infrastructure, PwC on the potential and the respective challenges facing the solar and nuclear power industry in India and what strategic policy guidelines the government needs to adopt so as to strike a balance between the two.

B&E: How do you compare nuclear and solar in terms of their utility to India’s energy needs? Which holds greater potential for the country?
Kameswara Rao (KR): Nuclear and solar power generation both offer local energy security and low tariff inflation as the cost components of fuel and operations are very small. We must factor this in our energy mix decisions as the cost of energy is forecast to rise significantly this decade. Already, many large coal exporting nations are placing quantitative curbs on sales and are stepping up tax extraction. The prices of globally traded coal are back at record highs and remain volatile, hence on both counts, it is unsuited for power utilities.

We need to make early bets on nuclear as well as solar, and invest in their development. Nuclear is more mature and offers base load operation whilst solar with storage is still expensive and has limitations in meeting large scale base-load supply. It is always preferable for a country to have a mix of energy sources as a guard against man-made and natural events (for example, solar insolation can be seriously impacted by climatic events, volcanic ash in atmosphere, et al).

Investment in solar must cover its entire eco-system, across a wide range of basic sciences such as in chemical, metallurgical and semiconductors. We need to invest in nuclear too, to improve design, security, and local content and to utilise other fissile materials such as thorium.

B&E: What are the various bottlenecks – technological, infrastructural, financial, policy – that solar and nuclear face currently?
KR: The primary challenge is at the policy level: the high cost and relative novelty with technology (nuclear investments have suffered a 20 year hiatus globally, so current technologies are seen as new) understandably daunt the policy makers. A bold policy position, and a rigorous follow through to enable project implementation is necessary. It also needs to reduce the cost of doing business, which can be effectively done by exempting these two sectors and their eco-system from all direct and indirect taxes. Nuclear and solar technologies will benefit wider scientific development that these investments will spur; and for the energy industry, we need to treat this as our Sputnik moment. Financing is a significant challenge as both nuclear and solar are capital intensive and unlike a thermal plant, 80-90% of the life-cycle spend is upfront.

B&E: The disaster in Japan has raised questions on nuclear safety. Do the potential hazards of nuclear shift the equation towards solar more?
KR: This is possible, and in future as solar power technology overcomes current challenges of storage, scale and cost, we will see a shift away from nuclear power. The issue of nuclear safety is clearly non-negotiable, but the right way to address it would be to set adequate standards, set up processes to absorb lessons from other incidents, mandate periodic risk assessments and cost all this into tariffs.

B&E: What does the Indian government and business need to do to encourage solar power?
KR: The first step is to strengthen the manufacturing base as the bulk of the investment in a solar power IPP is upfront and largely in capital. The incentives to develop solar manufacturing made a promising start but have since lost steam. The Governments in many countries offer a suite of incentives totaling almost up to 50%. For example, the German programs extended a wide range of incentives including interest rate rebate, loan guarantees of up to 80%, labor grants, training assistance and R&D support. These help reduce the risk and cost of developing a new industry, and help realize benefits sooner. Others such as Taiwan have done the same as they developed their semiconductor industry in the 1980s and 90s.

The current approach of setting mandatory feed-in tariffs and tariff-based competitive bidding has created a market for solar power generation at more affordable basis. But there are serious doubts on conversion of these bids into live projects. It is worth championing a few large state supported solar projects in parallel, just as the likes of NTPC and NHPC developed earlier.

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