New regulations launching a system of feed-in tariffs (FIT)  for renewable energy were announced by  India’s Central Electricity Regulatory Commission (CERC), based in New Dehli, on September 17, 2009. This is a German model meaning an obligation for utilities to purchase, at a set price, the electricity generated by any renewable energy system. This means that now the world’s largest single political jurisdiction now has made an important move towards commitment to developing renewable energy with guaranteed feed-in tariffs. Moreover, they are to include both wind and solar energy.

A comprehensive system of feed-in tariffs has shown to be a great incentive for developers to invest in such new technologies. While China, up to date, has announced feed-in tariffs for wind energy only, it is expected to reveal tariffs for solar energy later this year.

While so far, solar power in India had found it difficult to attain commercial viability, it could now become commercially interesting. Previously, it has generally been pushing forward in niche areas like rural electrification, which is a great opportunity for areas deprived from grid connectivity and has raised living standards. But now the two biggest industries in Asia, China and India, are taking action in regard to laggards in the developed world. This is putting developing nations ahead of states such as the US, which have no a national goal of a renewable energy share in their energy mix. This will strengthen their position in the run up to the climate change negotiations in Copenhagen. Including the EU  about one-third of the world’s population now have committed to developing renewable energy with feed-in tariffs.

India’s action plan calls for five percent of electricity generation in India to be from renewable sources by 2010 and to increase one percent per year for the next ten years. After the government of India announced feed-in-tariff to the maximum of Rs 15/kWh in case of grid connected systems in March 2008 West Bengal became the first state to declare FIT at Rs 11/kWh. It has not been said by CERC if they would set specific tariffs or whether each project would apply for tariffs individually. CERC’s regulations are a primer on how to calculate tariffs for each technology.

The system envisaged is comparable to the method used in Europe. They intend to specify a “normative return on equity” used in the calculations of 19 percent pre-tax during the first 10 years, and 24% after 10 years (specifying the tariffs before tax).

The aspirants to invest in solar power include entrepreneurs from all social strata, down to ordinary investors. The stream of applications for setting up solar photovoltaic power plants varying from 1 MW to 5 MW has exceeded a figure of 1,000 MW by mid-April, despite the annual limits of 50 MW set by the government. Therefore, the restriction on annual capacity addition, mainly because of fears of FIT subsidy increasing beyond budget outlay, could become an artificial barrier in the process to the growth of solar power. This is a scenario that has happened in several European states, but only proves that the public is keen to install alternate energy systems that lets them feed excess power generated back to the grid and get paid for it. The utility gets power without having to spend on new infrastructure. The individual takes the risk in installing the new infrastructure, but has a guaranteed market in the form of the utility which takes the ‘risk’ in marketing the new power. India generates nearly 700 billion units a year and with 30% loss, consumption paid for is about 490 billion units. If a 2 paisa additional tariff is levied upon each unit it would raise resources to the tune of Rs 9.8 billion that can support annually solar power of nearly 55 MW without much strain on government budget.

Feed-in tariffs have been the force behind the spectacular success of renewables in countries such as Germany, and are now are followed up by many others (Sri Lanka, Thailand, Latvia, Brazil, Indonesia, Nicaragua, China …)

It’s clearly a positive sign that another economy, and one of 1,1 billion people, is taking up the system and will hopefully have positive impact and set an example for more to follow suit. Once renewable energy is established well enough, it will be profitable in itself, and offer high quality jobs in an ever growing industry.