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‘Capacity Building An Issue’: Ajay Mathur Of International Solar Alliance On Shifting To Renewable Energy

In this week's The Core Report: Weekend Edition, financial journalist Govindraj Ethirak spoke to Ajay Mathur to understand why India needs to create electronic platforms which reduce the transaction cost of creating domestic bonds in particular, thereby enabling financing opportunities.

By The Core Team
New Update
Ajay Mathur

The 2023 United Nations Climate Change Conference ended with a call to phase out the use of fossil fuels. While renewable energy has been cited as one of the solutions to tackle global warming and climate change, it is easier said than done for the global south. 

In fact, a recent study found that richer countries were forcing poorer countries with heavy debt to keep relying on fossil fuels. Moving to other forms of renewable energy also requires capital investment. 

Even for India to move to alternative forms of energy, we would need guarantees from the developed economies that investors would get returns on investing in new energy projects. 

Ajay Mathur, director general of the International Solar Alliance (ISA) said, “Let's ask the developed world to create these guarantees, and let us ourselves create electronic platforms which reduce the transaction cost of creating bonds, domestic bonds in particular.”  

The International Solar Alliance (ISA) is a member-driven collaborative platform, initiated and brought together by the government of India a few years ago.

A recent report by the International Energy Agency said that India has an ambitious target to more than triple its renewable energy capacity by 2030, but the country needs as much as $293 billion to achieve this. Mathur said that one of the ways to bring this kind of investment from abroad would require India to get its funds from bonds and divert loans to other projects.

“What it does is that that money can be used for another loan, another project. You increase the velocity of money in the manufacturing sector and very quickly, as soon as the operating asset is there, you convert it into bonds,” he said.

He said that having platforms through which bonds can be financed could be one way of decreasing the transactional cost of making bonds. Bonds also allow international institutional investors to buy them through pension funds. “There's enough pension money even within India to be able to create, to fund the bond market for this,”

In this week's The Core Report: Weekend Edition, financial journalist Govindraj Ethirak spoke to Ajay Mathur to understand why India needs to create electronic platforms which reduce the transaction cost of creating domestic bonds in particular, thereby enabling financing opportunities. 

Edited excerpts: 

Can you tell me a little more about this alliance as it stands today in terms of the number of countries that are part of it, who is doing what, and where are we as, let's say, citizens, in whichever country we are experiencing, let's say, the work that the ISA is doing. 

The International Solar Alliance today is an intergovernmental treaty organisation with 118 member countries, and it's expanding very fast. By the end of the year, we expect to be 120 in the next 20 days. We receive resources from about 20 countries, and philanthropic organisations and are working in 55 countries. In these 55 countries, we are working on making solar the energy source of choice in these countries, which implies, we provide the information, the kind of advocacy that is needed for leaders to convince them that solar is the way to go and for them to convince their constituencies. 

But the second is, how on earth do we help make this happen? Which means developing people. We do a lot of capacity-building programmes. It means changing the regulations so that finance can flow in and that finance can help build up solar capacity. 

We have seen a huge amount of money come into the solar sector globally in the past year. Last year, it was in excess of $310 billion but 74% of it went to the OECD countries and China. The big challenge is how do you make money flow into other countries. Capacity building is a key issue. Developing the regulations that can bring in the money gives investors the confidence that countries are worth investing in. That's the second. 

Helping countries build up the institutions that are necessary for this to happen is third. Those are the kinds of things we do in order to make solar as the preferred option.

Let's pick on that number first. $310 billion you said went into solar capacity creation in the last year. 74% you said was OECD plus China. Now, what is the contrasting number? What was the overall energy investment, or what percentage roughly is this in terms of what is being spent on energy capacity currently, including, obviously, fossil fuel? 

In the electricity sector, almost 100% of the money, 98%, went into renewables. Of that, about 50, actually 40% came to solar, and approximately an equivalent amount went to wind, and a little amount into other things like biomass, hydro and so on. 

In the year 2023, we are looking at approximately an addition of about… 72 gigawatts of capacity (in India). We are expecting that in the coming year, it will increase by 20 to 25 gigawatts. Globally, we have something of the order of approximately, the addition is about 380 gigawatts. So 20 gigawatts in India, 380 gigawatts globally. 

In the year beyond that, we expect that in India, it will suddenly increase to something like 50 megawatts. I'll come to the reasons for it. And globally, it will be about 500, 520-530 gigawatts addition in 2025. 

We are looking at a huge growth, and we are looking at an even greater growth in the years to come. 

This means you're saying that almost all the energy for electricity investment that happened in the last year, all of it is going into solar or a substantial part of it.

About 40% is going into solar. Yes. But all of it is going into renewables. 

For example, last year, if you look at India, there was no investment in fossil fuel-based capacity in 2022. No financial institution made any investment in fossil fuel capacity. 

And where does India stand vis a vis the rest of the world in these proportions, in terms of how much investment is going into renewable and then solar versus, let's say, conventional energy? 

About $11 billion is the investment in solar in India, and the total amount of investment is something of the order of about $18 billion. In India, solar obviously predominates over everything else. 

And how does that contrast with the rest of the world? 

Globally, what we are seeing is that approximately less than 50% of the investment is in solar. But globally also, what you are seeing is that there is very little investment going into fossil fuel based production, though there is some happening globally, but it is like 2%- 3% of the total investment. 

Roughly, solar is about half of all renewables investments. Would that be correct? 

That's about correct. Yes. Yes, it is. 

Now, if we were to look at solar, which is really your domain now, could you take us through the kinds of investments we've seen in India again in the last, let's say, five years or so. I know it's substantial, but if you could just walk us through that. And where are we right now in terms of projects that are going on and are likely to be commissioned soon? 

One of the things that happened in 2019 or 2020, I forget which year it was, we first had electricity from solar being produced at prices that were less than that of fossil fuel based electricity, but only when the sun was shining. And that price has gone down. Today you can get solar electricity at about Rs 1.99 a kilowatt hour, but only when the sun is shining. 

An interesting thing that's happened is a couple of months ago, the railway energy management company made a call for renewable electricity, round the clock… firm electricity. And this was not small, it was 1000 megawatt, 1 gigawatt order and results that they got were between Rs 3.99 and Rs 4.21 per kilowatt hour. The coal power plants which have been completed now have been given tariffs in excess of Rs 5 per kilowatt hour. In other words, we have, I think, made an economic turn. 

The challenge now is, do we have enough land, do we have enough money? 

Although the price of electricity is 80% the price of coal-based electricity, the capital investment is twice because this is solar plus wind plus storage. Also, remember that we don't then spend money every year on buying coal or diesel or gas. The capital cost is 95% of the cost. So whether we have enough money, whether we have enough land, and whether we have the right transmission lines from the places where the solar and wind and storage capacity will be there to the load centres. Those start becoming the key questions. 

Can you give us numbers for capital cost per megawatt today in solar versus, let's say, conventional fossil fuel-based? 

Let's look at a 100-megawatt coal plant, which operates at 85% availability. This would cost somewhere in the vicinity of about Rs 900 crores today. Equivalent amount of electricity round the clock being produced by solar plus wind plus battery would cost about Rs 1,900-1,950 crore… somewhere in that vicinity. So it's almost double the cost… that is the biggest… but the cost of electricity. And this is also at 85% availability. 

It's interesting and it's important, I guess to note for people who are looking at it from the outside, like me, that you are considering all these together. You're looking at solar plus wind plus storage as a package. 

As a package, it's able to provide firm electricity because when the sun isn't shining, the wind is there. When the solar and wind are not there, we are getting the electricity from batteries. 

When you compute this cost of the capital expenditure, are you including the cost of land as well or is that outside? 

Yes, the cost of land is very much there. The cost of land is typically between 2% and 5% depending on where you are in the country. Very recently, the Government of Gujarat has set aside a piece of land for about 30,000 gigawatts. So they have solar space for solar there, they have space for wind there and they have space for storage there, batteries. 

I think you can meet all the demands of 2030 in about the land, which will be approximately 20% of the entire Thar desert. So it's quite possible that we can find the space. Now, I don't want all of it to be based in the Thar desert. It has to be across the country. But the point is, land will probably not be an issue. The availability of land to developers will be an issue. 

And when you say 20% of the Thar desert could power, how much? 

This could power somewhere in the vicinity of about 1,100 gigawatts of capacity. So this will be our demand in 2030. 

You're saying… India's entire one-year demand, I mean, or for that matter, even subsequent years, can be handled by the 20% of the Thar desert, at least the land part of it. And if you would obviously set up solar panels and wind energy and so on. 


The challenge would be the transmission of it, which is not going to be an easy thing in any case. 

Well, transmission will be easier if solar and wind and batteries are all at the same place, because then you would have one line between the place where the generation is happening and the load centre is there, and that line operates full all the time. Otherwise, if solar and wind and battery are at different places, you would have three lines that add to cost. But more importantly, each line is only operating at 30% availability….... .30% capacity, because, well, solar operates for one third of the time, wind operates for one third of the time, battery operates for one third of the time. 

And this combination of wind, solar and battery, how prevalent is it right now in India? And where in India are we seeing this? I mean, Gujarat seems to be one quite clearly, but where else are we seeing this come together in this form, the way you've described it? 

What is known as hybridization is a relatively new concept, and it's only now that it has started happening. We see it happening in Gujarat. We see it happening in Tamil Nadu. To a certain extent, we see it also happening in Maharashtra. Now most places, the sun is great as well. But places that are windy… and have good solar capacity need to be carved out by states as land, which then becomes available to people who win bids in auctions. 

Let me bring you to a more policy framework. A lot of the investment that's going into solar today is going from the private sector. What's your sense as we look ahead? How much is private going to drive this and how much is the government? What is the role of the government going to be in the actual setting up of these projects and so on? 

In India, we have to be a little careful when we say private, because you have the NTPCs, the NHPCs of the country, which are private… which are... let's say market companies. They're corporate. So let's call it corporates. So 100% of renewable capacity in this country is in the corporate sector, who are therefore also dependent on the discipline of the market. 

As far as the government is concerned, the main role it plays is as a regulator. And we have got the State Electricity Regulatory Commission and the Central Electricity Regulatory Commission, which provide the rules by which these guys operate, and these guys operate on the transmission lines through which they transmit electricity from where it's generated to where it is being used. More and more of the government will become a regulator. 

We do have the government as the owner of some older power stations, coal based power stations, that is there. But I think the 2003 Electricity Act, which separated out generation and transmission and distribution,  after that, effectively the corporatisation of the generation sector was complete, and then after that, there's very little generation left, which is still in government hands. 

If I may switch to what I mentioned earlier — batteries and storage. So it's very innovation-driven, because as opposed to, I'm sure solar is also innovating, but batteries, where everyone is looking very closely and you have the big marquee names like Tesla and others who are innovating in batteries, maybe reducing the size of batteries, increasing their storage capacity. What's your sense of where we are today, particularly when it comes to supplying electricity and storing it to, let's say, retail customers or consumers in the country? 

I think three or four trends are important. The first is that we have seen a secular fall in the prices of batteries. The prices of batteries between 2010 and 2020, ten years, fell by 80%. So they were 20% of what they were in 2020, and we have seen further decline since then. We don't have global numbers, so it's very difficult to figure out how much. So that's the first. So this is what has contributed to the solar plus wind plus storage being cost-effective. I argue here that batteries by themselves are not an electricity generation device, they're an electricity storage device. You need to look at the pooled cost of solar plus battery or wind plus battery or solar plus wind plus battery. That's the first point. 

The second thing is that most of the batteries today are cost-efficient. Cost-efficient batteries are lithium-ion batteries. We have had a problem with the availability of lithium, but the good thing is that once it was identified as a critical mineral, we started finding new deposits of lithium. For example, in Jammu and Kashmir, a survey had been done in the late 1960s, and they found bauxite there. They did not even look for lithium, because why did you want to look for lithium? Now in those same areas, we are finding lithium as well. We are finding lithium now primarily because we are now looking for it. This is one part. 

The reserves are being made up even domestically. The second thing which is happening is that the amount of lithium used in batteries has been declining because of competitive reasons. A lithium battery today uses about 10% less lithium than it did eight years ago. That's the second. 

And the last is we are seeing the development of non-lithium batteries as well. You have sodium-ion batteries. Sodium is much more easily available. You have redox batteries. These are flow batteries in which a Vanadium rich electrolyte is put in,  it converts into electricity, and then you again put in the material that you use. It greatly helps, because what it does is it enables new technologies to enter a market which is still evolving. And that's one of the messages I would like to leave with you. We will see changes in technologies as we go ahead. 

Now you talked about storage and you've talked about the material that goes into it. And let me just pick up on one point when you said that lithium is found or is being found next to bauxite. So is there any connection between these two minerals, or is it just coincidence? 

Well, lithium is found together with particular materials. Bauxite is one. The various elements that are needed for radioactivity, Uranium 238 and so on, or you actually look for 235 and enrich it to 238– those are, again, lithium is found with it. So, yes, there are particular materials with which it is found. 

If we were to come back to the policy side now, as you look ahead, what are you seeing as the key drivers for stepping up solar capacity, solar storage and the hybrid solutions that you talked about, and in light of the kind of ambitious targets that we have as India and perhaps the rest of the world?

I must confess that the railway energy management company tender has gladdened me immensely because this means that while we may spend a year looking for more places, looking for more money, and looking for more transmission lines… by 2025, this will start happening. 

That means that in the future we are looking at savings for us or for our utilities. All the utilities are making a loss, and therefore this would reduce the loss. We are also looking at a faster decline in the CO2 (carbon dioxide) emissions per kilowatt hour. We are also looking to provide electricity reliably where it is provided somewhat erratically. 

Now, this means that both on the development side and on the sustainability side, we are looking at a huge change starting from next year, but taking off from 2025. 

To touch upon financing for a moment, how are you seeing financing trends right now and going ahead? Because as you said, there is a gap in capital cost and it's twice as much. The returns obviously will come, but it'll take longer. So what's the proclivity of financiers to invest today? 

One of the issues is you need to get more money when we are making the projects, so we need more loans. If you're looking only domestically, it means that typically 25-33% investment in our economy occurs in the energy sector. Are we looking at doubling it? That's going to be very difficult. 

Therefore, what we are looking at is bringing it from abroad. If we are bringing it from abroad, how will international institutional investors be comfortable in it? And I foresee two ways. 

One is in the making of the project itself. For that, you need guarantees. Let us ask the world. We will only build renewable if you guarantee the returns that the investor will get. And I emphasise the guarantee because we will pay what it takes for electricity and those guys will make money. But the guarantee gives them confidence to invest. That's one part. 

The second is very quickly, as soon as the asset is up and running, the operating asset gets its funds from bonds and then retires the loan that it has. What it does is that that money can be used for another loan, another project. You increase the velocity of money in the manufacturing sector and very quickly, as soon as the operating asset is there, you convert it into bonds. Now, having platforms through which bonds can be financed would be one way of decreasing the transactional cost of making bonds. Bonds also allow international institutional investors to come in and buy them because these are pension funds. And what does your pension fund and my pension fund need? They essentially want surety that we are putting in the money. We will get a fixed amount of money every year. This is what it does. There's enough pension money even within India to be able to create, to fund the bond market for this. 

So, yes, we will need guarantees. Let's ask the developed world to create these guarantees, and let us ourselves create electronic platforms which reduce the transaction cost of creating bonds, domestic bonds in particular. 

And I was reading a CRISIL report that came out just two weeks ago which talked about the growth and the opportunity in the Indian domestic bond market, thanks to, obviously a lot of capital going in and looking for alternatives beyond, let's say, bank deposits and so on. At least on the demand side, the pipeline seems to be fairly strong. So if I were to therefore come back to that $310 billion figure that you talked about, so would all of that now, at this point of time, be mostly debt? 

Generally speaking, in India, we typically have projects which are 30% equity, 70% debt. Globally, it's a slightly less percentage of equity and a slightly larger percentage of debt, maybe 20% equity, 80% debt. I think on an average, let's think that it will be about 22% equity and 78% debt. So 28% of that $310 billion would be debt. 

Just to come back to the payback. Of course, the capital cost is higher, but the cost is much lower. And I know this keeps changing almost every few months or year at least. What's the current rate of payback? Let's say 100 megawatt of renewable, including the hybrid, to 100 megawatt of, let's say, coal, both starting on the same date and time. 

The back of the envelope answer is about five years. But note that the prices of renewables have kept dropping. If the prices did not drop, we would have had this payback in three years. 
Suppose we stuck at a price which we had in 2019, when the price parity of solar, when the sun is shining with fossil fuel was met, then we would have had by now a payback period of three years. But five years is where we are. 

And that's because the solar power projects are selling the power for much less than before, and therefore are obviously taking longer to recover what they've invested in the project. 

Absolutely right. 

And that is obviously being driven down by competition as well as policy, or one of?

Both because policy focuses on competition. Remember that we have had an evolution of policy. We went in, for example, with fixed tariffs, which would be paid for renewable energy. We found them through auctions in the renewable energy portfolio, obligations that were there with the states. We found them through the fixed tariffs that were there in many states. These were in the vicinity of Rs 18 to Rs 25 a kilowatt hour. We then moved to auctions that brought the prices down. 

Then we moved to reverse auctions, where the successful bidders in an auction were given one more chance to better the lowest price that had been quoted. And a public policy which has pushed competition. So I think the two things have worked together, and that has enabled the price of renewables today to be less than that of fossil fuel power.

The raw material for solar power projects is obviously the panels. We know that prices of those solar panels are coming down, even as the ingredients of it, the price of the ingredients of it are also coming down. Where are we on that scale today? And do you see prices coming down further and therefore, obviously bringing down the capital cost? 

This is a very complicated issue, because in the very short term, we see an uptick in the prices. For decades, the prices had been going down, but in the last two years we have seen an uptick. This is largely because most of the panels are made in one country, and that concentration has meant that the supply chains, for example, from China to India or China to Africa become choked. And it is the choking of supply chains which is leading to the increase in prices. 

Now, over the past year, we have seen a diversification, a geographical diversification in manufacturing. Without getting into details, what happens is that the price of panels is very low, and if any country manufactures more, for example, if India does it, it's 15% more. If the US does it, it's 35% more. You need short-term incentives for them to be able to compete and be in the market. 

In India, we are doing it through the PLI (production linked incentive) programme. In the US, the Inflation Reduction Act is providing those kinds of incentives. But what is happening is that as this global supply becomes available 2024-2025, we will see the prices going down. We will see an uptick, and then we will start seeing a decline. 

The second thing which is happening, which is longer term, is we are seeing new materials come in. We have heard of Perovskites for a long time. And now what we are seeing is Perovskites bases, and on top of it are these silicon semiconductors as we know them and these tandem cells are going to (bring) 30% plus efficiency. Today, the best is about 22-23%. 

When we talk about solar, it's not always institutional, large scale. It's also about, let's say, what I could be doing in my own home, if it's an independent home, or maybe even a community living environment situation. How do you see that and the growth of that? Is that part of your ambit? Also, if you were to, let's say, talk to the average consumer today, who perhaps may not be so visibly encountering the sources of power generation, what would you be telling them, really the aam aadmi, what would you be telling them about what you're doing? 

The challenges are different in different kinds of countries. In the emerging economies, particularly in urban areas, we see solar electricity come from large solar farms. But if you're talking of solar, of, say, universal energy access in Africa or even in rural areas in India, the largest part of electricity is what you generate close to you. You may do it on your rooftop, but you may also do it as a small solar mini gate. Solar plus batteries, plus a local distribution network. ISA did a study not that long ago, a few months ago, which looked at prices of solar electrification in Africa. And traditionally the electrification has been done by extension of the grid. Solar plus batteries today provide cheaper electricity than the extension of the grid, if the grid has to be extended by more than 10 km. 

We therefore are pushing for more and more countries to do electrification through solar, through mini solar than through grid extension. Similarly, there are other applications. Solar cold storages, solar pumps. These increase the income of farmers, and even if the electricity supply is irregular, they allow the farmer to farm efficiently and increase his or her income. These developmental benefits, apart from providing electricity, are what then drives change. In many, many countries, solar pumps and solar cold storages are part of what we are advocating.

And any words for the aam aadmi? I mean, how can I, for example, be part of this chain or part of this universe of alternate energy, renewable energy? And of course, to use your vision statement, let us together make the sun brighter. 

If you have a roof, use solar. It reduces your bills. And all of us are used to having batteries at home because of the old inverters that we have. It makes great sense. Find out a fellow close to you who provides this as a service. Make sure that you get maintenance as part of the deal that you are getting. You will be satisfied. 




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