Sun shining on solar sector, KPMG report shows how

India is blessed with abundant sunlight. A 55-square km stretch in Thar Desert, Rajasthan, if used to generate solar power could feed India's entire electricity need. The only glitch is the cost of producing solar power per unit of electricity is prohibitively expensive now.

Solar power generation's proximity to the consumer will help cut down transmission and distribution losses. Reuters

This may not remain for long if one goes by the KPMG report on the solar energy sector in India, which was released on Tuesday. "The key driver of growth in this sector is the concept of grid parity," says the report. This refers to the point where the cost of solar power equals the cost of conventional power. An electricity grid receives electricity from various sources of power before being transmitted to our homes. The current cost per unit of solar power is Rs 11 per kwh unit. Electricity price through conventional sources -- coal, gas -- is Rs 5.42 per kwh unit.

Over the next 10 years, KPMG estimates that conventional power cost will rise 4% while the solar power price will decline between 5-7%. "This will create parity by 2017," said Santosh Kamath, executive director at KPMG and one of the authors of the report. Listen to an interview with him.

He says the government needs to give adequate push to decentralised distributed generation using solar power. Currently, the focus is on a centralised utility scale. For example, large power plants have to be near the fuel source and are located away from the demand centre. Solar energy will enable power generation close to where the consumer is located. This will help the government reduce transmission and distribution losses. India's current power generation capacity is 120 gw. As much as 30% of the power is lost in transit.

The fall in the cost of solar power will be largely driven by technological advances. According to The Economist, a new solar thermo-electric device could do the trick. American scientists have found a new way of making electricity from the sun.

Here are some takeaways from the KPMG report:

Solar energy can contribute to about 7 percent of India's total power needs and save 71 million tonnes per annum of coal by 2022. KPMG estimates that this could save 30% of India's coal imports.

* Solar power can save 95 million tonnes of carbon dioxide emissions per annum by 2022. This would be 2.6% of India's total emissions in that year.

* The Indian annual solar market is expected to grow to 2.7 gigawatt (1 gw = 1,000 mw) by 2017 from 0.7 gw now. It is expected to take off from hereon as grid parity is achieved. In five years, by 2022, it is expected to grow to 23.1 gw.

* Government needs to make lending by banks easier to the solar energy sector. It needs to classify renewable energy and cleantech areas as a separate sector for measuring sectoral exposure limits for banks. The government also needs to grant priority sector status. Kamath says since solar energy is considered as part of the entire power sector, banks are unable to lend as they are reaching the sectoral limit prescribed for banks.

* The total connected load of agriculture pumpsets is expected to be in excess of 100 gw by 2020. To put things in perspective, this could be 17% of India's total energy consumption that year. Encouraging large-scale use of solar power would be necessary.

* There is a need to enforce solar water heating in the residential category.

* The total investment required in projects and applications space could be around $110 billion.