Solar Thermal Energy Comes to Rajasthan

SOLAR THERMAL ENERGYCOMES TO RAJASTHAN

Technology transfer through an innovative public-private partnership

G l o b a l E n v i r o n m e n t F a c i l i t y

w w w . g e f w e b . o r g

This is a story about three partners and a promising new technology…

The Government of India

(GOI) is promoting the

accelerated development of

renewable energy resources,

making it a priority under

its National Environmental

Action Plan. KfW is Ger-

many’s official development

bank for economies in tran-

sition and developing coun-

tries. The Global Environ-

ment Facility (GEF) is the

leading multilateral entity

promoting clean energy

technologies in developing

nations and industrialized

countries transitioning to

market economies.

Together, they are demon-

strating parabolic trough,

solar thermal energy for the

first time in the developing

world.

June 2000


Solar Thermal EnergyComes to Rajasthan

History

Beginning in the 1980s, energy planners re-viewed options for parabolic trough, solar ther-mal power stations in developing countries.However, this renewable energy technology,particularly suitable for tropical developingcountries with stable and intensive degrees ofsolar insolation, was first introduced in indus-trialized country power markets. More than 300megawatts (MW) of active solar thermal powercapacity were installed in California in the early1980s.

In 1994, the Indian government commissioneda site specific feasibility study for a 35 MWpower plant to be situated in arid Mathania,Rajasthan, near Jodhpur. This study became thesubject of further review by engineering con-sultants engaged by the state government ofRajasthan and was supplemented by technicaloptions assessments conducted in 1996 with theassistance of the German bank KfW. As theoutcomes of these assessments and solar fieldperformance reviews were favorable, theRajasthan government decided to pursue the firstcommercial-scale, solar thermal investment ina developing country and invited KfW and theGEF to support this pioneering undertaking.

The main objectives of the Mathania project are:(a) to demonstrate the operational viability ofparabolic trough, solar thermal power genera-tion in India; (b) promote commercial develop-ment of solar thermal technology and cost re-duction; and (c) help reduce greenhouse gas glo-bal emissions in the short and longer term.Operational viability will be demonstratedthrough operation of a solar thermal plant by anindependent power producer which will sellpower to the utility through commercial powersales and contracts. Technology development

will be supported through technical assistanceand training. The project is expected to avoidemissions of 3.1 million tonnes of carbon overthe solar thermal plant’s operating life, relativeto generation from a similar-sized coal-firedpower station.

The Mathania project concept entered the GEFwork program in 1996. With a GEF contribu-tion of US$49 million and a total financing vol-ume of US$245 million (co-financed by thegovernment of India and KfW, and executed byKfW), it is one of the largest of some 82 GEF-sponsored energy investments. Two additionalsolar thermal technology commercializationprojects for Morocco and Mexico have recentlybeen added to the GEF work program. Anothertwo for Brazil and Egypt are in the GEF projectpipeline.

GEF Strategy and Rationale forGEF Support

As a financial mechanism for the U.N. Frame-work Convention on Climate Change, GEF issupporting country efforts to reduce the burn-ing of fossil fuels and increase use of renew-able energy technologies. A variety of short,medium, and long term approaches to hasten theachievement of these goals are supported bythree GEF operational programs that:

• Remove barriers to energy efficiency and en-ergy conservation

• Promote the adoption of renewable energy byremoving barriers and reducing implementa-tion costs

• Reduce the long-term costs of low greenhousegas-emitting energy technologies.

The last of these programs puts the global warm-ing challenge in a strategic, longer term perspec-



tive: taking into account that none of the cur-rent mainstream energy technologies providesa solution, GEF helps open doors for renewableenergy technologies with superior potential indeveloping countries. These technologies arenot yet economically viable, but constitute themost promising medium-term alternatives withpotentially significant shares in these energymarkets.

Recognizing that investing in visionary solutionsentails risks similar to investing in any otheremerging technology market, GEF limits its roleas a “technology prospector” to options that aretechnically proven and have already gained somecommercial interest. The diversity of GEF’sapproaches to promoting cleaner energy solu-tions provides an effective hedge for GEF’s tech-nology prospecting ventures, including its solarthermal investments.

GEF generally aims to foster strategic shifts intechnology market development trends towardssustainable solutions. This is being done byoffering co-finance for innovative tools and ser-vices that can help developing country clientsactivate market forces for rapid commercialtransfer and dissemination of environmentallyprudent technologies. This may include co-fi-nancing for information, advisory, and financialservices with a promising track record. Proveneffectiveness in the removal of constraints thathamper market development is a prerequisite forGEF support.

Experience gained in GEF operations suggeststhat one key to success is to find ways andmeans to effectively influence market devel-opment trends without distorting them. Ex-amples abound where government sponsoredclean technology programs actually had ad-verse effects on these markets. Some inter-

ventions generated considerable short-term de-mand for emerging technologies that tempo-rarily led to premium prices. However, as soonas the subsidy “cushion” which fueled the pricehike was gone, the technologies sometimeswere even less competitive.

GEF seeks to build public-private partnershipsbased on a good understanding of market forcesand on comprehensive assessments for the com-mercialization potential of emerging technolo-gies such as solar thermal power. GEF aims toengage the most innovative technology provid-ers in a competitive process that leads to thedemonstration of the most promising applica-tion in specific developing country markets.Demonstrations are led by developing countryclients and executed together with public andprivate partners.

The initial motives for GEF co-financing newlyemerging technologies like solar thermal troughsare:

• Awareness raising about promising clean tech-nology alternatives particularly suitable fordeveloping country markets

• Demonstration of feasibility under develop-ing country conditions and to expedite the in-troduction of new technologies in develop-ing countries

• Transfer of instrumental technological skillsand know-how, including training and capac-ity building

• Building local engineering and technology as-sessment capacity

• Reducing initial costs.

Once these goals have been met in the solar ther-mal projects currently planned in India, Brazil,Morocco, Mexico, and Egypt, the GEF mayconsider playing an active role in facilitating



progressive market development. If the out-comes of comprehensive market analysis sug-gest that the GEF — together with other part-ners — has a strategic potential to expedite com-mercialization of this technology alternative indeveloping country markets, GEF may take thenext step. This phased approach and formationof strategic public-private partnerships allowsGEF to effectively manage and share risks, andto respond flexibly to unexpected barriers on thepath to commercialization.

The Mathania Case

The project involves construction by the privatesector of a solar thermal/fossil-fuel hybrid powerplant of about 140MW incorporating a parabolictrough solar thermal field of 40 MW; and tech-nical assistance to support commercialization ofsolar thermal technology.

The solar thermal/hybrid power station willcomprise: a solar field with a collection area of219,000 m2 to support a 35MWe to 40MWesolar thermal plant; and a power block based onmature fossil fuel technology. The proposedproject will be sited at Mathania, near Jodhpur,Rajasthan in an arid region. In addition to highsolar insolation levels (5.8 kWh/m2 daily aver-age), the proposed site involves approximately800,000 m2 of relatively level land with accessto water resources and electric transmission fa-cilities. The solar thermal/hybrid station willoperate as a base load plant with an expectedplant load factor of 80%. The final choice of thefossil-fired power block will be left to the bid-ders, subject to performance parameters set outin the tender specifications.

The design choice is an Integrated Solar Com-bined Cycle (ISCC) involving the integratedoperation of the parabolic trough solar plant with

a combined cycle gas turbine using fossil fuelssuch as fuel oil, low sulfur heavy stock (LSHS)or naphtha. Such a plant would consist of thesolar field; a combined cycle power block in-volving two gas turbines each connected to aheat recovery steam generator (HRSG) and asteam turbine connected to both HRSG; andancillary facilities and plant services such as fireprotection, fuel oil/LSHS/naphtha supply andstorage system, grid interconnection system,water supply and treatment systems, etc. A con-trol building will house a central microproces-sor control system that monitors and controlsplant operations.

The project will provide technical assistance toensure that adequate institutional and logisticalsupport for the technology is available for fu-ture expansion of solar thermal power. Specifi-cally, funds will be made available for: the pro-motion of solar thermal technologies amongpotential investors; an operation and mainte-nance efficiency improvement program; moni-toring and evaluation of the project and of theoverall solar thermal program in India; stafftraining and development of a local consultancybase; upgrading of test facilities; and improvedcollection and measurement of solar insolationdata and other solar resource mapping activi-ties.

The capital cost of solar thermal power genera-tion technologies is significantly higher thanfossil-based conventional power. Nevertheless,costs have been falling sharply, from $5,000 perkW for the first solar thermal plant to $2,900for the latest Luz plant in California. Recentestimates for proposed integrated solar com-bined cycle plants are estimated to be $2,000per kW. GEF support, supplemented by a fi-nancial contribution of $20 million from thegovernment of India, will directly help “buy



down” the installation and associated technol-ogy development cost of the solar power plantto render it competitive with other sources ofpower in Rajasthan.

Demonstrating the solar plant’s operational vi-ability under Indian conditions is expected toresult in follow-up investments by the privatesector, both in the manufacture of the solar fieldcomponents and in larger solar stations withinIndia. Insights into local design and operatingfactors such as meteorological and grid condi-tions, and use of available back-up fuels, areexpected to lead to its replicability under Indianconditions, opening up avenues for larger de-ployment of solar power plants in India and othercountries with limited access to cheap compet-

ing fuels. Creation of demand for large scaleproduction of solar facilities will in turn lead toreductions in costs of equipment supply andoperation. It is also expected to revive and sus-tain the interest of the international business andscientific community in improving systems de-signs and operations of solar thermal plants.

Another Partnership Example

Another example illustrating potential roles forGEF and KfW beyond initial technology dem-onstrations and related capacity building is astudy jointly commissioned by the two partnerson the commercialization of photovoltaics (PV)for certain grid-connected applications in con-junction with hydro-power.

India’s Energy Sector

India’s power sector has a total installed capac-ity of approximately 77,000 MW of which 65%is coal-based, 28% hydro, and the balance gasand nuclear-based. Power shortages are esti-mated at about 10% of total energy and 20% ofpeak capacity requirements and are likely to in-crease in the coming years. For the period fis-cal years 93 to 97 nearly 50,000 MW of capac-ity additions were required, but due to financialconstraints less than 20,000 MW were realized.The bulk of capacity additions involve coal ther-mal stations supplemented by hydroelectricplant development. Coal-based power involvesenvironmental concerns relating to emissions ofsuspended particulate matter (SPM), sulfur di-oxide (SO

2), nitrous oxide, carbon dioxide,

methane, and other gases. On the other hand,large hydro plants can lead to soil degradationand erosion, loss of forests, wildlife habitat andspecies diversity, and, most importantly, the dis-placement of entire communities.

To promote environmentally sound energy in-vestments as well as help mitigate the acuteshortfall in power supply, the Government ofIndia (GOI) is promoting the accelerated devel-opment of the country’s renewable energy re-sources and has made it a priority thrust areaunder India’s National Environmental ActionPlan (NEAP). GOI estimates that a potential of50,000 MW of power capacity can be harnessedfrom new and renewable energy sources but dueto relatively high development costs experiencedin the past these were not tapped as aggressivelyas conventional sources. Nevertheless, devel-opment of alternate energy has been part ofGOI’s strategy for expanding energy supply andmeeting decentralized energy needs of the ruralsector. The program, considered one of the larg-est among developing countries, is administeredthrough the Ministry of Non-Conventional En-ergy Sources (MNES), energy developmentagencies in the various States, and the IndianRenewable Energy Development Agency Lim-ited (IREDA).



Although current PV installation prices wouldstill need to come down by more than 50% toenable full competitiveness, leading PV suppli-ers have confirmed independently that thiswould be a realistic target if GEF, together withKfW and other interested financing entities,could facilitate procurement of 500MW or morein one large package. Aggregating the marketto such an extent would require a strategic alli-ance of key actors interested in developing it.In addition to targeted efforts to identify andmatch capacity demand and PV panel supplyby the manufacturers, it would require consor-tia of public and private banks as well as othersources of venture capital.

The role of the GEF in facilitating the designand implementation of investment packages ofsuch a scale could be the one of broker and syn-dicator. In addition, GEF may also consider pro-vision of partial risk guarantees and other formsof contingent financing to address incrementalinvestment risks in such pioneering market trans-actions.

Taking into account that the above approachmight be as interesting for the commercializa-tion of solar thermal troughs as it is for PV-hydro co-generation, one could imagine that afollow-up study to address solar thermal com-mercialization options could become the nextaddition to the KfW-GEF partnership.

Prepared by Frank Rittner, Program Manager(Climate Change), [email protected]

The Global Environment Facility is a multilat-

eral financial mechanism that assists developing

countries and countries with economies in transi-

tion to protect the global environment in four ar-

eas: biodiversity, climate change, international wa-

ters, and ozone layer depletion. GEF has funded

more than 650 projects in 140 countries, commit-

ting close to $3 billion in grants and raising an

additional $8 billion in co-finance. These projects

are implemented by the United Nations Develop-

ment Program, the United Nations Environment

Program, and the World Bank on behalf of the GEF.

Documents

Solar Thermal Energy Comes to Rajasthan