Mercom Capital Group, a global clean energy communications and research firm, recently released its quarterly update on the Indian solar market. India has reached 2.8 GW in solar installations year-to-date and cumulative installations have reached 8.1 GW as of August 2016. Mercom forecasts about 4.8 GW of solar to be installed in calendar year 2016. The solar project pipeline in India is now approximately 21 GW, with 14 GW under development and 7 GW scheduled to be auctioned.
“Solar installations and its share of energy generation has picked up speed but distribution companies continue to be a drag on the sector and are showing reluctance to purchase solar in light of low power demand and cheap power availability on the exchanges,” said Raj Prabhu, CEO and Co-founder of Mercom Capital Group. “This is an alarming development that the central government should address immediately to restore confidence among developers and investors,” he added.
Low bids are still a challenge and projects with bids below Rs.5 (~$0.0746)/kWh have yet to close financing. Although bids stabilized somewhat, they fell again with the lowest reaching Rs.4.35 (~$0.0649)/kWh in the latest JNNSM Phase II Batch 2 auction in Rajasthan. Based on our channel checks, Chinese modules in India are currently available for ~$0.39 (~Rs.26)/watt which is the cheapest average selling price currently anywhere in the world. Module prices are forecasted to drop even further in the short-term due to the massive oversupply situation in China. With solar panels making up approximately 60 percent of project costs in India, China’s oversupply issue is a big boost for Indian project developers but not so much for Indian manufacturers.
Current incentives have not been enough to move the solar rooftop market forward. Accelerated depreciation is set to come down to 40 percent in FY 2017-18 from the existing 80 percent. The government’s decision to increase solar parks from 20 GW to 40 GW to make up for slow rooftop adoption indicates that the goal for 40 GW of rooftop solar by 2022 is flexible. According to a recent MNRE report, the Goods and Services Tax (GST) bill will largely be a negative for the solar sector. However, the details are not yet determined and it is still unclear whether renewable energy will be exempt. Developers expect the ‘change in law’ clause in PPAs to protect them from the negative impact of GST.
Consolidation activity has picked up in the sector, especially in the downstream segment. Welspun’s 1.1 GW project portfolio was acquired by Tata Power earlier this year for $1.4 billion (~Rs.9,380 crore). There are a number of other M&A deals in the pipeline. “Companies loaded with debt are finding it difficult to grow in this highly competitive environment and we expect to see a lot more M&A activity on the project side,” further commented Prabhu.
Though grid congestion and transmission infrastructure is a problem in some regions, low power demand especially from lucrative industrial and commercial segments is negatively affecting DISCOMs and their revenues. DISCOMs have resorted to sporadic curtailment from some solar projects in Rajasthan and Tamil Nadu as cheaper power is available on the power exchanges. Grid connection and timely evacuation continues to be a big challenge considering solar project developers do not have the benefit of deemed generation. India’s first solar with energy storage tenders were issued in August 2016 totaling 300 MW.
In a welcome development, the Solar Energy Corporation of India (SECI) announced a Rs.15 billion (~$224 million) payment guarantee fund to ensure timely payment to developers for projects developed through Viability Gap Funding (VGF). Mercom has been calling for a payment guarantee fund for all projects using the National Clean Energy Fund (NCEF) for some time to help significantly improve the bankability of projects, reduce borrowing costs and development risks.
The more than 50-page report extensively covers progress under various JNNSM and state projects and policies, the current market share of large-scale solar project developers, rooftop installers, solar inverter manufacturers, solar module prices, and import and export updates. Other major industry developments impacting the solar sector have also been analyzed in this comprehensive report.