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The Tamil Nadu Solar Policy: An innovative, ambitious work-in-progress

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Dr. Tobias Engelmeier is founder and Managing Director at BRIDGE TO INDIA. He consults international companies in developing successful market strategies in India.

BRIDGE TO INDIA has published its first INDIA SOLAR POLICY BRIEF on the Tamil Nadu Solar Policy. This policy brief presents a detailed analysis on the risks and opportunities on the state’s ambitious 3 GW solar power target till 2015. With its policy announcement in October 2012, Tamil Nadu becomes the seventh Indian state out of 28 to announce an official solar target. No breakup between photovoltaic (PV) and concentrated solar power (CSP) projects has been given as part of the policy.

The highlights are:

The policy document provides a break up of 1,500 MW of allocation to utility scale projects, 350 MW from rooftop projects and 1,150 MW through the renewable energy certificate mechanism (RECs)

Tamil Nadu has introduced this policy at a good time given the lull in the market due to no new allocations in the recent months

The policy has introduced innovative measures such as net metering that have not been implemented under any Indian solar policy so far

BRIDGE TO INDIA believes that while the policy is innovative and ambitious, implementation challenges need to be tackled for the policy to succeed in achieving its target

The policy is targeting 1,500 MW of capacity addition through utility scale installations. Of this, 1,000 MW will be allocated through competitive bidding for sale to Tamil Nadu Generation and Distribution Company Limited (TANGEDCO). The remaining 500 MW will be driven by private power purchase agreements (PPAs) with power consumers who need to fulfill solar purchase obligations (SPOs).A further 350 MW capacity addition is being targeted from rooftop solar installations. Of this, 300 MW is expected from the rooftops of government owned buildings, while 50 MW is expected from privately owned or domestic rooftops. For both, net metering is allowed. The remaining 1,150 MW of the total target is to be added through REC projects.

Tamil Nadu already has significant experience with the generation and transmission of renewable energy as it has the highest installed capacity for wind power in India (over 40% of total installed capacity; a total of 6,613MW in December 2011)[1].

At the same time, the state has a significant energy deficit. The total annual electrical energy deficit in the financial year 2011-12 was 8.9m MWh with a peak monthly deficit in March. The peak power deficit during that year stood at 2,247 MW or 17.5%. The Central Electricity Authority (CEA) estimates that the annual electrical energy deficit will significantly rise to 27.4m MWh (29.6%) in the financial year 2012-13 with an anticipated peak power deficit of 4,123 MW (30.7%)[2]. Power generation in Tamil Nadu comes mostly from wind, coal and hydro power plants. The state’s main industries are textiles and automotive.

Solar power could help reduce the deficit and the use of expensive diesel for back-up gen-sets. The generation potential in Tamil Nadu is high. Taking the average of various cities in Tamil Nadu, based on 2011 data from the Central Electricity Regulatory Commission (CERC)[3], we arrive at the following data points:

Average irradiation: 5.36-5.67 kWh/m2/day

Average ambient temperature: 28.8 degree celsius

Expected plant output: 1,560 MWh/year/MW

Capacity Utilization Factor (CUF) for a year: 17.81%

The Tamil Nadu distribution company (DISCOM) is a high loss making entity that can currently hardly afford to purchase expensive solar power over a long period of time through, for instance, long term Feed-in-Tariffs (FiT). The policy reflects this concern to some extent by shifting part of the financial burden from the DISCOMs to large power consumers.

The timing of the policy is good: The first wave of installations under the National Solar Mission (NSM) Phase I and the Gujarat Solar Policy has created a spurt of growth from almost nothing to 1,000 MW between early 2011 and mid 2012 with grid-connected power plants being built mostly in the states of Gujarat and Rajasthan in India’s north-west. Since then, the market has been very slow, waiting for the second phase of the NSM and new state policies such as the Tamil Nadu Solar Policy to be announced.

So far, the policy has attracted great initial enthusiasm from a number of new entrants: project developers from south India as well as large power consumers (obligated entities). However, the policy is still a work-in-progress and a number of essential aspects such as implementation of SPOs and other aspects or a payment security theme that ensure a realization of the targets are under discussion or need to be tackled. The strongest part of the policy so far is the SPO, which nudges industrial and commercial customers that are already plagued by high and rising power costs and low supply security towards adopting solar power quickly. The most interesting aspect of the policy is the net metering for 350 MW of rooftop projects as it has the potential to structurally change the solar market in Tamil Nadu and India as a whole (if implemented successfully). Most doubts come around the proposed targets for REC-based projects.

For the complete analysis on the Tamil Nadu Solar Policy, download the policy brief for FREE.

[1] Ministry of New and Renewable Energy (MNRE) annual report financial year 2011-2012[2] “Load Generation Balance Report 2012-13″; CEA. The annual peak power deficit is calculated by subtracting the highest availability at any point in time from the highest demand at any point in time during that year.[3] “Performance of solar power plants in India”; CERC

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India begins anti-dumping investigation on module imports from China, US, Malaysia and Taiwan

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Jasmeet Khurana, Market Intelligence Consultant at BRIDGE TO INDIA, is working on project performance benchmarking, success factors for module sales, financing and bankability of projects in India.

The Indian Solar (PV) Manufacturers’ Association filed a dumping complaint against module imports from China, US, Malaysia and Taiwan in January 2012 with the Directorate General of Anti-Dumping and Allied Duties (DGAD) at the Ministry of Commerce. Indian manufacturers alleged that international photovoltaic module suppliers are selling below cost, or “dumping” in the Indian market. Unlike their counterparts in the U.S. and Europe, Indian manufacturers have not restricted their dumping allegations to just Chinese module suppliers.

The DGAD claims to have found sufficient evidence to order an investigation into the allegations

If conclusive evidence is found, it may recommend an anti-dumping duty which is likely to come into effect only by around August 2013

Even though any anti-dumping duties are likely to spoil an emerging market for international module suppliers, they will have a small window of opportunity right before the implementation of such duties

BRIDGE TO INDIA expects that anti-dumping duties will be enforced selectively on both cells and modules with anti-dumping duties of 20-30%

The DGAD claims to have found sufficient prima facie evidence and is now ready to begin a focused investigation. The ‘period of investigation’ has been determined as between January 1st, 2011 to June 30th, 2012 (18 months).This means that over 600MW of module imports, mostly in Gujarat and batch one of phase one of the National Solar Mission (NSM) will be investigated for the import prices and other terms of sale.

If conclusive evidence is found in the investigation, based on the inputs from the DGAD, the Department of Commerce will then recommend a provisional or a final anti-dumping duty. It is only after this, that the Department of Revenue, under the Ministry of Finance will act upon such a recommendation and impose a duty.

The actual imposition of anti-dumping duties will depend on lengthy and complex proceedings where Indian and international module suppliers will be given due time to put across their respective cases. Based on previous anti-dumping duty investigations in India, it usually takes at least five-six months for any anti-dumping duty to be notified by the Ministry of Commerce and at least another three months for it to be implemented by the Department of Revenue under the Ministry of Finance. Hence, according to BRIDGE TO INDIA, anti-dumping duties are not likely to be implemented before August 2013.

Impact of the timing

Timing of the actual implementation is critical to assess the short-term impact of any such ruling. Projects under batch one of phase two of the NSM are expected to be covered under the Domestic Content Requirement (DCR). As there is a high likelihood of the DCR being extended to thin film modules this time, any anti-dumping duty will not have a significant impact on NSM projects. More clarity on the DCR is likely to be available within a few weeks as the MNRE expects to bring in the draft guidelines for phase two of the NSM (2013-2017).

Assuming that our estimate of the actual implementation date for anti-dumping duties is correct, projects allocated under the Rajasthan Solar Policy can attempt for early delivery and procure lower cost modules. The module delivery for these projects can be managed before August 2013 if the projects are executed on schedule.

Release of the bid document in Tamil Nadu is expected before the end of 2012 and as per the discussions in the consultation meeting on 23rd November 2012, the projects are expected to have a commissioning deadline before the end of 2013. This means that even these project developers can pre-order modules to avoid paying a higher price later.

Given the timing, BRIDGE TO INDIA expects a large number of orders to be placed and delivered just before the anti-dumping duties are implemented. International suppliers will have a small window of opportunity to sell their lower priced modules right before the implementation of such duties.

Likely scenario

BRIDGE TO INDIA does not expect equal anti-dumping duties to be enforced on all the countries and module suppliers under investigation. In fact, it will be difficult for India to enforce anti-dumping duties on module suppliers from the US. Indian manufacturers have petitioned for anti-dumping duties within a wide range of 20-200%. We and even the Indian manufacturers expect that anti-dumping duties of between 20-30% can be enforced selectively on both cells and modules.

Related Posts

Anti dumping duty may be announced soon: Ultimately threatens to negatively impact the industry

Unequal import duties along the value chain are a disadvantage for Indian manufacturers

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Revised benchmark CAPEX will help the VGF bidding process under the NSM Phase 2

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Jasmeet Khurana, Market Intelligence Consultant at BRIDGE TO INDIA has expertise in project performance benchmarking, success factors for module sales, financing and bankability of projects in India.

The Central Electricity Regulatory Commission (CERC) recently announced the revised benchmark capital cost for solar projects. In the order, dated October 25th 2012, the benchmark capital expenditure (CAPEX) for solar photovoltaic (PV) projects in India has been reduced to INR 8cr/MW. This is largely driven by the falling costs of PV modules. This has resulted in a 20% reduction from the earlier benchmark of INR 10cr/MW. As per our analysis, this revision of the benchmark CAPEX by the CERC ahead of the announcement of guidelines for phase two of the National Solar Mission (NSM), will pave the way for setting up of more reasonable allocation and execution procedures for projects under the policy.

New allocation of projects under phase 2 of the NSM will be based on bidding for Viability Gap Funding (VGF)

The maximum VGF that can be provided is based on a percentage of the benchmark CAPEX

A more realistic estimate of the benchmark CAPEX benefits the bidders by correctly estimating the required guarantee to be paid

As per our analysis, the revised benchmark CAPEX is a more realistic estimate of actual market costs

It is proposed that new allocations under the phase two of the NSM will use bidding based on Viability Gap Funding (VGF) as a mechanism to allocate new projects (to read more, download the October 2012 edition of the India Solar Compass). Under the VGF mechanism, the project developer that requires the minimum fund from the government to make their project viable will be allocated the project.

The maximum VGF that can be provided to any developer will be based on a fixed percentage of the benchmark capital cost. This percentage will be fixed by the Solar Energy Corporation of India (SECI). To draw out the guidelines for this mechanism, the SECI needs to set the limit of the funding it can provide to the projects in order to budget for the fund requirements for the upcoming bidding process. For example, if the VGF can be provided for up to 25% of the benchmark cost of INR 8cr/MW, SECI may need to provide a maximum VGF of INR 2cr/MW.

The mechanism will be designed in such a way that the developer asking for the minimum fund will be required to submit the maximum bank guarantees. This is done to ensure project completion. If the benchmark costs, as determined by CERC, do not reflect the actual costs, developers can be expected to pay unrealistic performance and other guarantees. A benchmark capital cost that reflects the actual market costs will only help in making the guarantees more reasonable. As per our analysis, this revision of the benchmark CAPEX by the CERC ahead of the announcement of guidelines for phase two of the NSM, will pave the way for setting up of more reasonable allocation and execution procedures for projects under the NSM.

For a complete background on the National Solar Mission, read our latest publication, the INDIA SOLAR HANDBOOK.

Read why the revised benchmark CAPEX might not be good news for REC project developers in India.

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Anti dumping duty may be announced soon – Ultimately threatens to negatively impact the industry

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BRIDGE TO INDIA attended the 6th Renewable Energy India Expo in New Delhi from November 7th-November 9th 2012. While the general air of excitement regarding the Indian solar market was lacking as compared to 2011, there was some cause of excitement for the Indian manufacturing industry. Chinese module companies were astir with the rumor of anti dumping duties being announced in the week starting November 12th 2012. Further, the anti dumping duty became the talk to of the ‘solar’ town when Solar PV TV and PV Magazine in collaboration with BRIDGE TO INDIA, decided to interview some industry members on how they felt, these duties would impact the market.

According to speculation in the industry, anti dumping duties may be anywhere between 20% – 30%

Manufacturers rooting for anti dumping duties, but developers fear rising cost of modules. With rising costs, solar will fight to be competitive in India, says Hareon Solar

BRIDGE TO INDIA feels that ultimately anti-dumping duties will have a negative impact on the market by disallowing Indian manufacturers to be price competitive in the global industry

The interviews were published as part of Solar PV TV’s Weekly News Update. Consultant Jasmeet Khurana was one of the interviewees in the coverage. You can view the video below.

Read more of our views on India’s anti dumping against imported modules here.

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A fair week in the Indian solar industry

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Dr. Tobias Engelmeier is founder and Managing Director at BRIDGE TO INDIA. He consults international companies in developing successful market strategies in India.

Last week was a week of conferences and fairs for me – a good opportunity to take stock of what is happening in the Indian solar industry. I attended the Intersolar in Mumbai, where we had our own stall, and the 6th Renewable Energy India Expo in Delhi. Let me share my impressions here. The main takeaways are:

Everyone is looking to sell power under private PPAs

There is less interest in NSM Phase II than in the RPO market

Anti dumping duties were hyped and then did not happen

Quality seems to (slowly) become more valued in a maturing market

The Renewable Energy Expo was around three times larger than Intersolar Mumbai. It had stalls from all renewable energy technologies – although solar dominated. Most Chinese and American solar companies had their stalls there. Europeans and Indians were more present at Intersolar. A few large players, such as Bosch had a booth at both fairs. Overall, it seemed that while there was more action at the Renewable Energy Expo, I had more serious conversations at the Intersolar. These were the themes that came up in my conversations:

Merchant power plants: Many project developers are looking at setting up projects based on private power purchase agreements (PPAs) with industrial or commercial customers. Such plants could be captive, often on rooftops and in the range of 100kW to 2MW or they could be ground mounted and servicing several customers through what is called group captive or Open Access (OA). The latter are typically in the range of 20MW to 100MW. None of these have been built yet, but in the absence of other policy-based project opportunities this is where interest focuses on.

NSM Phase II: There was surprisingly little discussion of the upcoming National Solar Mission (NSM) Phase II. Whenever the discussion turned to the topic, there was a lot of vague second guessing around viability gap funding, the split between PV and CSP. All in all, there was none of the vibrant sense of expectation we saw before the first phase of NSM.

RPO/REC: Both merchant plants and NSM projects are tied to the Renewable Purchase Obligations (RPO) requirements of distribution companies (DISCOMs), captive generators and OA customers. At most of my conversations, there was a sense that the RPO requirements would drive the market through the coming year and there is cautious optimism that RPOs would be enforced even on heavily indebted public sector DISCOMs. The view on Renewable Energy Certificates (REC) is more sombre. They are still seen as a high risk (and high upside) proposition. Many developers are looking for ways to share that risk (and the upside) with power consumers in some way.

Anti dumping duties: These were the “whispers in the corridors”. A Chinese module manufacturer told us that India will impose anti-dumping duties on Chinese modules very soon – it was to be announced this week. As always, at fairs such rumours spread fast and wide. Soon everyone was talking about it. So far, nothing has happened. And, given that there were no announcements on policy hearings yet, we continue to think that duties will not be imposed soon.

Andhra Pradesh and Tamil Nadu solar policies: Most market participants are still mulling over the details, loopholes and implications of these policies. We will come out with Policy Briefs on these policies soon to give our analysis.

Cost/quality: The question was how to ensure that India gets the best solar technology at the most competitive prices? Project developers are becoming more far-sighted and quality conscious. Prices offered are highly competitive. The hitch seems to be with banking institutions: will they finance projects under new (private) PPAs? Will they encourage the spread of new manufacturing technologies that can lower price/increase module efficiency?

Watch a video on our views on the solar trade case in India in collaboration with Solar PV TV and PV Magazine.

Download our latest edition of the INDIA SOLAR HANDBOOK which provides a detailed first look at the Indian solar market.

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