Month: April 2014

The election season in India is drawing to a conclusion. Most observers agree that while the overall performance of the UPA-II government has been checkered at best, one area where it has had some degree of success, is solar. The party manifesto takes credit for launching the Jawaharlal Nehru National Solar Mission (‘NSM’) and aims to lead a renewed push for renewables. Although unlikely as per most political observers, if the Congress was to lead a government for the third term, we would expect it to play a crucial role in helping transform India’s energy future.

The Congress wants to accelerate the implementation of the NSM target of 20 GW ahead of the 2022 deadline. The manifesto promises ‘a new thrust to new and renewable energy, including hydel, solar and nuclear energy’.

The manifesto can be said to lack the ambition and vision needed to make India a solar leader

The Congress could leverage its focus on the common man to accelerate the spread of distributed generation – but has so far not done so.

The Congress can credit itself with ushering in the solar revolution in India – at least at the national level. When the UPA-II government came to power in 2009, the installed solar capacity in India was less than 10 MW, today we are in the region of 2,300 MW. (It should be noted that nearly 40% of installed solar PV capacity in India (around 850 MW) is in Gujarat, a BJP bastion and a model state for solar energy.)

One of the key problems with NSM has been the lack of coordination between the MNRE and state governments. Renewable Purchase Obligations (‘RPOs’) have not been enforced in the manner they should have and the Renewable Energy Certificate (‘REC’) mechanism was pretty much dead on arrival.

Would the Congress be able to tackle the shortcomings and build on its achievements, if it comes back to power? Though solar finds a prominent mention in the party’s election manifesto, the language remains vague. Accelerated implementation of the NSM target is good. But how will it be done? And is it enough? The Congress could think further. In fact, sources indicate that the PMO has been considering revising targets to 100 GW of solar by 2027.

The party’s focus on social empowerment programs and Below Poverty Line (‘BPL’) families/ farmers could lead to an enhanced focus on distributed generation through decentralized solar, solar pumps, micro-grids etc. The Rajiv Gandhi Grameen Vidyutikaran Yojana, a flagship Congress program, is focused on electrification in remote villages and solar plays a key part in the scheme. Further, the Congress-led UPA-II did create SECI, with a stronger focus on rooftop solar solutions. So far, however, the government has not been ambitious enough to transform India’s energy story. SECI just allocated just 25 MW in the last and a mere 50 MW this year to rooftop solar projects. The target should to be at least 10 times as much. Kerala, a Congress ruled state, has shown the way by implementing the ambitious 10,000 solar rooftop scheme.

All in all, even though the Congress has tried its best to introduce schemes, it has lacked motivation to implement them successfully or achieve ambitious targets. If it comes back to power, the Congress will have to do a lot more than just ensure accelerated implementation of the NSM. It will need to recognize the importance of solar in the context of India’s energy security and drive and manage a complex and vast transformation of the energy future. This is a tall bill – but it would be a worthy political project.

Karan Raj Chaudri is ‘Manager- Consulting’ at BRIDGE TO INDIA.

BRIDGE TO INDIA understands that Ministry of New and Renewable Energy (MNRE) plans to allocate 1,500 MW of solar PV projects under the National Solar Mission (NSM) towards the end of this year. These new projects are likely to follow the bundling mechanism, similar to phase one of the NSM and unlike the Viability Gap Funding (VGF) mechanism used for the recent 750 MW of NSM projects, where Power Purchase Agreements (PPAs) have already been signed for 700 MW and another 50 MW PPAs should be signed soon with the waitlisted bidders. Apart from that, another 1,000 MW allocation is planned under the VGF mechanism for the next year.

The capacity allocation plan by central agencies under NSM will be back on track for phase two of the NSM

If states continue to provide new capacity, the target of 10 GW by 2017 for NSM will most likely by achieved despite failure of RPO mechanism

MNRE and CERC have revived their efforts to boost the REC market

As per the guidelines for phase two of the NSM (2012-2017), 2,320 MW of PV and 1,080 MW of CSP projects were to be allocated through the central agencies by March 2015 (refer). The remaining 5,600 MW of capacity out of the 9,000 MW target was expected to come up through state government initiatives and the Renewable Purchase Obligations (RPO) mechanism. However, with only 150 MW of CSP projects implemented to date, PV allocations for central agencies would need to go up to 3,250 MW. Now, with 750 MW of allocations already under way, 1,500 MW of new allocation by March 2015 and another 1,000 MW by March 2016, the capacity allocation plan by central agencies under the NSM will be back on track for phase two of the NSM.

Apart from these initiatives, there are plans to develop one 1,000 MW power project by public sector entities, four power projects of 500 MW each to be allocated to private developers and another 1,000 MW of projects on defense land. State allocations in Uttar Pradesh, Punjab, Rajasthan, Andhra Pradesh and Karnataka are expected to contribute significantly to new installed capacity in 2014-15. With 2.5 GW already installed, if the states are able to continue providing new capacity, the target of 10 GW by 2017 for the NSM will most likely be achieved with ease despite failure of the RPO mechanism.

Further, BRIDGE TO INDIA understands that the Central Electricity Regulatory Commission (CERC) has suggested necessary changes in the Electricity Act to ensure enforcement of RPOs.  MNRE and CERC have revived their efforts to boost the Renewable Energy Certificate (REC) market but there is no clarity on how and when any new measures will be announced.

India is an ideal market for renewable energy. The country is immensely energy hungry but has a supply shortage: It has coal, but of low quality. There is hardly any gas or oil. Importing fossil fuels is difficult and increasingly expensive. At the same time, it has a vast potential for generating power from the sun, from wind, from small hydropower and from biomass. And yet, according to a new study by Pew Environment, its investments into renewables have grown by only 2% on an average over the last five years, compared to a GDP growth of between 5-10% and a growth in electricity generation capacity of between 4-10% over the same period. As a measure of its GDP, India’s investment intensity into renewables is less than 0.10, compared to the US’s 0.22, China’s 0.41 or even South Africa’s 0.82. Why is India’s renewable energy sector underachieving?

Bureaucracy and a lack of dependable and transparent policies are holding back investment

Renewables in India are mid-way in transition towards becoming mainstream, non-subsidized energy supply options. Corresponding regulations are still in the making

In the long-term, India will, by default if not by design, be one of the most important markets for renewables

Today, India has 30 GW of installed renewables. The majority of it comes from wind (18 GW), followed by small hydro (5 GW) and solar (2 GW). In wind, India was an early mover, with significant growth already in the early 2000s. However, the market has now slackened. Solar, the technology favored by politicians in the last years, has grown fast from a very small base in 2010 and 2011, but has stagnated since. The highly ambitious targets of many manufacturers and project developers have not been met. There is a sense of soberness in the market.

In 2013, India was only ranked 8th with respect to new renewable capacity additions. Even in a field such as distributed solar power – which would be so ideally suited to Indian conditions (weak grids and high insolation) and needs (power deficits and rising tariffs), India is only 11th. (See two charts by Pew Environment, below.)

There are three main reasons for India’s underperformance. They relate to and enforce each other. At the most immediate, a key challenge is the policy process. Renewables in India are still driven mainly by some kind of government support, whether in the form of tax incentives, capital subsidies, feed-in tariffs or certificates. There is an excessive focus on bringing down tariffs through auctions. This has resulted in below-par quality execution and plant performance, which has in turn affected returns and investor and banker confidence.

In addition, many programs are not well managed, putting off investors and slowing down the market as a whole. Examples are: the capsized Renewable Purchase Obligations (RPO) and corresponding Renewable Energy Certificates (REC) schemes or the non-availability of actual funds for the distributed solar capital subsidy scheme. Some policies especially at the state level were simply not well thought through initially: they are delayed, changed too often or simply not feasible. The Tamil Nadu Solar Policy is an example. This condition has been exacerbated by the distorting effect on policies of the current election season (general elections are due in April/May 2013). In many ways, the shortcomings in the renewables policies are shadowed by the energy sector as a whole, which has come to a grinding halt in the last two years.

Project developers can be faulted, too, in focusing on short-term gains and attempting to extract above market returns by trying to combine different incentive schemes. Too many of them are running after improbably promising policies rather than focusing on the fundamentals. And too much running without results has dampened spirits.

A more systematic problem is the lack of a strong innovation and finance ecosystem in renewables in India. Despite that fact that the country has installed 30 GW of solar power already, the economic base is slim: manufacturers of wind turbines and solar cells and modules are struggling. Investment into R&D is far too low. There are too few academic centers of excellence researching into materials, applications and business models. Innovation in infrastructure finance is non-existent. Very few renewables companies have tapped into the stock market. Venture capital is scarce – as are companies to invest into. This could be very different: China has built manufacturing champions that are increasingly innovative. Germany has an excellent landscape of specialized companies interacting with universities and politics to build new solutions. The US has many innovative renewables start-ups and the venture funding to give them a chance to become successful. Without a strong ecosystem, even if the market picks up, it will be non-Indian companies that capture most of the value.

The third reason, why the Indian market is stagnating, is that renewables are currently stuck between two very different worlds. In the old world, renewables were thought of as specific technologies, worthy and in need of government support. The government would set targets for them and provide policies and incentives to reach them. In the new world, created by falling costs of renewables and rising costs of fossil fuels, renewables are just another energy source. They compete directly with other sources of energy. However, they are different in two crucial ways. Firstly, some of them (especially solar) can be deployed in a distributed manner, near the point of consumption. Secondly, they are mostly intermittent sources. Both factors have a large impact on the management of the grid. This is actually part of a larger, global trend as the below graphic from McKinsey shows:

In India, the trend is accentuated by the fact that there is a deficit of power. 300 million Indians do not have access to grid power and there are 60 GW of installed diesel back-up systems. Recent wind and solar policies were affected by this transition: it was unclear how much (if any) support these technologies still need and it was unclear under what rules they should be able to use the power grid. Net-metering and open access policies are developed and revised. Technical information on the grid’s ability to sustain renewables is often lacking. Utilities, used to the comfortable life of a monopolist, are skeptical about a massive privatization of the power market that renewables promise to bring. At the same time, the benchmark power and diesel prices are unpredictable as they are, at least in the short run, driven by political rather than commercial considerations.

While uncertainties about regulations hold renewables back, their large-scale adoption seems inevitable and only a matter of time: utilities in most Indian states fail to provide enough reliable power to their customers and the economics of renewables are becoming more favorable by the day. If not by design, then by default India will become one of the largest markets for renewables.

Tobias Engelmeier is the Director at BRIDGE TO INDIA.

Utilities across the world have so far overlooked or ignored the wave of distributed generation, based on cheap solar power. This, however, represents nothing short of a revolution: it transfers power (actual and economic) from suppliers to consumers. Utilities are at a crossroads. They can focus on protecting their existing business or on mastering the new opportunities as they arise. They are perfectly positioned to adopt distributed solar PV as a new business avenue. But will they do it?

Most utilities are trying to limit the spread of distributed solar PV since it undermines their monopolistic position and existing business model, resulting in a loss of revenue. They often tout the excuse of grid instability to prevent the proliferation of distributed PV.

The grid will likely not be a bottleneck and can easily accommodate significantly large amount of PV without any investment in additional infrastructure.

Distributed solar PV can be a win-win for utilities, consumers and policy makers, provided utilities recognize this.

Utilities across the world have two functions: the supply of energy to consumers and maintenance of the grid. One can argue that without maintaining the grid, energy cannot be effectively supplied. While this is true, it is important to recognize that these are two independent activities. This distinction is highly relevant to the business of distributed solar energy.

Distributed solar PV (solar PV connected at distribution level voltages) is increasingly challenging the traditional utility business model. Victor Hugo once famously remarked: “No one can resist an idea whose time has come”. Distributed solar PV is such an idea. Based on our research, we believe, by a conservative estimate, that the market in India alone will be around 2 GW in the next four years. This offers a significant business potential. What is more, tapping into this market is an important step towards learning how to succeed in the longer term, when distributed power might make up as much as half of the generation capacity (bearing in mind that India already has 60 GW of diesel gen-sets installed). We believe that in India, the growth rates will remain in the high double-digits for the next 15 years.

Distributed solar offsets grid power consumption and reduces utility revenues. Utilities in India currently try to play the “maintaining the grid” card to prevent anybody else from supplying energy to their consumers. They do this by using two arguments:

1) that the grid has been designed for a unidirectional power flow and

2)  that distributed solar will result in instability due to the inherent variability of solar energy.

There is some merit to the argument, though only at very high deployment levels of PV. There have been several studies that have been carried out internationally to show that the grid can actually accommodate high levels of PV without any considerable change in grid infrastructure. Both the perceived problems of reverse power flows and variability of solar energy can be adequately managed with the existing technology.  The concerns of utilities are therefore overrated – at least until significant PV capacity is built up.

Experience from across the world tells us that distributed solar is going to happen whether the utilities want it or not. Utilities must start perceiving distributed solar as an opportunity instead of a threat. In fact, they are better positioned to do so when compared to independent renewable energy service companies (RESCOs). Utilities, already have contractual obligations with thousands of consumers, they already have established processes, databases, and software to provide solar energy along with conventional energy. In addition, they have the necessary technical knowledge of handling grid connection issues. They are also present across the country in most places where a demand for energy exists.

So what is preventing them from doing it? Many utilities are organizationally not ready. They still live in a world that hasn’t changed since the days when the first cities and towns were being electrified. The business of supplying energy and maintaining the grid has changed very little since then. Utilities have not had to innovate and enjoyed monopolistic market positions. Today, the situation is radically different and for the first time in more than a century, their traditional business model is being challenged.

Utilities now have a clear choice – innovate and jump on to the distributed solar bandwagon or simply perish.

Akhilesh Magal is Senior Manager, Consulting at BRIDGE TO INDIA.

In a recent meeting of members of National Solar Energy Federation of India (NSEFI), Solar Alliance of Gulf Cooperation Council (GCC) and Saudi Arabia Solar Association, it was announced that as many as a dozen manufacturers from Gulf countries have shown interest in setting up manufacturing joint ventures with Indian companies (refer). We also understand that some of the Chinese manufacturing majors are scouting for similar opportunities in India.

The interest comes at a time when the Indian manufacturers are in a financial tight-spot and the government, unable to provide long-term road map for domestic manufacturing

The interest has been generated because of some reasons as per BRIDGE TO INDIA’s evaluation

Yet, there are structural issues such as long term blueprint for local manufacturing measures to enhance competitiveness that need to be addressed

This interest comes at a very opportune time as most Indian manufacturers are in a financial tight-spot and the government has been unable to provide a long term road map for domestic manufacturing. The government also seems to be dragging its feet on announcing the outcome of anti-dumping investigations. The only noteworthy policy in this area, the domestic content requirement under the National Solar Mission (NSM), has been very poorly thought out and has attracted back lash from project developers and investors.

BRIDGE TO INDIA believes that a combination of the following factors has helped to generate international interest into manufacturing in India:

1) There is a growing consensus that India will have a very large and important solar marketing future.

2) Existing anti-dumping duties and on-going investigations against Chinese manufacturers is prompting a search for local manufacturing opportunities.

3) Easing of over-supply situation and stabilization of prices has kick started a new global investment cycle. Global consolidation and technology upgradation are providing further catalysts.

4) There is a view that India is likely to continue its protectionist policies for promoting use of domestic content and a new government might be more favorable to domestic manufacturing.

However, structural issues such as a long-term blueprint for local manufacturing and measures to enhance competitiveness are yet to be addressed. If the new government is able to address some of these challenges, there will be a renewed hope for domestic PV manufacturing in India.

With some international manufacturers and investors out shopping, it might be time for domestic manufacturers to prep up their books.

The first solar policy in India was released by the Bhartiya Janata Party (BJP) government in the state of Gujarat in 2009. This was soon followed by a much more comprehensive National Solar Mission at the central government level by the United Progressive Alliance (UPA) headed by the Indian National Congress (INC). Both these policies have laid the foundation for the creation of a solar power ecosystem in the country. Today, apart from the NSM at the central government level, 11 Indian states have a solar policy in place (refer). With the general elections underway, BRIDGE TO INDIA is trying to assess which political disposition is more favorable to the solar industry in the country (refer to our first blog of the subject). Today, we are trying to evaluate the experience until now to judge the various state policies based on the political dispensation responsible for it.

On an average, BJP ruled states lead in both signing the PPAs and execution of projects followed by INC and then the regional parties

The Indian National Congress has to be credited with introducing NSM at the central government level

There is a need to improve on the mission and make it more ambitious in terms of its target

Four Indian states introduced their policies when the Indian National Congress (INC) had been in power. These states include: Andhra Pradesh (2012), Uttarakhand (2013), Kerala (2013) and Rajasthan (2011) (Rajasthan now has a BJP government). Cumulatively, these state policies aim to achieve an installed capacity of 4,600 MW across varying time horizons. PPAs for 738 MW have been signed in these states. Of this, a capacity of just 101 MW has been installed.

In comparison, four states introduced their solar policy when the country’s prime opposition political party, Bhartiya Janata Party (BJP), was in power in the respective states. These states include: Gujarat (2009), Madhya Pradesh (2012), Chhattisgarh (2012) and Karnataka (2011) (Karnataka now has a Congress government). Cumulatively, these state policies aim to achieve an installed capacity of 2,000 MW across varying time horizons. PPAs for 1,180 MW have been signed in these states. Of this, a capacity of just 1,050 MW has been installed. Gujarat leads the way with an impressive 860 MW installed, followed by noteworthy installations for 175 MW in Madhya Pradesh.

Regional parties in Odisha, Tamil Nadu, Uttar Pradesh and Punjab have announced state policies with an aim to achieve an installed capacity of 5,825 MW across varying time horizons. PPAs for 414 MW have been signed in these states. Of this, a capacity of just 8 MW has been installed.

From the initial analysis, it is apparent that on an average, the regional parties have been the most ambitious with their policy targets, followed by INC and the BJP. The order for actual signing of PPAs and commissioning of projects has been just the reverse. BJP ruled states lead in both signing of PPAs and execution of projects, followed by the INC and then the regional parties. 80% of all BJP ruled states, 36% of the INC ruled states and 30% of regional party ruled states have a solar policy in place.

Based on past record, it can be concluded that with regards to solar power, BJP ruled states have done better on most counts except their ambition to set targets. Also, amongst the four regional parties that have released solar policies in their respective states, three have allied with the BJP in the past.

In addition to what is happening at the state level, the INC has to be credited with bringing in the NSM at the central government level. The mission was considered ambitious when it was released. Now, there is a need to improve on the mission and make it more ambitious and in line with targets being set by countries such as China and Japan. Whether or not a probable BJP government is able to deliver it, is yet to be seen. To get more perspective on India solar sector dynamics, follow BRIDGE TO INDIA’s blog.

India has begun voting for a new government today. This largest ever democratic exercise will involve up to 815m citizens. Energy and renewables have not featured prominently in the campaigns to date. Most political analysts believe that, come May, India’s primary opposition, the Bhartiya Janta Party (BJP), might come into power. As a thought experiment, we assess the likely effect such an outcome would have on the Indian solar market.

Solar bound to play a large role in India’s solar power sector in the coming years

The MNRE is considering to expand the target for National Solar Mission to 100 GW by 2027

Both parties- BJP and the Indian National Congress- are set to help solar grow in India

The challenges to India’s power sector are many and solar is bound to play a large role in it (see our recent analysis: refer). Consequently, the solar industry’s expectations from a BJP government are high and the BJP has signaled that it recognizes that (refer: link 1 and link 2). In its election manifesto released today (refer), BJP has said – somewhat vaguely – that it would “give a thrust to renewable sources of energy as an important component of India’s energy mix” and also “expand and strengthen the National Solar Mission”.

The Ministry of New and Renewable Energy (MNRE), under the current Congress-led government, is already considering to expand the targets for the National Solar Mission to 100 GW by 2027 or by 2030. Drafting of such a proposal was initiated by the current Prime Minister’s office. However, this plan has not found its way into the Congress’ election manifesto (refer). The Congress manifesto talks about accelerated implementation of the existing 20 GW target and that if the Congress government is formed, it will ensure that the target is met well in advance. The future of solar, given the current mindset, will continue to have its focus on utility scale projects. If a new government is able to pass the 100 GW proposal, it will considerably change the solar landscape in India. This will also result in an enlarged segment for distributed generation.

Both parties vying for power in Delhi are set to help solar grow but it is important to note that achieving the targets being discussed will not be easy. In India, electricity is a state subject, i.e., individual state governments have jurisdiction over electricity regulations and policies. Any central scheme such as a National Solar Mission will need to rely on state governments’ cooperation.

We have often argued that solar can be India’s future: not just an incremental power source at the fringes of the economy, but a real game changer. We wanted to visualize what the potential really is. Our India Solar Potential map below, is the result.

1,000 GW of solar could be built on half the area of the district of Barmer in Rajasthan

1,000 GW could generate 1,500 TWh/ year which is around 1.5 times India’s demand

The map given below shows how India can think big with solar

1,000 GW of solar PV (multi-crystalline modules) would require 16,000 km2. That is a large amount of land, but not nearly too large for India to contemplate. It would cover half the desert district of Barmer in Rajasthan or 3.5% of India’s wasteland (or, about the size of the pacific island of Fiji or 10% of the land holdings of the Catholic Church).

1,000 GW of solar could generate 1,500 TWh per year, around 1.5 times India’s 2013 demand. We assume a capacity utilization factor (CUF) of 17%. At the moment, India uses 220 GW of installed capacity (the majority of which are coal-fired power plants) to generate around 1,000 TWh of power per year. The average CUF of the current plant mix is higher than that of solar. Thus, we would need more installed solar capacity to generate the same amount of power.

If we turn the story around and look at the solar energy that hits India as a whole, the picture becomes clearer still: the country receives an average of 5.39 kWh of solar energy per square meter per day. This is around 6.5 million TWh per year for the entire land-mass of India, more than 6,000 times the 2013 power demand.

The map is designed to show that India can think big with solar. It would in reality not be advisable to place only one enormous power plant into a single district. More likely, there would be many different sized plants across the country: from the Western deserts to the Deccan plateau and the power starved plains of Tamil Nadu, in thousands of villages and on millions of rooftops. There will be challenges in making this work. The main challenge is that solar power cannot be generated all the time and in an entirely predictable manner. So, if solar were to provide 100% of India’s power requirements, there would have to be storage, which is currently still very expensive. In the absence of storage, large amounts of solar would have to be complemented by spinning reserves and balancing power plants. We are currently working on quantifying the technical challenges and commercial implications of this in more detail. The potential, however, remains huge. And the implementation is possible.

1469

Download the map by clicking here.

National Solar Energy Federation of India (NSEFI), one of the several solar industry associations in India, has written a letter to the Ministry of New and Renewable Energy (MNRE) suggesting that domestic manufacturers do not have adequate capacity to supply the 375 MW of capacity allocations under the domestic content requirement (DCR) category of batch one of phase two of the National Solar Mission (NSM). This is despite the fact that manufacturers had claimed to be able to meet demand before the bidding process.

NSEFI claims that domestic manufacturers are “unethically” raising module prices now that the bids are over

Indian manufacturers allege that NSEFI has not consulted with them before sending out the letter

HR Gupta from IndoSolar has denied any increase in module prices

NSEFI claims that they are “cartelizing” and “unethically” raising module prices now that the bids have been submitted (refer). The letter also claims that lenders are largely unwilling to offer debt to DCR projects due to a perceived quality issue. With India defending itself in a World Trade Organization (WTO) case against DCR, this is moreover “denting the country’s image severely”.

The federation has suggested that if the timeline for commissioning is extended to 24 months from the existing 13 months, it would allow manufacturers to bridge bottlenecks in production and enable lenders to better establish the bankability of various Indian suppliers.

Indian cell manufacturers allege that the NSEFI has not consulted with them before sending the letter. Based on BRIDGE TO INDIA’s discussions with HR Gupta, Managing Director, IndoSolar and Ajay Goel, CEO, Tata Power Solar, it seems that both manufacturers are not in favor of any extension and are confident that they are in a position to supply the required capacity in time.

The manufacturers argue that their ability to supply in time has been a topic of debate for over a year now and the MNRE has been convinced of their ability to supply before the NSM tender was released. The developers who have opted for the domestic content batch have quoted a Viability Gap Funding (VGF) component based on the same market information as is available now. The funding translates into an additional cost for modules and any risks associated with their procurement at around INR 9 (USD 0.15Wp). The only reason why the government is paying this additional component is to support domestic manufacturing. In that context, developers who have bid for the DCR component need to realize all the constraints, including the fact that they would need to place their orders early enough for the manufacturers to be able to supply in time.

HR Gupta from IndoSolar also denied any cartelization and said that there has been no increase in module prices. They are offering the same prices to developers as they were in December 2013, when developers approached them for term sheets before the bidding.

BRIDGE TO INDIA believes that there is no new information available in the market to warrant a sudden, retroactive change in the terms of the tender. Developers who had bid for the domestic content batch knew what the constraints would be. Even if NSEFI has valid points, these should have been raised before the tender. There is little sense in raising these points now.

In the longer term, a DCR in its current form is unlikely to change the structural deficits in competitiveness of Indian manufacturers. The only comfort that the DCR can provide is some breathing room. This alone cannot be a policy objective. If India wants to have a domestic manufacturing ecosystem for solar modules, it needs to develop a long term strategy for the creation of stable domestic demand and give investors and banks the confidence to invest into solar manufacturing and innovation.

The April 2014 edition of  BRIDGE TO INDIA’s quarterly publication, the India Solar Compass, has been released. Following are some highlights.

• India signs 1,232 MW of PPAs in the first quarter of 2014• India to add 1,065 MW of solar PV capacity in the next financial year• India added 89 MW of solar PV capacity in the last quarter, lowest since Q3 2012

Project Allocations

The highlight of the last quarter (January 2014 – March 2014) was allocation of solar PV projects under batch one, phase two of NSM. ACME, Azure Power and SunEdison emerged as the big winners with 100 MW each. Prominent players who missed out included Green Infra, Tata Power, Mahindra Solar, Welspun (except for 5 MW), Renew Power and First Solar amongst others. The bid levels were broadly as expected although quite aggressive in our view.  Our key takeaways and observations are as follows:

–         DCR has been a failure costing in excess of INR 10 million/MW as local manufacturing has not gained anything meaningful for the long-term.

–         Extremely competitive bidding means there will be too much pressure on costs i.e, poor project quality. Although the Viability Gap Funding mechanism has been a relative success, a more performance focused regime such as GBI is far more favorable in our view.

–         Considerable interest shown by foreign project developers and IPPs is very welcome as it brings more credibility to the market and hopefully, will result in much needed international expertise in project execution and deliverability.

On the state policy front, 482 MW of new power purchase agreements (PPAs) have been signed across four states in the last quarter – 42 MW in Andhra Pradesh (against a target of 150 MW), 80 MW In Karnataka (after a delay of six months), 110 MW in Uttar Pradesh (towards the tail end of the preceding quarter) and 250 MW in Punjab. Another 300 MW of projects are expected to be allocated in UP after general elections in May. Madhya Pradesh expects to sign PPAs for 100 MW solar PV projects in the ensuing quarter.

Capacity Addition

In the first quarter of 2014, we added just 89 MW of new capacity – the lowest since Q3 2012. Out of this, 55 MW has come from three state level projects with the balance 34 MW being primarily driven by captive or third party sale projects relying on accelerated depreciation (AD) and Renewable Energy Certificate (REC) incentives.

–         Rajasthan: 20 MW project by Essel Mining (commissioned on time)

–         Madhya Pradesh: 25 MW project by EDF backed ACME

–         Andhra Pradesh: 10 MW renewable purchase obligation (RPO) project by NTPC

As the REC market has failed to take off, project developers have moved away from selling power to local utilities at APPC (typically INR 2.50-3.00/ kWh, USD 0.04-0.05/kWh) to finding private consumers with tariffs in the range of INR 6 – 9/ kWh (USD 0.1-0.15/kWh). BRIDGE TO INDIA expects this market to grow rapidly as election fever subsides (reducing political pressure to keep tariff increases low) and grid parity is attained across more states.

Distributed Generation

The rooftop market is slowly gaining momentum with Delhi and Kerala (following on from Andhra Pradesh, Tamil Nadu) announcing net metering policies in the last quarter (Delhi policy is still in draft stage). At the central level, SECI continues to provide capital subsidies for rooftop projects – it has allocated 25 MW till date and aims for a further 50 MW during the year.

The policy support to the rooftop segment needs to be much bolder, especially considering its future potential. Based on a study carried out by BRIDGE TO INDIA for Greenpeace, Delhi alone has a rooftop solar potential for 2 GW.

About INDIA SOLAR COMPASS

As part of their extensive research on the Indian solar market, BRIDGE TO INDIA produces a quarterly market analysis report, The India Solar Compass, which provides analyses on the latest developments in the market. It provides key insights on the primary solar market driver of policy, projects and industry. Subscribers include leading international component manufacturers, EPCs, project developers, investors, banks, insurance companies as well as public sector players and international organizations. To download this report, click here.