Month: July 2014

Last week, the Ministry for New and Renewable Energy (MNRE) under the new minister held a meeting with the Forum of Regulators (FoR) to discuss ways to revive the Renewable Purchase Obligation (RPO) mechanism (refer). Until parity in terms of landed cost of power (LCOP) between renewables and other energy sources is widely reached, the RPO mechanism can be a key driver for demand for solar power in India.

The RPO mechanism currently works indirectly, and has failed to have a more direct impact on the solar demand

RGOs (Renewable Generation Obligations) might be easier to implement than RPOs on loss making distribution companies

BRIDGE TO INDIA believes that demand creation for solar in India should have more linkages with parity and market forces – rather than focus on obligations

Currently, it works indirectly, by incentivising state and central policies. However, a lack of penal action for non-compliance, the bad financial health of most obligated entities, non-co-operation of state regulators and an out-dated Renewable Energy Certificate (REC) pricing mechanism have prevented it from having a more direct impact on solar demand.

In the meeting, the ministry asked the State Electricity Regulatory Commissions (SERCs) to direct the distribution companies to make financial provisions in their revenues to ensure RPO compliance. Also, SERCs should invoke penalties for non-compliance. Another suggestion is to increase the validity to the RECs that have already been issued in the hope that better compliance over the next six months will help these certificates find an off-take. These proposals and directives are not new. Similar meetings with similar statements have been held before. What can be done to really affect change?

The central government needs to ensure that the directives are followed up on ground. For example, a very large part of the power consumed in the states is bought from central generators. The central government could link access to this power to conditions, such as financial restructuring and RPO compliance.

A newer suggestion that came up in the meeting relates to “Renewable Generation Obligations” (RGOs). This means that generators of conventional power have a related obligation to also produce renewable power. This can then be bundled with conventional power and sold to the distribution companies at tariffs very similar to the existing cost of power procurement (as long as the renewables share is small). This would transfer the responsibility of going renewable to the financially healthy power generators. It might be easier to implement than RPOs on loss making distribution companies.

BRIDGE TO INDIA, believes that an ideal mechanism to create demand for solar in the country should have more linkages with parity and market forces – rather than focus on obligations. This would mean a significant overhaul and expansion of the existing policy framework and in all likelihood mean a larger focus on distributed solar. India needs to do this eventually anyway, for a transition to parity based markets. The government should start thinking in this direction.

Jasmeet Khurana is a consultant at BRIDGE TO INDIA.

There are no reasonable doubts that man-made climate change is happening and that it is likely to have a devastating effect on the planetary ecosystem, which includes us. Almost everyone knows it. And yet, collectively and individually, politically and privately, we fail to act. I am no exception. Why is that? The blog contains a personal list of hypotheses.

The cost of fighting climate change is much smaller than the cost of climate change

This is an intergenerational conflict as much as an international one

We have psychological, political, institutional barriers that make us act fundamentally irrationally

Climate change is happening already. The American Association for the Advancement of Science in its recent report “What We Know”, wrote: “The overwhelming evidence of human caused climate change documents both current impacts with significant costs and extraordinary future risks” (refer). The US National Climate Assessment concludes, that “climate change, once considered an issue of the distant future, has moved firmly into the present” (refer). The 2013 report by the International Panel on Climate Change (IPCC) states that the global temperature rise is “more likely than not to exceed 2°C” (refer). 2°C is considered to be the safe limit before our ecosystem changes irreversibly.

Failing to act on climate change is fundamentally irrational. The costs of preventing it are surprisingly low. As Paul Krugman wrote in his New York Times column: “there is one piece of the assessment [of the IPCC] that is surprisingly, if conditionally, upbeat: its take on the economics of mitigation. Even as the report calls for drastic action to limit emissions of greenhouse gases, it asserts that the economic impact of such drastic action would be surprisingly small. In fact, even under the most ambitious goals the assessment considers, the estimated reduction in economic growth would basically amount to a rounding error, around 0.06 percent per year.” (refer)

The costs due to climate change, on the other hand, are staggering – disproportionately high for the poor, who face widespread death and disease, but also for the rich whose standards of living will fall. If everything is so clear, then there should be no doubt about what to do. And yet, we seem to fail. Why? These are my personal hypotheses:

We would need to change our habits and (as a species) we are not good at that. (I am not changing myself…)

Perhaps it’s too big a problem? It seems too daunting to even contemplate. So we ignore it and stall and rather spend our time solving simpler problems.

There are political questions around distributive justice i.e. who should pay/do how much? While these should be solvable in one way or another (given the vast discrepancy between the cost of inaction and the cost of action), we absurdly seem to be ready to self-destruct rather than accept even the slightest perceived injustice. It’s like a very childish game of chicken (made more dangerous by the fact that there are many cars, not just two, racing towards each other).

As a whole (humanity), we seem to not yet have the institutions or governance to deal with it. (The good news is: we are building them. See, for instance the climate reports by the IPCC that aim to create a scientific base-line on what is actually happening.)

It’s an intergenerational conflict as much as an international one. I am stunned by the failure of the young (I’d still count myself among them…) to take the matter up more forcefully. The old guys in the developed world might think it’s not their problem. The trouble is, that they still call the shots.

Adverse power structures: A few benefit from playing down the problem. They probably have highly disproportionate access to decision-making. Big oil? A recent report by the Carbon Tracker Initiative said that oil companies would have to write-off around two thirds of their proven reserves (“unburnable carbon”), if we are to stick to the 2 degree climate change goal (refer). Markets, interestingly, still give oil companies high valuations, based on the assumption that they will not be limited by carbon goals.

Thinking of a positive note at the end… Is the rate of innovation and cost reduction in climate friendly technologies (especially: energy efficiency, renewables) much faster than in more mature traditional carbon-heavy technologies? Probably not. A lot of research goes into deep-sea oil drilling, fracking, even tar sands. But we are already investing as much into renewables as we are into fossil fuel power generation. However, that in itself will not make enough of a dent. We would need a more radical transformation of how we generate and use energy than the current path. We are at best on “rapid evolution” mode. What we need is to shift to “revolution” mode.

Previous blog post on climate change: Is India getting sidelined in climate diplomacy (refer)?

Tobias Engelmeier is the Director and Founder at BRIDGE TO INDIA. Twitter: @TEngelmeier

Last week, the Ministry of New and Renewable Energy (MNRE) released a draft document outlining allocation process for another 1,500 MW of solar PV capacity under phase two of India’s National Solar Mission (NSM) (refer).

Allocations will be made to bidders on the basis of the highest discount they offer on a benchmark tariff

The new allocations will have no VGF however, will have a DCR

Developers proposed to encourage a more even spread of plants (than it is currently) across India by introducing separate tariffs for different states

These allocations have been divided into two parts of 750 MW each. The first part is expected to be allocated by March 2015 and the remaining 750 MW six months later. Allocations will be made to bidders on the basis of the highest discount they offer on a benchmark tariff. For the current financial year, the benchmark tariff has been fixed at INR 6.99 (USD 0.12)/kWh by the Central Electricity Regulatory Commission (CERC). NTPC Vidyut Vyapar Nigam (NVVN) will be the off-taker of solar power and will bundle it with thermal power to sell to distribution companies across India at a competitive rate.

There will be no viability gap funding (VGF) mechanism as in batch one of phase two of the NSM. This mechanism was adopted last time only due to unavailability of thermal power for bundling.

The new allocations will again have a domestic content requirement (DCR). A capacity of 250 MW will be reserved for domestically manufactured cells and modules under each part of the allocation (500 MW in total).

On 18th July 2014, MNRE had called a meeting for the developers to get their inputs on the bidding framework. This is a welcome departure from the past, when the ministry first got a sanction on the allocation process from the cabinet and then held a pre-bid meeting with stakeholders. The problem with the old process was that by the time the stakeholders could give their feedback, the process was largely irreversible.

At the stakeholder meeting, the most important point raised was on anti-dumping duties and their potential impact on the new allocations. MNRE did not offer a conclusive response, but is known to have said that if duties are enforced, the domestic content requirement might be dropped.

Another point raised was related to the need for developers to obtain and submit a letter at the time of bidding from a substation confirming feasibility of evacuation. The developers asked for this to be reconsidered, arguing that it should only be required for successful bids to avoid inconvenience for both the developers and the grid operators.

Another point that was discussed was that solar power plants are concentrated in Rajasthan due to high irradiation and cheap land. This will increase the cost to the government for transmitting solar power to other states. The developers proposed to encourage a more even spread of plants across India by introducing separate tariffs for different states.

Jasmeet Khurana is a consultant at BRIDGE TO INDIA.

The recent railway price hikes indicate that the Modi government is capable of taking tough decisions that are unpopular but in India’s long-term interest. This augurs well for the entire economy and in particular for the power sector.

Power prices need to be deregulated. This will mean prices go up in the short-term, but in the long-term that will ensure a more stable grid

The Minister of Coal, Power and Renewable Energy, Piyush Goyal has already shown his intent in allowing for greater private participation in the sector

Indian power sector equities might be en route to a dream run for the next decade

Prime minister Narendra Modi has demonstrated that he is capable of taking hard decisions. He bit the bullet and has announced a 14% hike in passenger rail fares. Railway fares is a highly sensitive issue. It remain one of the last but significant vestiges of the socialistic Nehruvian economic model. Low railway fares have led to a lack of investments into rail safety systems, better facilities, cleaner and faster trains, maintenance and expansion of rail infrastructure and train stations. While China is crisscrossed by the most modern high-speed trains, in India, a rail journey of just over 1,200 km between Bangalore and Mumbai still takes a painstaking 24 hours. This announcement might just be the beginning of a larger systemic reform that is so badly needed in India’s railways.

The Indian railway is just one elephant in the room. An equally large elephant is India’s messy power sector. The cumulative losses for India’s power sector are estimated at USD 40 bn (INR 2,400 bn) per year. These losses, similar to the railways are due to the politics of power pricing. I have previously talked about how politicians pander to vote bank politics by opposing power hikes. India’s power sector is underinvested, badly managed and delivers abysmal power quality to its consumers – all because, prices are far too low to allow meaningful investment. The hike in railway fares signals that this government is serious about getting India’s economy back on track. We can expect similar reforms in the power sector.

The government has already shown its intent in setting India’s power sector back on track. Minister Goyal met with leading bankers last week to understand constraints in funding power projects in India. Although no specific announcements were made, Goyal gave out the right signals, conveying to the press that he understands the gravity of the problem and is keen to start implementing solutions. This may be rhetoric, but the stock market is optimistic. Stocks of power companies have already rallied by more than 50% since the exit poll results were announced in mid-May. The share prices of some companies like Torrent Power have doubled in the last three months. This trend will now accelerate and it could just be the decade for power sector equities.

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

The costs for key solar equipment have fallen moderately in India over the last year. Chinese tier-1 crystalline modules came down by 3%, thin film modules by 6% and inverters by 8%. Cost reductions were thus much more moderate this year than in the year before. Nevertheless, a continuing fall in solar costs is essential for unlocking the grid parity market. This progress will now likely be undone by anti-dumping duties (ADD). For more details, please download our new India Solar Compass (July 2014 edition) here.

Module prices have fallen significantly in the second quarter of 2014

The appreciation of Indian rupee is the dominant contributor

Inverter prices have stabilized in 2014 after a drop in the second half of 2013

After the global consolidation of module manufacturers in 2013, the prices of tier-1 Chinese crystalline modules in India have stabilized. The steady depreciation of the Indian rupee had raised module prices towards the end of 2013. The recent appreciation of Indian Rupee has in turn helped in reducing module costs in INR terms. Additionally, First Solar is offering aggressive terms to fast track the procurement process so that their thin film modules can be imported before the possible imposition of ADD. Overall, the price reduction witnessed in the last year was 3% for Chinese crystalline modules and 6% for thin film modules,

Figure 1: Chinese C-Si and thin film module prices in last year

After a slight decline in 2013, inverter prices have stabilized in 2014. In the short run, a further reduction in prices is possible only with the installation of large projects with large order sizes. Industry players believe that for orders over 100 MW, prices can be as low as INR 3.0/Wp.

Figure 2: PV inverter prices in last year

Mudit Jain is a consultant at BRIDGE TO INDIA.

In the budget, presented last week, the new government took further measures to support solar manufacturing by eliminating the ‘inverted duty’ structure. ‘Inverted duty’ meant that while there was an import duty exemption on finished solar modules, there was no similar exemption on raw materials and components used in module assembly, thus putting Indian manufacturers at a disadvantage vs. exporters to India. This includes, for example, EVA sheets, back sheets and ribbons. Removing this bias is sound.

A sound business strategy for creating a healthy domestic manufacturing industry in India is missing

BRIDGE TO INDIA believes that India does not need to have its own solar cell and module manufacturing industry, if it is much cheaper to buy from abroad

If India needs to have a domestic solar cell and module manufacturing industry, then two key pieces need to be kept in mind: Strong solar demand and a long-term vision

We welcome the elimination also because it supports manufacturing in India in a way that helps solar as a whole to grow, by reducing the end consumer cost of solar power. However, while there are fragments of policy support – some positive and some negative, a larger strategy for creating a healthy domestic manufacturing industry in India is still absent. Other fragments are: domestic content requirements, a potential anti-dumping duty and the SIPA manufacturing policy.

A closer look shows that they are not in tune – some help manufacturers, but throttle the market by imposing higher solar costs. They grow the fish by shrinking the pond – a very short-sighted approach. Also, as a whole, they do not come together in a comprehensive strategy for India. There is too much short-termism in the industry and in politics. The government reacts to industry demands for protection and industry bets on being protected by the government, rather than on a sound business strategy.

The anti-dumping duties are a case in point. The Prime Minister’s Office (PMO) is thought to believe that this will help establish domestic manufacturing. However, this would only be true, if two conditions are met: firstly, that it is a useful intermediate step to making Indian manufacturing globally competitive without government help at some point in the future. Secondly, that the short term hurt to the market as a whole will not derail the entire Indian solar story. We have strong doubts on both accounts.

At BRIDGE TO INDIA, we do not see why India needs to have its own solar cell and module manufacturing industry, if it is much cheaper to buy from abroad. Over the last 20 years, India has grown its economy significantly by dropping the long-held notion that it needs to achieve autarky for all products and services. India has warmed to the idea of international trade and benefitted from it. Cells and modules are fairly low margin, highly commodified components of the value chain. China, the US and Taiwan have already built a significant manufacturing base in these – and at some subsidy expense. India can benefit from these efforts by buying cheap and instead focus on other components of the smart, distributed, clean energy future, such as meters, transmission and distribution solutions, inverters or storage solutions. In other industries, India does not mind importing from abroad. What makes solar cells and modules so special?

However, let us put this assessment aside and, for the sake of the argument, assume that it is necessary for India to have a domestic solar cell and module manufacturing industry. How could that best be achieved? We think, it needs two key pieces: Strong solar demand and a long-term vision. Without these, it will be difficult to entice investors and banks to place their bets on India. On the first point: India’s solar demand is stable at a low level, compared to the country’s potential. Unlocking its potential depends crucially on a low and falling cost of solar power. India is on the cusp of achieving significant solar parity with grid electricity on the consumer side, followed soon by parity on the generation side (for example, with new coal-fired power plants). Once this is achieved, India is bound to become one of the largest solar markets globally (in this prediction, we are not alone: the IEA thinks India will overtake China as the largest market by 2025). Once India is a thriving market, manufacturing in India will be easy to encourage. A look at the car market is instructive. Most global players as well as leading Indian companies have set up large factories in the country. However, measures such as duties or domestic content requirements raise the cost of solar and weaken demand.

On the second point: If India wants to have a competitive manufacturing industry, it needs both scale and vertical integration. Manufacturing sites need to be larger by a factor of 5 to 10. For that, they again need a market. This can be done in India (if demand is not throttled) or abroad (if other countries don’t place the same trade restrictions on Indian manufacturers as India places on them). It is also important to be vertically integrated all the way through to the silicon, ingots and wafers. Here, the cost of electricity – which is high for industry in India –  plays a key role. If the government wants domestic manufacturing to thrive, it needs a strategy to achieve both scale and integration. This would require a significant, long-term commitment by the government with very large subsidies. Success would by no means be guaranteed. Other countries have lost too much money in supporting solar companies.

Jasmeet Khurana is a consultant at BRIDGE TO INDIA.

Finance minister Arun Jaitley announced the new budget for the financial year 2014-15 on 10th of July. The Indian solar sector was looking forward to it as the new administration had signalled strong support and ambitious plans for the industry. Unfortunately, there is very little in the budget for the solar sector. It is, perhaps, still too early, in the new administration, for game-changing policies. There were four key announcements:

The ten year income tax holiday (section 80 IA) on solar projects has been extended till March 2017

A total of INR 5 bn (USD 83 m) is dedicated to the development of new ‘ultra-mega’, GW-scale solar projects in Rajasthan, Gujarat, Andhra Pradesh, Tamil Nadu and Ladakh

Customs duty is waived on copper wire ribbons (used in modules), back sheets and EVA sheets. There are also waivers on duties for imported machines used in the manufacture of solar equipment such as cells and modules

The clean energy cess on coal and lignite has been doubled from INR 50 (0.8 USD) to INR 100 (1.67 USD) per tonne

We think this budget is a disappointment for the solar sector. This is a surprise. Prime Minister Narendra Modi is widely regarded as a strong believer in solar. Many (including BRIDGE TO INDIA) expected a more far reaching, directional and visionary budget. Perhaps it’s still too early to expect this from the new administration.

The budget speech in parliament is a legacy of the British Raj. It serves very little practical purpose other than it being a good platform for the government to communicate its policy intents. Although the government has given some importance to solar when compared to other renewable energy technologies like wind or biomass, it has not laid out a comprehensive policy program on solar, nor has it provided details on how the modest proposals are to be achieved.

The key announcements:

Encouraging the “ultra mega”, GW-scale solar power projects in Rajasthan, Gujarat, Andhra Pradesh, Tamil Nadu and Ladakh. Going by the budgetary estimate (a paltry INR 5 bn or USD 83 m), this would only be used for the initial feasibility studies and planning. (This is a start, but not more.)

The government has allocated INR 4 bn (USD 66 m) towards funding solar powered water pumps for agricultural uses.

INR 1 bn (USD 17 m) will go towards developing solar canal projects.

Continuation of the 10-year tax holiday for all power projects until 2017. This is an important announcement and well appreciated by the sector. However, an extension of the 80% accelerated depreciation benefit on solar projects has not been announced.

Support for solar manufacturing in India through waiving of import duties on manufacturing supplies and equipment. This makes little sense, if the government wants to seriously incentivize domestic manufacturing.

The clean energy cess on coal and lignite has been doubled from INR 50 (0.8 USD) to INR 100 (1.67 USD) per tonne to garner funds to fund clean energy projects. The government will likely collect over INR 50 bn (USD 833 m) going only by Coal India’s target for 2014-15. Considering the fact that only INR 10 bn (USD 167 m) worth of funds have been proposed in this financial year, the excess fund utilization is a mystery. How will this be utilized? Details are sorely lacking.

The misses:

The budget failed to set a clear road map for India’s solar future. It also sorely lacked on specifics. The industry expected an upward revision of the National Solar Mission targets and a commensurate budgetary allocation. The MNRE received a budgetary allocation of INR 39.41 bn for the FY 2014-15 that is almost identical to the last financial year (INR 39.15 bn). There was also no mention of a boost towards distributed/off-grid generation. The 30% MNRE subsidy has completely dried up in the last two years and the industry expected the finance minister to revive this by a larger allocation.

The manufacturing sector also missed out. The concessions are mere tokens. The customs duty on solar manufacturing equipment was reduced to 5%. Flat copper wires (an insignificant component contributing 2.25% of module cost) were exempted from customs duty. If the government believes that this is enough to revive domestic manufacturing, it is mistaken. The government needs to adopt a holistic, long-term approach to incentivize manufacturing of solar cells and modules. The budget has given no indication of such an approach.

There was no mention of rationalizing grid power tariffs, preventing power theft through e.g. smart metering (the only reference to ‘smart’ was with respect to ‘smart cities’) or restructuring the debt of DISCOMs. Ultimately, large solar power projects require a healthy off-taker and a stable grid, which means debt-free DISCOMs. This is one of the key barriers to private investment in the power sector. A holistic approach to completely de-regulate power prices and improve the economic situation of DISCOMs was missed in this budget.

Lastly, the industry expected the accelerated depreciation benefit to be extended to homeowners of solar systems. This would have created a vibrant market for the 1-5 kW rooftop market. Although there was some talk in the market about this, it was completely left out in the budget.

The new government has been in office for less than two months. Given this, one cannot expect too much. Also, one should not read too much into the budget speech and the budget itself, because it only has a directional quality. Nevertheless, we believe that the budget is a good platform to showcase the government’s vision. In that, we are disappointed. Our score for the budget is 3/10.

Mudit Jain is a consultant at BRIDGE TO INDIA.

The Indian solar market is at a crucial juncture. Anti-dumping duties (ADD) will impact the market – severely if imposed, still substantially even if not (just by creating uncertainty). Projects under the National Solar Mission (NSM) will be affected least. Projects under state policies and parity-based projects might not only be delayed but fully called off. For more details, please download our latest India Solar Compass (July 2014 edition) here.

If ADD were not tabled in the first place, India would have added over 1.6 GW in next year

Even if ADD will be scrapped India would add only around 1 GW solar capacity in the next year

The NSM will be the main contributor to solar growth, irrespective of ADD

The Ministry of Commerce had recommended ADD for solar cells and modules in May 2014. Since then, the Indian solar market has held its breath. We are considering three scenarios for the market projection.

In the first scenario, we assume what would have been the case (hypothetically, as a base line), if ADD had not been recommended in the first place. In this case, we would have expected over 1.6 GW to be added in the next year. Various state policies would have contributed around 700 MW. Over 300 MW would have come from the NSM. Parity based projects would have contributed an additional 300 MW.

Figure 1: Projected quarterly PV installations in India (hypothetical, no ADD talk)

In the second scenario, we presume that the announcement of recommendations is leading to delays but by August, a decision not to impose the duties will be announced. This is currently a likely scenario. India could then still reach almost 1 GW of new capacities in the next twelve months. State policies would add over 300 MW. Around 300 MW would be added under NSM. Parity based projects would contribute around 200 MW.

Figure 2: Projected quarterly PV installations in India, if ADD are scrapped

Under the third scenario, we presume that ADD will be imposed. Projects in the installation stage will likely still get commissioned in Q3 of 2014. But after Q3 of 2014, the only significant capacity additions will be under NSM. The impact of ADD will be minimal for projects under the domestic content requirement (DCR) category. Under the open category for NSM, the orders have already been placed for modules and few projects will likely be commissioned in next year. The parity-driven market will come to a halt. In total India will only build around 550 MW. The overall effect of anti-dumping duties vis-à-vis the baseline scenario will be a minus of 1 GW or two-thirds.

Figure 3: Projected quarterly PV installations in India, if ADD are imposed

Mudit Jain is a consultant at BRIDGE TO INDIA.

The Ministry of Commerce has recommended anti-dumping duties (ADD) for solar cells and modules from the leading supplier countries. The final decision on their imposition is now awaited. Since then, the solar market in India has come to a standstill, with many projects and policies on hold. For more details, please download the latest edition of the India Solar Compass (July 2014) here.

The imposition of ADD could lead to a reduction of solar installations by almost 67% in the next year

Even if ADD is not enforced, installation capacity in the next year is still expected to fall by almost 40% due to delays caused by uncertainty about ADD

Projects under state policies and parity based projects will be affected most severely

As a result of the ADD, the cost of solar power could rise by about 10%, making many solar projects unviable. Also, making solar power more expensive to the taxpayer or power consumer. Indian module manufacturers who do not have their own cell manufacturing, will find it almost impossible to sell in the Indian market. Given the limited capacities of domestic cell manufacturers, the market will face bottlenecks for at least two years.

Had ADD not been tabled, we expect that India would have added over 1.6 GW of solar capacity over the next year. Even if ADD are not enforced, India will likely add almost 40% lesser solar (delays due to uncertainty). If ADD are imposed, the market will fall back to the growth level of pre 2011 and many players and investors might exit.

Figure 1: Projected solar capacity addition in the next year

Vinay Rustagi is the Managing Director at BRIDGE TO INDIA.

The new budget for 2014-15 will be the first of the recently elected government in India. The expectations are high, but the finance minister has to walk a tightrope to ensure fiscal prudence in an economy that has been handed over to him in a bad shape.

BRIDGE TO INDIA expects the government to increase the allocations to the MNRE

The government should think of ways to strategically support the growth of solar manufacturing

The possible reinstatement of accelerated depreciation for wind projects is expected to have a significant impact on the solar sector

The interim budget for 2014-15 presented by the outgoing government announced allocation of funds for setting up ultra-mega solar power projects but lowered the budgetary allocations to the Ministry of New and Renewable Energy (MNRE) and did not extend the 10 year income tax holiday for new solar projects.

In terms of taking corrective measures, we expect the government to increase the allocations to the MNRE. This should help revive the subsidy scheme for rooftop solar projects (refer). Given that Minimum Alternate Tax (MAT) of 19% is payable even if there is an income tax exemption (maximum rate is 33%), removing the tax holiday does not make much difference to either the cost of solar power or the government’s tax revenues. The government may or may not extend the tax holiday. If it does, it would be advisable to also waive off the MAT component so as to make it truly effective.

To show that the government is serious about promoting manufacturing in India, especially in the wake of anti-dumping duties being potentially imposed, it should think of ways to strategically support the growth of solar manufacturing. That means, manufacturers in India should be able to become competitive in the medium term without further government support. It would be a huge policy blunder if anti-dumping duties are enforced, but domestic manufacturing still does not take off. In such a scenario, the government would not  be able to keep the market afloat, let alone achieve ambitious new goals.

Apart from this, we expect this budget to signal a reform of the the power sector at large and provide more energy access. This will set the tone for a regulatory overhaul of the existing transmission and distribution mechanisms and make the rural electrification authorities look at all possible alternatives to achieve their targets. This, in turn, will be good news for the solar sector.

Another aspect of the budget that is expected to have a significant impact on the solar sector is the possible reinstatement of accelerated depreciation for wind projects. If this happens, a lot of tax-driven investment that had moved from wind to solar will move back to the wind sector. This will have both negative and positive implications on the expansion of the solar sector in India. Negative, because the availability of funds will reduce. Positive, because it will help steer the market towards more long-term and project-related investments.

Overall, we expect this budget to take steps in the right direction but it is still much too early to see the whole picture on where the government intends to take solar in India.

Jasmeet Khurana is a consultant at BRIDGE TO INDIA.

Is the Indian solar market finally going to live up to its huge promise? I have hopes that it will. The new government has made all the right “noises”. It wants to embed solar firmly within a larger energy strategy for the country. The new Power Minister, Piyush Goyal, wants to take his cue from China, currently the world’s largest solar market. At the same time (and predictably) power tariffs have been hiked by as much as 30% in some states. And the cost of solar is falling again. All this is great news. The only concern is the possible imposition of anti-dumping duties. However, several ministers have already spoken out against them. Perhaps they will be dropped.

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At BRIDGE TO INDIA, we strive to provide you with the information and analysis you need to navigate the Indian solar market. We do this through our reports, through regular blog pieces and our weekly newsletter. Through the various publications, we estimate that we reach about 80% of professionals in the Indian solar market. Our goal is to help create a functioning market for solar in India – and we have witnessed it coming a long way since we started covering it in 2010. These are exciting times. Everything is changing: India, the energy system, business models, development models and (unfortunately) also the climate. We, too, have to change and improve. For that reason, I am reaching out to you. If you can spare 15 minutes, it would be wonderful to have your feedback on our publications. Are we relevant and timely and analytical enough? Have we missed something or made a mistake? How can we do better?

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Since 2010, India has built a solar capacity of over 2.5 GW. Like in many other rapidly growing markets, there have been teething issues. A number of plants under-perform. To bring more transparency to the market, we have launched a new series of India Solar Case Studies, starting with a 36 MWp plant in Rajasthan. The case studies can help future developers make better decisions with respect to location, EPC, technology and maintenance. And there are many more projects to be built in India. To visualize that, we have created an India Solar Map showing the potential of solar in India. It is virtually limitless: Using 0.5% of its land or half the desert district of Barmer, India could build 1,000 GW of solar power, enough to generate 1.5 times the current electricity demand. This is, of course, a thought experiment. The reality would look different, with solar plants spread across the country.

Yet, it is important to know, that solar can play a very central role in India’s future power strategy. How solar is growing every day, what the policies and the projects are, is documented in our new editions of the India Solar Compass and the India Solar Handbook. They should give you the data and information on the market you need. Both publications have been entirely re-worked to make them more concise and useful to you.

In our blogs, we have covered a lot of ground. I invite you to browse our blog website. We looked at a number of solar policies, at the challenges for utilities and at business models around e.g. solar irrigation pumps. The focus in the last weeks was on two issues: the first was, of course, the new BJP government that has been voted into power with a majority in parliament. Subsequently, there have been many very encouraging statements for the solar market in India. We have covered them in some detail. On the other hand, there is the threat of an imposition of anti-dumping duties. We have taken a strong stance against them, because we are convinced that they would set the market back by two years. That would be a great loss. It would put many Indian solar companies out of business and would make solar power a distant dream for millions of consumers.

In the coming months, we are looking forward to presenting a number of thought leadership reports on the future of solar in India. There is a growing consensus that solar goals can be more ambitious than the current 20 GW of the NSM. 100 GW is quite feasible. But in what manner? Centralized or distributed? We compare different scenarios: building GW-scale “mega” projects, MW-scale projects, commercial rooftop projects or residential systems. We look at the landed cost of power, at infrastructure requirements, at job creation and at ecosystem effects. In a second report, we look at the technical challenges for the grid operators in integrating significant distributed renewable sources in a specific geographical area: How to ensure stability and safety? How can an uninterrupted supply be guaranteed? What are the lessons from countries which already have a high renewable energy penetration? A third report focuses on what solar can contribute to improving the power supply in the city of Patna. This will be along the lines of our analysis from last year on converting Delhi into a solar city.

The best way for you to stay up to date with our publications and the Indian solar market is through our weekly newsletter. You can subscribe to it on our homepage. Also, we will be presenting you the BRIDGE TO INDIA website in a completely new and improved design that will hopefully make it even easier for you to access our content. As a valued reader, I ask you to please share your feedback with us.

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Tobias Engelmeier is the Director and Founder at BRIDGE TO INDIA. Twitter: @TEngelmeier

On 26th June 2014, the Ministry of New and Renewable Energy (MNRE) announced continuation of the capital subsidy scheme for rooftop solar projects (refer). Under this scheme, the government will continue to provide 30% of the capital cost of the projects as an upfront subsidy to rooftop projects implemented by MNRE “channel partners” or state nodal agencies. Three note-worthy tweaks have been made to the subsidy mechanism.

Firstly, state nodal agencies are expected to play a more important role in the process. The state agencies can now independently approve and implement projects up to 50 KWp each and set their own targets. Up to 10% of the financial assistance can be provided at the time of approval of these targets.

 Secondly, the maximum size for a project to avail subsidies has been raised from 100 KWp to 500 KWp.

Thirdly, the subsidy can now be availed by not only the state nodal agencies and channel partners but also directly by other agencies such as railways, defense,  public sector units and municipal corporations. All these changes are broadly positive in our view.

However, over the past 18 months, project approval under the subsidy mechanism has come to a standstill: very few subsidies were actually paid out. Due to budget cuts, the MNRE was unable to pay the subsidy. This unresolved situation has frozen the market. Customers are aware that a subsidy policy exists and expect low system prices which channel partners cannot offer. Many customers then prefer to wait for the subsidy to be available and defer going solar. This lure of subsidies even negatively affects projects that are viable without any subsidy. Clearly, a bad subsidy scheme is worse than no subsidy scheme. Recognising this, several industry representatives and industry bodies have recently asked the government to do away with the subsidy mechanism and leave the market to operate on its own (refer).

Now that the government has decided to nevertheless continue the subsidy, the question is: will it provide the funds? In the last financial year (April 2013- March 2014), MNRE had received a budgetary allocation of INR 15.2 billion (USD 250 million) for various renewable energy programs.

However, there was a mid-term course correction due to India’s current account deficit crisis and the actual disbursement ended up to be only INR 4.4 billion (USD 72 million). For the current financial year (April 2014 to March 2015), previous government in its interim budget set the disbursement target at just INR 4.26 billion (USD 70 million).

This disbursement for all of MNRE’s activities (including other renewables) needs to be revised up at least to the previously envisaged target of INR 15.2 billion (USD 250 million)  for it to have any meaningful impact on the solar rooftop market (capacity addition of 200 MW).

BRIDGE TO INDIA is of the view that even a well funded subsidy mechanism for rooftop solar projects will only restrict the market, as budgetary constraints will continue to set the boundaries for its growth. It might be a better idea to incentivize faster adoption by focusing on larger regulatory aspects around grid connectivity and net-metering along with easier and cheaper access to finance for solar projects.

Jasmeet Khurana is a consultant at BRIDGE TO INDIA.