Month: August 2016

Chinese module suppliers increased their share of the Indian solar PV market, which added a total capacity of 3.6 GW in the past 12 months (refer), to 75%, up from around 50% in the previous 12 months. In contrast, the share of Chinese suppliers in the US market is believed to be less than 30%. Other international and domestic suppliers increased their overall sales volume in India but saw their market share halve from 24% to 12% and from 26% to 13% respectively.

Existing Chinese majors have maintained their market share but the new Chinese companies have taken a significant share away from Indian and other international suppliers

Module supply glut in China may lead to even more Chinese suppliers focussing on the Indian market with aggressive pricing

It is a buyer’s market for Indian project developers despite major increase in demand

8 out of top 10 module suppliers in the Indian market are now from China as against just 4 out of top 10 in the previous year. The remaining 2 names include First Solar (USA) and Waaree (India). While early movers Trina Solar and Canadian Solar have managed to maintain their market share and retain top positions, the big change is significant pick up in market share by other Chinese suppliers including JA Solar, GCL Poly, Hanwha, BYD, Talesun and Risen. These companies had a very marginal presence in the market previously but now have a combined market share of 32%.

Shipments for major non-Chinese suppliers such as First Solar, Tata Power Solar and Vikram Solar grew in volumes but respective market shares have come down drastically.

Going forward, we expect the Chinese module companies to dominate the market notwithstanding the Indian government’s push for Make in India and the imminent announcement of a new manufacturing policy for the sector (refer). A mix of factors including local supply glut and falling prices (refer) means that the Chinese companies will compete hard for a growing share in the Indian market. The possibility of other mid-sized Chinese suppliers entering the market with aggressive pricing also cannot be ruled out.

Indian suppliers are expected to maintain a market share of 10-12%, broadly proportional to capacity set aside for Domestic Content Requirement (DCR). However, we expect a churn in the domestic supplier market shares once Adani’s 1.2 GW manufacturing facility becomes operational.

The big beneficiary of falling prices and increasing competition between module suppliers is obviously the Indian solar market. Project developers are in a sweet spot as they are in a buyer’s market despite increasing Indian demand. They will be relieved with falling prices, which will serve to grow the appetite of local investors.

India’s total installed solar capacity has grown by over 80% in the last 12 months to reach 8.1 GW. Out of the 3.6 GW capacity added in this period, 2.7 GW has come from four southern states with Tamil Nadu alone adding over 1.2 GW on the back of a generous feed-in-tariff of INR 7.01/kWh (US¢ 10.4/kWh). Tamil Nadu now ranks number 1 for commissioned capacity in both wind and solar.

Six states account for 80% of the capacity added in India

Including the current pipeline of 14 GW, 55% of total current and planned capacity will be located in four southern states; fresh demand from these states is expected to be muted

Market growth beyond 2018 will depend on fresh demand coming from states such as Maharashtra, Gujarat and Uttar Pradesh

As of date, three western and central states of Rajasthan (1,307 MW), Gujarat (1,112 MW) and Madhya Pradesh (756 MW) and three southern states of Tamil Nadu (1,368 MW), Andhra Pradesh (961 MW) and Telangana (923 MW) account for around 80% of India’s total installed solar capacity as against only 38% of India’s overall power consumption.  The remaining 23 states including some of the largest power consuming states like Maharashtra, Karnataka and Uttar Pradesh account for just 20% of the installed capacity.

In the initial phase of solar sector development in India, until 2014, bulk of solar capacity addition came up in Rajasthan, Gujarat and Madhya Pradesh (57% of total). But the southern states have taken decisive lead in the last year driven primarily by their growing power needs. An analysis of recently completed tenders totalling over 14 GW shows that this trend is likely to continue over the next 2 years with the southern states accounting for 60% of this pipeline (8.7 GW). Karnataka has the largest pipeline of projects, 3.3 GW in total, under various stages of development.

Such heavy regional concentration of solar capacity addition raises two key issues. First, where is future demand going to come from? This is a growing concern for the sector as India faces a unique problem of excess power supply and most of the big power consuming states seem understandably reluctant to set up new solar capacities. Second, grid balancing and management is going to become increasingly critical for sustainable growth of the sector. The government is planning upgrades of transmission infrastructure through its green energy corridor program, but such projects take much longer than the 12-18 months it takes to commission a solar project. States with high renewable penetration including Tamil Nadu and Rajasthan are already facing significant grid curtailment upsetting project cash flows and return expectations of investors.

As the Indian solar sector grows in size and prominence, equity raising and portfolio sales are also gathering pace. Three major deals were announced last week – Azure Power is selling a minority stake to Canadian asset manager Brookfield to raise USD 75 million (refer),  Acme Solar is raising USD 120 million though the mezzanine route from Piramal Enterprises’ Structured Investment Group (refer) and SunEdison has finally agreed to sell its commissioned and pipeline capacity of 1,300 MW to Greenko (refer). While Azure Power has a commissioned plus pipeline capacity of over 1,000 MW, Acme Solar’s commissioned plus pipeline capacity stands at over 1,800 MW. With developer portfolios growing at a rapid pace over the past few quarters – 6 Indian developers have now got total commissioned plus pipeline capacity of over 1,000 MW – raising capital has become urgent priority for the sector.

Access to capital including scale and cost of capital is the most important strength and differentiating factor for project developers

In the face of falling bid tariffs, portfolio and minority stake sales instill much needed confidence in the market and help kick-start a secondary market for solar transactions

Debt capital market transactions by Greenko and Tata Power show new financing avenues and signal maturing of the sector

International Solar Alliance (ISA) was launched at the climate summit in Paris on 30th November 2015 amid much fanfare with membership from the solar resource rich countries lying between the Tropic of Cancer and the Tropic of Capricorn. ISA has set out lofty ambitions to accelerate development and deployment of existing clean solar energy technologies in these countries. A total of 121 countries agreed to join the alliance and India took up the chair, showcasing itself in a leadership role (refer) along with France as the founding partner.

India has offered funding for off-grid demonstration projects and some administrative support, but as a founding member and a leading proponent in the sector, it needs to put in more effort to create a practical roadmap for ISA

Progress so far is underwhelming and it appears that ISA is lacking clear thrust and definition of its organisational objectives

To gain a voice in the fight against climate change and become a meaningful partner for developing countries, ISA should aggressively garner more funding, build a competent organization and consolidate other international initiatives under its unified umbrella

In the eight months since its inception, ISA has held three international steering committee meetings in Paris (refer), Abu Dhabi (refer) and New York (refer) and the interim administrative cell has also met a few times. The World Bank Group has signed an agreement with ISA and offered to mobilize USD 1 trillion in investments in solar energy by 2030 and the United Nations Development Programme has also offered to collaborate with ISA. India has offered to train 450 officers from ISA countries and provide funding of USD 15 million for off-grid solar demonstration projects in member countries. In addition, Confederation of Indian Industry and Terawatt Initiative (launched by Engie at COP21 specifically to support ISA) will be helping organize global investment meets similar to India’s RE-Invest Summit in Peru, Kenya and Indonesia during 2017.

Overall, while ISA is a very laudable concept, progress so far is underwhelming and it appears that ISA is lacking clear thrust and definition of its organisational objectives. It is also clear that ISA needs stronger commitment from partner countries and substantial funding support to become an important agent in the fight against climate change. Without these things, the organization may come to be seen as a gimmick and risk fading into oblivion.

The Ministry of New and Renewable Energy (MNRE) is currently in the process of finalizing guidelines for 5,000 MW of new solar projects with National Thermal Power Corporation (NTPC) as an off-taker. These projects are expected to be tendered over the next three years with actual timing and geographical spread depending on demand from power utilities. Draft guidelines are expected to be released over the next 2 months.

NTPC may fix the solar power tariff at INR 4.50/kWh (US 6.7 cents/kWh) and ask developers to bid for an additional Generation Based Incentive (GBI) per unit of electricity

A concept similar to deemed generation is likely to be introduced for the first time for solar power procurement in India

The move to GBI is preferable over viability gap funding (VGF) structure as it incentivises better performance and encourages quality consciousness

NTPC sells solar power from previously tendered projects to utilities together with cheap power from older thermal power plants on a bundled basis to lower the effective cost. However, due to limited availability of older thermal power, MNRE and NTPC are proposing to do away with the bundling mechanism. Instead, power from the new projects is proposed to be sold to utilities at a fixed tariff of INR 4.50/kWh (US 6.7 cents/kWh), the level at which state utilities would be comfortable to procure. Project developers will be compensated for any deviation in their tariff expectation – positive or negative – through GBI, determined under a competitive bidding process.

MNRE is believed to be putting aside a financial corpus of INR 10-15 million/MW (USD 0.15-0.22 million/MW) for GBI payments during the project life. Based on recent tenders and softening cost trends (refer), we expect actual GBI for future projects to be close to zero or even negative. But the move to GBI, a generation or performance linked payment mechanism, is preferable over viability gap funding (VGF) structure as it incentivises better project performance and encourages quality consciousness.

BRIDGE TO INDIA understands that the new guidelines also incorporate some mitigation of grid curtailment risk, a growing concern for project developers. The guidelines propose compensation for up to a defined of deemed generation per annum by way of allowing developers to sell equivalent amount of excess power generation in subsequent years. The structure is very restrictive and not sufficiently attractive but the introduction of deemed generation as a concept is very promising for developers. We expect that the compensation structure will improve over time.

With both NTPC and Solar Energy Corporation of India (SECI) implementing their individual schemes to award 5,000 MW of solar capacity to private sector developers, there should be a clear visibility of demand in the Indian market for the next 2-3 years.