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2018 – one step forward, two steps backward


17 December 2018 | BRIDGE TO INDIA

2018 – one step forward, two steps backward

As 2018 comes to an end, we take stock of the progress made by the RE sector in the year. After finishing 2017 on a record high, total capacity addition is expected to fall by 32%. The fall is most notable in wind (down 46%), followed by utility scale solar (down 36%). In contrast, rooftop solar has grown by about 75%.

Source: BRIDGE TO INDIA research

The one significant positive during the year was module prices falling substantially – by more than 40% – after rising through H2 2017. The fall has helped to counter effect of GST, safeguard duty and Rupee depreciation making the low tariffs bid out in early 2017 (nearly) viable.

MNRE’s mega roll-out plan, announced at the end of 2017, failed to live up to expectations. Tender issuance rose markedly but many tenders had arbitrary tariff ceilings or were poorly structured and were undersubscribed as a result (manufacturing linked tender 10,000 MW, SECI Uttar Pradesh 275 MW, SECI pan India hybrid 1,200 MW, Assam 100 MW). Further, tenders with an aggregate capacity of 4,025 MW were cancelled because SECI and the DISCOMs found bid tariffs unacceptably high (SECI 2,400 MW, GUVNL 500 MW, UPNEDA 1,000 MW and GRIDCO 125 MW). Total final allocation is still considerably up on the last year at 19,166 MW (+171% yoy).

2018 was also the year when many on-paper risks, ignored in the frenzy of online auctions, became real. GST, safeguard duty and BIS guidelines have together presented huge headaches for the sector despite CERC clarifications on ‘change in law’ relief. Projects across the board have suffered delays due to these and other challenges in procuring land and transmission infrastructure. 12% annual depreciation in Rupee and almost 2% increase in interest rates made a big dent in project returns. It is not a surprise that the investors are finally becoming more cautious. Access to capital has become more difficult – many of the expected IPOs and large M&A deals have stalled and the sector is getting consolidated.

There were other notable disappointments. Distributed solar holds so much promise but there has been no progress on SRISTI (rooftop solar) and KUSUM (solar pump) schemes. Announcement of the purported national storage mission has kept getting delayed.

We believe that the low point for the year was MNRE’s unrealistic tariff expectations, accusations of cartelisation and open threats that bids would be cancelled if tariffs rise. The mismatch in expectations betrays lack of appreciation of challenges facing private developers and can be potentially very damaging to future prospects of the sector. India needs billions of dollars of private capital and the government needs to send out an altogether more positive message to the investors.

Indian RE had nice momentum at the end of 2017. But moving another gear has proved too difficult and instead, we have taken a step back. The sector needs new thinking, policy visibility and systematic government action to address specific challenges rather than radical actions.

The one significant positive during the year was module prices falling substantially – by more than 40% – after rising through H2 2017. The fall has helped to counter effect of GST, safeguard duty and Rupee depreciation making the low tariffs bid out in early 2017 (nearly) viable.

MNRE’s mega roll-out plan, announced at the end of 2017, failed to live up to expectations. Tender issuance rose markedly but many tenders had arbitrary tariff ceilings or were poorly structured and were undersubscribed as a result (manufacturing linked tender 10,000 MW, SECI Uttar Pradesh 275 MW, SECI pan India hybrid 1,200 MW, Assam 100 MW). Further, tenders with an aggregate capacity of 4,025 MW were cancelled because SECI and the DISCOMs found bid tariffs unacceptably high (SECI 2,400 MW, GUVNL 500 MW, UPNEDA 1,000 MW and GRIDCO 125 MW). Total final allocation is still considerably up on the last year at 19,166 MW (+171% yoy).

2018 was also the year when many on-paper risks, ignored in the frenzy of online auctions, became real. GST, safeguard duty and BIS guidelines have together presented huge headaches for the sector despite CERC clarifications on ‘change in law’ relief. Projects across the board have suffered delays due to these and other challenges in procuring land and transmission infrastructure. 12% annual depreciation in Rupee and almost 2% increase in interest rates made a big dent in project returns. It is not a surprise that the investors are finally becoming more cautious. Access to capital has become more difficult – many of the expected IPOs and large M&A deals have stalled and the sector is getting consolidated.

There were other notable disappointments. Distributed solar holds so much promise but there has been no progress on SRISTI (rooftop solar) and KUSUM (solar pump) schemes. Announcement of the purported national storage mission has kept getting delayed.

We believe that the low point for the year was MNRE’s unrealistic tariff expectations, accusations of cartelisation and open threats that bids would be cancelled if tariffs rise. The mismatch in expectations betrays lack of appreciation of challenges facing private developers and can be potentially very damaging to future prospects of the sector. India needs billions of dollars of private capital and the government needs to send out an altogether more positive message to the investors.

Indian RE had nice momentum at the end of 2017. But moving another gear has proved too difficult and instead, we have taken a step back. The sector needs new thinking, policy visibility and systematic government action to address specific challenges rather than radical actions.


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