In our last few bulletins, we have written extensively upon the recent challenges faced by the RE sector. Here, we take a look at what to expect in 2018. The year has obviously started on a shaky note with the 70% provisional duty recommendation on cell/module imports. The trade investigations are likely to drag on for a few months and we expect an eventful year ahead, dogged by uncertainty, disputes and litigation. We already see many developers and contractors slowing execution as even a marginal duty imposition will make many projects unviable.
Capacity addition is likely to fall sharply
2017 RE capacity addition is estimated to touch record levels of 13.3 GW (+61% over 2016) including utility scale solar (8.5 GW, +110%), rooftop solar (0.8 GW, +60%) and wind (4 GW, +11%). We believe that 2017 will be a record year for RE capacity addition in India for some years to come. Our best-case estimate for total RE capacity addition in 2018 is 6.5 GW, a sharp drop of 51% over previous year. Utility scale solar capacity addition including open access projects is expected at 5.2 GW (–39%). Rooftop solar capacity addition is expected to remain static whereas open access will see a substantial slowdown after Karnataka’s attractive policy expires at the end of March 2018. Wind will see an almost complete collapse in activity with all recently tendered projects not due for completion until end 2019.
Tariffs unlikely to fall further
Despite intense competition in the sector – the recent Karnataka 860 MW state tender has been oversubscribed four times – we believe that both solar and wind tariffs have no more room to fall during the year. Developers remain hungry but risk-reward on auctions has been stretched to the maximum.
Manufacturing will remain high on the news charts but see little real progress
Trade investigations will ensure that manufacturing will continue to attract a lot of attention. But we do not expect any material progress on the government’s new manufacturing policy or any significant boost to domestic manufacturing in the year. Some Chinese and Indian companies would announce plans but ultimately, only 1-2 Chinese manufacturers would perhaps go ahead with actual investments.
Module prices will decline gradually from Q2 onwards
Last year, we failed miserably in reading the module market as unexpectedly strong demand from China and the US resulted in prices going up significantly. This market remains very difficult to call but our belief for the new year is that prices will stay reasonably firm in H1 with some continued softening beginning from around May/ June. We expect the year to end with imported module prices at around USD 0.30/ Wp, an annual decline of 16%, before taxes and duties.
Central government budget will be a non-event for the sector
The Indian government is set to unveil annual budget for the next financial year on February 1, 2018. This will be the Modi government’s last full budget before general elections in 2019. Anticipation is building up but we don’t expect any significant announcement pertaining to the RE sector. The key thing to look out for is if any budgetary allocations would be made in line with the recent provisional announcements on manufacturing subsidies and financial support to DISCOMs for rooftop solar.
India still has a long way to go to meet the 175 GW target. But as we have maintained for some time, sector growth has been uneven and front loaded. Muddled policy environment and weak power demand mean that rather than building on the successes of 2017, we are headed for a year of disappointments.
