Month: July 2018

BRIDGE TO INDIA has released the latest edition of its India Solar Rooftop Map report. As per the report, India added new rooftop solar capacity of 1,142 MW in the financial year 2017-18, up 68% over previous year. Total installed capacity is estimated to have reached 2,538 MW as on 31 March, 2018..

OPEX market share is rising strongly, driven by increasing customer preference and investor appetite;

Maharashtra has overtaken Tamil Nadu to emerge as the biggest solar rooftop state with an 18% annual market share;

The government needs to adopt bold policies to realise full potential of this market;

The industry growth is highly encouraging as it came despite some significant challenges including module price increase, safeguard duty threat and uncertainty caused by GST imposition. C&I consumers were again the biggest market segment accounting for 64% of total capacity addition (70% in FY 2016-17). Residential segment – 17% of total capacity addition – has grown by 65% to reach total capacity of 503 MW. Public sector consumers account for the remaining 19% share. Within states, Maharashtra remains the leading state with total installed capacity of 309 MW, followed by Tamil Nadu (253 MW), Karnataka (182 MW), Gujarat (170 MW) and Rajasthan (167 MW).

There was a significant increase in OPEX model share to 34%, up from 20% last year. The model, now highly standardised and well understood, is being increasingly preferred by C&I consumers because of its win-win proposition – attractive financial savings with no operating or technical risk. Many players have raised significant amount of capital also leading to a churn in the developer rankings – Cleantech Solar is the new OPEX market leader with an annual share of 16%; it is followed by Cleanmax Solar (13%) and ReNew (10%).

EPC market is getting more fragmented with top ten player market share of only 18% (21% last year) as small regional players compete strongly on price – top three players are Tata Power (6%), Fourth Partner (3%) and Sunsure (2%). In the inverter market, Delta is still the leading player although its market share has fallen to 28% (36% last year). Chinese suppliers including Growatt, K-Star, Solis and Huawei have grown their presence substantially to achieve a combined share of 23%.

It is heartening to see the rooftop solar market growing briskly despite strong odds and policy disappointments. Ongoing fall in module prices  and more investment appetite should continue to drive growth in the next few years. If the government can effectively implement some of the proposed policy ideas, the market would finally start realising its potential.

Indian government appears to be working on a new scheme to support domestic manufacturing. The scheme involves procuring 12 GW of new project capacity using domestically manufactured modules over next four years. Power from these projects will be bought exclusively by public sector units for their own consumption. If implemented, it will be the government’s DCR 2.0 scheme. The previous scheme fell afoul of WTO guidelines and the new scheme has been designed specifically to avoid that fate.

Convincing public sector consumers to buy expensive power and managing open access challenges will not be easy;

The vast array of policy ideas and schemes in circulation is creating confusion in the sector;

Both manufacturers and developers are lobbying hard for a favourable outcome and adding to uncertainty;

We are not convinced about prospects of the new scheme. Public sector entities may not actually agree to buy expensive power. Who will bear open access regulatory risk and cost of using the grid? Setting aside these reservations, DCR 2.0 is the fourth or fifth policy idea mooted by the government in the last year to boost domestic manufacturing. A new manufacturing policy has been talked about for some time but there is no clarity on that yet. Capital subsidies and interest rate grants have been proposed but we believe that these are ruled out for now because of funding constraints. SECI has called bids for a 5/10 GW integrated manufacturing and project development tender and it remains to be seen how it will be received in the market. There has been some progress finally on safeguard duty implementation but here again, a final decision is still awaited.

In short, there are many jumbled policy ideas and schemes on paper but no meaningful action yet. Meanwhile, domestic manufacturers are struggling to stay afloat while project developers are anxious because of uncertainty around safeguard duty implementation. Both sets of players are also unhappy with the final DGTR recommendation on safeguard duty and lobbying furiously for a more favourable decision.

We spoke to a number of stakeholders to discuss their reaction to the ongoing announcements. Everybody agrees that the government is serious about supporting domestic manufacturing. Beyond that, there is plain confusion on mechanics and timing of different schemes. We heard many contradictory ideas about prospects of different schemes as well as their impact on different players across the value chain. As we concluded in our recent blog, the industry should brace for an extended period of uncertainty on this front.

The Directorate General of Trade Remedies (DGTR), Ministry of Commerce and Industry, has issued its final decision on the safeguard duty petition by domestic cell and module manufacturers. It has recommended a safeguard duty on imports of all cells and modules, irrespective of technology, for a period of two years – 25% in the first year falling to 20% and 15% in the subsequent six month periods respectively. The duty shall be applicable to imports from China, Malaysia and all developed countries. Imports from other developing countries have been exempted as they individually account for less than 3% of total imports into the country.

 If the recommendation is accepted, it will have no meaningful sustainable impact on domestic manufacturing because of the short duty period and no relief for SEZ (special economic zone) units;

The duty would pose financial and execution challenges for all ongoing projects and adversely impact government plans for the sector;

The industry should brace for an extended period of uncertainty as the duty saga is likely to linger on for the foreseeable future;

The decision is largely in line with expectations although the two-year application period is surprisingly short. It is not sufficient to encourage any new investments and nor does it allow existing manufacturers to upgrade their facilities and make any meaningful recovery. The other key aspect of the decision is that there is no relief provided to SEZ-based units including Mundra, Vikram and Waaree. These ‘domestic manufacturers’ would be subject to duty when they sell modules in the domestic market unless they are given a special dispensation by the government. But the domestic manufacturing industry excluding SEZ-based players can barely meet 5% of total domestic demand. That raises the question: why impose duties for benefit of some small manufacturers and risk growth in such a crucial sector?

We continue to maintain that the safeguard duty would be very damaging to the industry as well as to the government’s ambitious plans. Notwithstanding recent falls in module prices, most projects under execution would face viability challenges (capex increase of up to 15%, extra tariff requirement of INR 0.40/ kWh) and execution delays. MNRE has been promising protection from duty for projects where auctions have already been completed but there is no clarity available on that. Even where PPAs allow legal recourse through ‘change in law’ mechanism, there are bound to be drawn out disputes between the procurement agencies, DISCOMs and project developers.

We also believe that the arguments used to justify duty imposition are highly flawed. If the government accepts the recommendation to impose duty, there is a high chance of a successful appeal by other countries against the decision.

Some industry players have expressed relief that the DGTR decision, even if detrimental to developers and other downstream players, at least provides some clarity on way forward. Unfortunately, we disagree. For one, the final decision is still subject to ratification by the Board of Safeguard and Ministry of Finance. It is also possible that some developer(s) will find a spurious reason to hold up the process through legal appeal as happened last time. Moreover, we understand that domestic manufacturers are considering another petition for anti-dumping duty. The industry should brace for an extended period of uncertainty on this front.

SECI completed auction for its 3,000 MW solar tender last week. Capacity was won by 6 developers – Acme (600 MW, tariff INR 2.44/ kWh), Azure (300 MW, 2.64), Canadian Solar (200, 2.70), Adani (300, 2.71), ReNew (500, 2.71) and Softbank (1,100 MW, 2.71). The auction follows another similar 2,000 MW solar auction conducted by SECI just two weeks ago where Acme (600 MW) and five other Indian developers won at tariffs ranging between INR 2.44-2.54. All projects are expected to be located in Rajasthan and/or Gujarat.

Most solar developers appear to underestimate transmission related execution challenges;

The developers seem to have unlimited enthusiasm for the sector and are bidding for ever greater capacities;

With multiple tenders coming to market, tariffs have increased slightly but new risks will continue to test the developers;

It is a big surprise to us that such large auctions with no solar park infrastructure availability have been so successful. Developers are now given an extended 21-24 months for project completion because of concerns around land acquisition and transmission connectivity. But as recent experience in the wind sector has shown, even that is unlikely to be sufficient. The first wind auction under a similar pan-India location, inter-state transmission connectivity framework was conducted 15 months ago. Projects have already reached/ are reaching physical completion but are facing significant commissioning delays because of unavailability of transmission infrastructure. Despite multiple promises made by MNRE and Power Grid Corporation, it seems that there is simply no transmission capacity available in Rajasthan and Gujarat. The wind sector seems to have finally learned the lesson at its cost with the last auction being heavily undersubscribed. But most solar developers are still bidding with full enthusiasm regardless.

The other striking part of these auctions is the huge capacity won by Softbank and Acme, amongst others. In the latest SECI and NTPC tenders, developers have been allowed to bid for capacity of up to 2,000 MW, marking a step change in the sector. Softbank and Acme have capitalised on the increase winning and unprecedented 1,550 and 1,875 MW of new capacity in just the last two months. Softbank has also bid for the entire capacity available in NTPC’s recent 2,000 MW solar tender and seems to be keen to realise its mega aspirations. Meanwhile, Acme seems to be bulking up in preparation for its IPO.

Our calculations suggest that adjusted for changes in cost of modules, land and other parameters, tariffs have increased by about 5-10% over the last few months. That should provide some relief to developers but we believe that market outlook remains challenging with many risks – safeguard duty, INR depreciation, land and transmission procurement – yet to be priced in.

Madhya Pradesh Urja Vikas Nigam Limited (MPUVNL), in partnership with the World Bank, has issued a 28 MW rooftop solar tender under the OPEX model. The tender has been re-issued but the capacity has been revised down from 40 MW earlier after conducting site surveys. The proposed capacity is expected to be deployed across a range of buildings belonging to state government educational institutions (55%), central government institutions (18%), other state government institutions (15%) and private institutions (12%).

The selected bidders are required to design, install, finance, own and operate the systems for 25 years. In addition to 30%/ 25% capital subsidy provided by central government for private institutions and government buildings respectively, the state government is offering an additional subsidy of 20%.

Learning lessons from recent SECI and other government rooftop solar tenders, this tender contains many developer friendly provisions introduced for the first time in India:

Identified capacities have been validated in advance using satellite imagery and site surveys;

A virtual ‘data room’ with technical assessment data of the site along with electricity consumption history is provided to bidders;

Part-commissioning of projects is allowed;

PPAs have been vetted and approved by the consumers in advance;

Performance monitoring benchmarks have been indexed seasonally to account for variation in performance;

Capacity has been divided into 22 project groups by type of end-consumer such as central and state government buildings, municipal buildings and others. This has been done to enable developers to bid for uniform credit profiles and secure easier financing.

Validation of capacity has been carried out to avoid post bidding mismatch. This mismatch led to SECI’s 1,000 MW rooftop tender in December 2016 being scaled down to 500 MW and further reduction in allocated capacity to 226 MW.

Investor interest in rooftop solar tenders has been waning due to multiple execution challenges faced by developers. But we understand that many developers are interested in participating in this tender as it addresses many of the issues faced in previous rooftop solar tenders issued by government agencies. If this tender is successful, it may provide a template for future rooftop solar tenders in the country.

India’s total installed utility scale solar capacity grew by over 70% in 2017-18 to reach 21.3 GW. Total solar capacity including rooftop solar and off-grid systems reached 24.5 GW as of March 31, 2018.

Total utility scale solar capacity in 2017-18 was 9.1 GW, up 72% over last year and more than all other sources combined (4.6 GW of thermal and 1.7 GW of wind power);

Karnataka added 4.1 GW of new solar capacity in this period and surpassed Telangana, Rajasthan, Andhra Pradesh and Tamil Nadu to become India’s top solar state;

The year was notable for exponential growth in the open access market, where 1.7 GW of new capacity was added, up 275% over previous year;

Figure: Total utility scale solar capacity as of 31 March 2018

All figures are in MW

Source: BRIDGE TO INDIA research

Adani was the top project developer with 1,120 MW capacity commissioned, followed by Renew and Acme. NLC and Acme lead the pipeline capacity followed by Azure, ReNew and Softbank. Four players – Hero, Suzlon, Shapoorji Palloonji and Skypower feature in the top ten list of developers for the first time.

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Amongst module suppliers, Canadian Solar led the charts with 12.9% market share followed by JA Solar (11.4%) and Trina Solar (7.9%). Adani, at the number 8 spot, is the only Indian module supplier. China’s new policy to scale back solar is likely to further eat into the domestic manufacturers’ share. ABB continues to dominate the inverter market with 20% market share. However, it is closely followed by Huawei (17%), which has climbed up from 10th place last year. Sungrow and TMEIC follow with market shares of 14% and 11% respectively.

BRIDGE TO INDIA’s latest edition of India Solar Map 2018 contains other information on state-wise and policy-wise progress of the Indian solar market (download it here for free).

India has made tremendous progress in renewable energy in the last four years. Solar sector, in particular, has grown rapidly with India becoming the third largest international solar market after China and the USA. Both by total installed capacity and annual capacity addition, India is now amongst the top five renewable countries in the world. The industry is understandably upbeat about the future as shown by our third renewable industry CEO survey, which saw participation from 42 private company CEOs. 70% of these CEOs are optimistic or extremely optimistic about their future business prospects.

Growth has, however, brought in its wake a shifting set of challenges as validated by the survey results. A headline finding of the survey is that the March 2022 target of 175 GW is likely to be undershot by a considerable margin. The industry expects India to have total solar and wind capacity of only 118 GW as against the government target of 160 GW. The real disappointment lies in rooftop solar, where expected capacity is only 10 GW against a target of 40 GW. This is a reflection of two factors in our view – one, the rooftop solar target itself is wrongly calibrated. Two, the government has failed to grasp policy requisites for this market. Despite falling costs, it continues to rely on costly and inefficient capital subsidies rather than directing attention to educating consumers and helping them to make the right decisions.

Another interesting finding pertains to the use of competitive auctions in the sector. The government has reasons to be pleased that auctions have halved the cost of renewable power in just three years. Indeed, both solar and wind power are now by far the cheapest new sources of power with current prices in the range of Rs 2.40-2.80 per unit. That has spurred demand from DISCOMs as well as bulk energy consumers such as railways, IT companies and auto ancillaries. The flip side of fiercely competitive auctions is that the urge to win at any cost has led to aggressive bidding. There have been persistent fears that tariffs have gone down too far, too fast and the survey results support that view. 70% of the participants believe that bidding is “irrationally aggressive.” The government needs to build safeguards in auction mechanisms to ensure that projects are delivered on time, quality is not compromised and the banks are not saddled with NPA’s as seen in other sectors.

Falling solar power cost owes partly to falling module prices and, in turn, rise of China in the global module manufacturing business. India, like much of the world, is heavily reliant on Chinese manufacturers, who have aggressively scaled up capacity and invested in R&D to account for more than two-thirds of the global supply. Indian manufacturers are unable to compete with their Chinese counterparts and that is fuelling tension between domestic manufacturers and project developers. The survey confirms that proposed safeguard duty on import of solar cells and modules poses the biggest challenge to the sector. Moreover, a majority of the participating CEOs believe that India would continue to meet more than 70% of its requirement from imports in the foreseeable future. This assessment shows that relying on trade barriers is not a satisfactory solution. Focus should instead be on creating more business-friendly environment – simplification in labour laws and other bureaucratic hurdles, lowering power cost, improvement in workforce skills – for improving domestic manufacturing prospects.

Amongst states, Gujarat wins by fair margin on ‘ease of doing business.’ Karnataka is the overwhelming favourite for open access market when most other states are in the negative territory. Madhya Pradesh leads in rooftop solar but most other states do well in this market. States are vying with each other to build more renewable capacity and they have much to learn from each other by way of sharing best practices and success stories.

The survey also reveals that uncertainty in overall policy environment, poor financial condition of DISCOMs and land acquisition are the main challenges facing renewable energy. The conundrum here is that the government has been rather enthusiastically framing new policies. But despite a plethora of new schemes and policies governing every aspect of the sector, uncertainty prevails. Constant tinkering, poor design and implementation have failed to produce results.

For example, it is unrealistic to expect businesses to commit to manufacturing investments when the policy environment is so volatile – changing repeatedly from financial incentives to assured demand, to safeguard duties and now, back to assured demand. And therein lies the key to realizing the sector potential. Creating a stable policy environment is the need of the hour for attracting private investments.