As we commence the new year, there is much anticipation that 2020 would offer respite from the multitude of problems faced last year. A jump in new installations – from a total of an estimated 11.4 GW last year to 15.0 GW – would certainly provide relief to equipment suppliers and contractors. Most of the increase would come from utility scale solar, which is expected to jump from an estimated 7.4 GW in 2019 to 9.8 GW this year.

We summarise below other key expected trends for the new year:

• In absence of industrial demand pick up, outlook for power demand is bleak with estimated growth of about 3.0-3.5% at best.
• Tender issuance should still stay strong at about 35-40 GW as MNRE presses ahead to meet the 2022 target. We expect a significant move away from vanilla tenders to complex schemes including manufacturing-linked tenders, solar-wind-storage hybrid tenders and even completely technology agnostic tenders seeking firm 24×7 power.
• Safeguard duty on cell and module imports is set to expire in July 2020. Prospects of extending it and/ or replacing it with customs duty are dim in our view. The developers would be keen to take advantage of duty expiry by deferring project construction, where possible, to second half of the year.
• High efficiency modules technologies are finally expected to make major inroads as price differential over multi-crystalline modules falls to about USD 1-1.5 cents/W. We expect almost 50% share for mono and mono-PERC modules in 2020.
• Maharashtra regulator’s decision to support net metering against the DISCOM’s recommendation has provided major relief to rooftop solar market. But overall, rooftop solar and open access are expected to have a mixed year due to continuing policy uncertainty and lack of financing. Rooftop solar growth rate has already fallen to about 20% annually as against 83% in the previous year.
• Increasing RE capacity would manifest through major deviation in RE penetration across states (reaching or even exceeding 30% in some southern states) and intra-day prices (see chart below).
• Financing woes are expected to persist as lenders stay extremely selective on project offtaker and developer credentials.

Figure: Intra-day power prices on exchange

Source: Indian Energy Exchange

The key development to look out for, of course, is movement on long-term reforms particularly measures to shore up DISCOM financial position. The government has been talking up reform over the last two years but there has been little progress to date:

1. Separation of content and carriage for power distribution;
2. Payment of tariff subsidies directly to consumers by state governments;
3. Operational efficiencies and use of smart meters to reduce T&D losses to below 15% (currently 21%);
4. Tariff reform and simplification including reduction of cross subsidy surcharge, gradual elimination of tariff subsidies, time-of-day pricing;
5. Better utilisation of 25 GW gas-fired capacity to provide peaking power for complementing RE sources;
6. Move away from fixed-price PPAs to market-based trading;

The most pressing issue remains the crisis created by dire DISCOM finances, which continue to get worse. 2020 may well be the year that most people remember for how government seeks to address this issue. We remain sceptical if the central government has the political will or ability to carry various stakeholders along for effective comprehensive solution. We anticipate a complex financial restructuring package along with bit use of privatisation and franchisee models for a temporary solution.