Category: Market Outlook

The US on Wednesday filed a complaint with the World Trade Organization (WTO) over the Domestic Content Requirement (DCR) under India’s National Solar Mission (NSM), which it said discriminates against foreign solar products, including the ones made in the US (refer).

Phase one of the NSM included a DCR on Crystalline Silicon (c-Si) cells,  however phase two of the NSM is expected to expand the restrictions to include thin-film modules as well

US companies supplying thin-film modules to the Indian market risk a significant drop in sales in the event of such restrictions

India and the US have 60 days of consultations to resolve the issue and beyond that the US can ask the WTO to hear the matter. India’s DCR may be done away with if module manufacturers are unable to put up a strong defense

In order to promote domestic manufacturing of solar cells and modules, India has been

mandating procurement of c-Si cells and modules from within the country for projects under

the NSM.

Until now, there had been no such restriction on the import and use of thin-film modules. The US, which exports primarily thin film modules, has been the main beneficiary of India’s DCR. Chinese companies offering c-Si modules have suffered and Indian manufacturers have not been able to take advantage of it. First Solar, a US company and the world’s leading manufacturer of thin-film (CdTe) modules, is the most successful supplier in India with a market share of over 20%. Lately, the company has sold around 130 MW out of 340 MW for projects under batch two of phase one of the NSM.

However, phase two of the NSM is expected to expand the DCR restrictions to include thin-film modules as well. This would risk a significant drop in global sales for First Solar, which in 2011 has supplied 8% of its modules to the Indian market.

India has always justified the DCR by arguing that since it is financially incentivizing the use of solar power through subsidies and feed-in-tariffs (FiTs), it has the right to impose conditions. Also, it is the stated goal of the Indian government to create a domestic solar manufacturing industry. However, cases challenging local content rules have received a boost since the WTO ruled against Canada’s domestic requirements for a green energy plan in Ontario province.

As per the WTO process, India can file a response within 10 days of receiving the WTO notice. The government has asked for a consultation meeting with both Indian manufacturers as well as developers on 15th February 2013 to discuss and review India’s stand on the restrictions. According to a statement by Farooq Abdullah, Minister for New and Renewable Energy (MNRE), the onus to put up a strong defense lies with the module manufacturers and if they are unable to do that, India’s domestic requirements may be done away with (refer). India and the US have 60 days of consultations to resolve the issue and beyond that the US can ask the WTO to hear the matter.

Also, India is currently investigating allegations of dumping against US companies (along with suppliers from China, Malaysia and Taiwan). Efforts from these suppliers with regards to submitting data and presenting their case to the Directorate General of Anti-Dumping Allied Duties (DGAD) under India’s Ministry of Commerce are already under way. According to BRIDGE TO INDIA, import restrictions will lead to increases of module prices and hence the cost of power to the Indian taxpayer and power consumer without really benefiting Indian manufacturers in the long term (refer to the January 2013 edition of the India Solar Compass to read the analysis).

Jasmeet Khurana works on project performance benchmarking, success factors for module sales, financing and bankability of projects in India.

This post is an excerpt from this week’s INDIA SOLAR WEEKLY MARKET UPDATE . Sign up to our mailing list to receive these updates every week.

You can view our archive of INDIA SOLAR WEEKLY MARKET UPDATES here.

The financial bids for the allocation of 100 MW of solar PV projects in Rajasthan were opened on February 11th 2013. A total of 25 bids worth over 200 MW have been received.

The lowest valid solar bid in India of INR 6.45/kWh was submitted in Rajasthan. This tariff only makes financial sense if the developer makes full use of accelerated depreciation benefits

The Rajasthan solar policy does not consider separate tariffs for projects that avail accelerated depreciation and projects that do not

Only the developers backed by Indian companies and with prior businesses in India will stand to avail accelerated depreciation benefits, and are at a clear advantage

Developers could bid for either a 5MW project or a 10MW project. The lowest bid has been submitted at INR 6.45/kWh by Essel Mining and Industries Ltd. This is currently the lowest valid solar bid in India. It has no escalation. (The INR 5.97/kWh bid for a 10 MW project in Tamil Nadu by Mohan Breweries has now been offered a tariff of INR 6.48/kWh with an escalation of 5% per annum for the first 10 years. Effectively providing a tariff of over INR 7/kWh in levelized terms).

According to the project allocation process under the Rajasthan policy, in order to obtain a project, other developers will now be asked to meet this lowest tariff (referred to as L1). Assuming that the current capital cost of setting up a project is at least INR 70m, this tariff could only make financial sense if the developer is making full use of accelerated depreciation benefits. Unlike the National Solar Mission (NSM) and the Gujarat solar policy, the request for proposal (RfP) document for the bidding process in Rajasthan does not consider separate tariffs for projects that avail accelerated depreciation and the projects that do not. For the Rajasthan bids, project development companies that are not backed by an Indian corporate (e.g. Azure Power) as well as international project development companies that do not have prior businesses in India (e.g. SolaireDirect) face a disadvantage in competing for the allocations as they would not be able to avail the accelerated depreciation benefit.

For the Rajasthan bidding process, companies that are backed by Indian businesses with multiple interests such as Essel Mining, Emami Cement, OCL Indian and Jindal Power will stand to benefit as they will be able to make use of such accelerated depreciation benefits. Apart from that, these companies will also be able to avail recourse-based debt finance for the projects. Non-recourse financing in Rajasthan will be extremely difficult given the poor long term payment security for the PPA signing entity, Rajasthan Renewable Energy Corporation Limited.

Jasmeet Khurana works on project performance benchmarking, success factors for module sales, financing and bankability of projects in India.

This post is an excerpt from this week’s INDIA SOLAR WEEKLY MARKET UPDATE . Sign up to our mailing list to receive these updates every week.

You can view our archive of INDIA SOLAR WEEKLY MARKET UPDATES here.

Tamil Nadu today opened the financial bids received for allocations under its state policy. The state had received a subdued response with bids totaling 499MW for a tender of 1,000MW (refer to our earlier blog post to read more). Initial reports suggest that financial bids have been opened for 493MW and the lowest bid has touched INR 5.97/kWh (for a 10MW project by Mohan Breweries).

The lowest bid has touched INR 5.97/kWh, the average bid is just over INR 8/kWh

The options for determination and negotiation of tariffs are still open.

Large parts of the state are reeling under severe power cuts and solar is the only source of power that can help the state meet its peak power needs in a short duration of time.

Tamil Nadu has thus seen the lowest tariffs in the country, primarily owing to the provision for a 5% annual escalation for 10 years in tariff. However, the average bid was just over INR 8 kWh and some prominent bidders such as Welspun (INR 8.56/kWh) and Lanco (INR 8.2/kWh) were significantly higher than the current norm in the country (around INR 7-7.5 kW/h).

BRIDGE TO INDIA had earlier estimated that the lowest tariff in Tamil Nadu could touch INR 6.2/kWh (refer). This tariff was based on very aggressive assumptions with an expected IRR of 12%. While some industry experts communicated to us that this estimate was unrealistically low, we were surprised to see that the lowest tariff is even lower than that. A more realistic tariff with a 5% escalation for the first 10 years that should be acceptable to developers, the state and the lenders is likely to be around INR 6.8/kWh.

The state had planned for a mechanism under which it would ask all bidders to meet the lowest bid (L1). However, due to the subdued interest and complications involved in negotiating such a price with the developers, first signs are emerging that the Tamil Nadu Power Generation and Distribution Corporation Ltd. (TANGEDCO) is willing to consider other options such as taking a median tariff for all projects. The options for determination and negotiation of tariffs are still open.

However, even if the final tariffs are acceptable to developers, we expected ongoing challenges. The revolving line of credit that promises to be a guarantee of payment to developers is unlikely to help them in raising non-recourse debt. One clause in the agreement implies that the government will have the right to make amendments in the policy and guidelines of the agreement from time to time. Such a clause places the developer in a position that is not protected from policy or governance changes. Another clause states that the Power Purchase Agreement is subject to approval from the Tamil Nadu Electricity Regulatory Commission. The time required to obtain such approval from the TNERC is not known and may create delays.

BRIDGE TO INDIA believes that if the PPA does not get TNERC’s approval in time, developers will face difficulties in achieving financial closure. This will further strain the already stringent eight-month commissioning deadline.

The state must, however, be commended on taking an initiative to promote solar power in spite of its financial problems. Large parts of the state are reeling under severe power cuts and solar is the only source of power that can help the state meet its peak power needs in a short duration of time. If Tamil Nadu is able to take all steps necessary to help the allocated capacity of 493MW to come up, it will still be a more than respectable target achievement.

Read our Tamil Nadu Solar Policy Brief for more.

Jasmeet Khurana works on project performance benchmarking, success factors for module sales, financing and bankability of projects in India.

What are your thoughts? Leave a comment below.

The Ministry of New and Renewable Energy (MNRE) has today announced draft guidelines (refer) for setting up of 750 MW solar PV capacity under Phase 2, Batch 1 of the National Solar Mission (NSM).

Viability Gap Funding will be provided with an upper limit of 30% of the project cost for a maximum capacity of 100 MW
The VGF amount will be handed over in three installments, and the SECI can claim assets equal to the VGF amount if the plant remains inactive or if any assets are sold
A mechanism is needed to ensure that there is a match between states willing to buy power at the pre-determined prices and developers’ preference of location for the projects

As per BRIDGE TO INDIA’s predictions in the October 2012 edition of the India Solar Compass (refer), the allocations are based on Viability Gap Funding and the maximum capacity that a developer can bid for has been increased to 100 MW.
The allocation process, signing of Power Purchase Agreements (PPAs) and handing out of VGF will all be handled by the Solar Energy Corporation of India (SECI). According to the draft, a fixed tariff INR 5.45/kWh will be awarded to projects not availing accelerated depreciation and a fixed tariff of INR 4.95/kWh will be awarded to projects availing accelerated depreciation. Over and above this, VGF will be provided with an upper limit of 30% of the project cost or INR 25m/MW. The exact quantum of VGF will be determined by a reverse bidding mechanism.
A key concern with regards to the implementation of the VGF is its impact on the long term performance of projects and the scope for developers to execute low quality projects for short term gains. The MNRE has provided some safeguards to prevent this. As per the draft guidelines, it has been decided that a hand-out of the VGF amount will take place in three installments. The first installment of 25% will be handed out after the delivery of at least 50% of the equipment, another 50% will be handed out on successful commissioning of the project and the remaining 25% will be handed out after one year of successful commissioning. The draft also says that if the plant fails to generate any power continuously for one year during the course of the PPA period or the project is dismantled or its assets sold, SECI will have the right to claim assets equal to the value of VGF granted. However, no real safeguards have been provided to ensure the quality of production. In the current scenario, the developers’ will lend greater focus on reducing the CAPEX against focusing on optimizing plant performance. For example, a developer could buy the cheapest equipment and reduce the plant CAPEX to INR 60m/MW with an equity investment of 18m/MW. On this, the developer could avail tax benefits based on accelerated depreciation, up to INR 15.8m/MW, and, as an example, is able to avail INR 20m/MW as VGF. In such a scenario, the developer would have received back almost 60% of the project investment and almost 200% of the equity investment within one year. This will leave very little incentive for the developer to stay invested in a project with a PPA of just INR 4.95/kWh. This not only has the potential to derail the policy motives but will also put the lenders in doubt about the developer’s intentions.
Another key concern is the location of projects. Currently, the draft guideline states that as and when the Request for Selection (RfS) is submitted by the project developer, the SECI will simultaneously issue “Expression of Interest” to states willing to procure the power. No clarity has yet been provided on which states will be willing to buy solar power at the given prices. There could be a scenario in which all the developers opt to set up projects in Rajasthan but Rajasthan is unwilling to buy this power. For such a situation, there is no clarity on how the SECI will ensure the off-take of the power to states across the country that might be willing to buy the power. There is a need for a mechanism to ensure that there is a match between states willing to buy power at the pre-determined prices and developers’ preference of location for the projects. As the NSM provides the cheapest option for state power distribution companies to meet their Renewable Purchase Obligations (RPOs), most states that are currently not meeting their RPO requirements should be willing to buy this power. We can expect demand for solar power from the NSM to move out of Rajasthan this time as the state is already meeting its RPO requirement. However, given a free reign (as is currently the case), developers would prefer to set-up projects in Rajasthan due its excellent irradiation and large availability of land.
BRIDGE TO INDIA will follow up with the concerned officials and industry leaders to get their thoughts on the issues and also look at possible solutions to these issues. Follow BRIDGE TO INDIA’s blog to keep track of our analysis and opinion on the new phase of the NSM.
This post is an excerpt from this week’s INDIA SOLAR WEEKLY MARKET UPDATE. Sign up to our mailing list to receive these updates every week.
You can view our archive of INDIA SOLAR WEEKLY MARKET UPDATES here.
What are your thoughts? Leave a comment below.

Jasmeet Khurana , Market Intelligence Consultant at BRIDGE TO INDIA, works on project performance benchmarking, success factors for module sales, financing and bankability of projects in India.

Curbing the fiscal deficit has become a key priority in India. Therefore, the government has set itself a deficit target of 5.3 percent of gross domestic product for the fiscal year ending on 31st March 2013. India had already exhausted 80.4% of the target between April and November and as per the current spending trajectory, India will fail to meet that target by around 20% or INR 2.06 trillion. One of the key measures now being taken to achieve the target is the reduction of subsidies. This has positive and negative implications for the Indian solar market and accelerates the overall transition from a subsidised to a commercially viable market.

Phase two of the NSM will get delayed due to unavailability of funds to cover the cost of subsidising solar energy under Viability Gap Funding

The subsidy cut for bulk consumers of diesel improves the business case for distributed solar power generation in India

Non-fiscal policy actions such as enforcement of the RPO/REC mechanism, clarity on regulations regarding grid interaction and implementation of net-metering can help tap the potential of solar power

Project allocations under phase two of the National Solar Mission (NSM) delayed

The ministry of finance has delayed the release of payments to the National Clean Energy Fund (NCEF) (refer). The NCEF is supposed to cover the cost of the subsidising solar under the Viability Gap Funding (VGF) mechanism of the NSM. The idea that the NCEF provides significant upfront capital to be infused into the Solar Energy Corporation of India (SECI) to carry out the part upfront funding for the new projects (refer to the October 2012 edition of the India Solar Compass to understand VGF). As the funds are not yet available, phase two allocations under the NSM are getting delayed. The allocations were supposed to be completed by March 2013. How long the allocation process will be delayed is unclear. Many investors and developers have already been planning their projects and have incurred costs for typical pre-development work such as land and off-taker identification. Also, module and other component suppliers have planned for sales to NSM projects in the next financial year. Some of them have invested into contract manufacturing and growing their teams. A delay of more than two months (which might still be avoided) would have a negative impact on the confidence of market participants.

Better business case for distributed solar

In another measure taken by the oil ministry to scale back the fiscal deficit, diesel subsidies have been cut for bulk consumers of diesel (refer). Due to their high consumption, these consumers buy diesel directly from oil companies and not from retail outlets. Many of these consumers use diesel for captive production of power. Such consumers include large malls, hospitals, office buildings, hotels, airports, etc. The new price for such consumers has been increased by INR 10/liter, equivalent to almost 20%. Many of these consumers may now resort to buying diesel from the pumps, where the prices are still subsidised, despite the fact that buying diesel over a certain amount from retail outlets is not permitted. For most customers, however, the measure is expected to have a significant impact on their energy costs. Solar power is already financially attractive for consumers with high tariffs and/or high back-up or captive diesel consumption. With an increase in diesel costs, especially in areas where power supply is irregular, solar power will now become even more competitive, improving the business case for distributed solar power generation in India.

Non-fiscal policy actions related to enforcement of the RPO/REC mechanism, clarity on regulations regarding grid interaction and implementation of net-metering can help tap the potential of solar power that is already available in the country because of financial feasibility of such projects. These actions can help ease the financial burden on the government and still keep the capacity addition targets on track.

This post is an excerpt from this week’s INDIA SOLAR WEEKLY MARKET UPDATE . Sign up to our mailing list to receive these updates every week.

You can view our archive of INDIA SOLAR WEEKLY MARKET UPDATES here.

Jasmeet Khurana, Market Intelligence Consultant at BRIDGE TO INDIA, works on project performance benchmarking, success factors for module sales, financing and bankability of projects in India.

Solar in India will, in the medium term, benefit mostly from the ongoing liberalisation and privatisation of the electricity market. In that respect, the state government of Bihar has just announced the process for the privatisation of power distribution in four towns (refer).

Delhi and Mumbai were among the first cities to have privatized power distribution in the country

In 2011-12, transmission and distribution (T&D) losses in the state stood at 39.2%

 In India, privatization of power distribution is usually associated with enhanced customer satisfaction levels due to improved service quality

According to the officials, the primary reason for this move is to minimize the heavy distribution and commercial losses being incurred by the existing state operated distribution companies. In 2011-12, transmission and distribution (T&D) losses in the state stood at 39.2% – an extremely high number and considerably above the already high country average (upwards of 20%). In India, privatization of power distribution is usually associated with enhanced customer satisfaction levels due to improved service quality. Most customers are willing to pay a higher price for power if the supply is more reliable as compared to subsidized but erratic power supply.

It is also hoped that the ongoing privatisation of power infrastructure will further new infrastructure initiatives relevant to the spread of solar power: grid stability, net-metering and smarter grids. The transition can, however, have an adverse impact on some existing power purchase agreements (PPAs). PPAs for sale of solar power within states are usually signed with local distribution companies. Although, there is no available precedent with regards to solar PPAs, it is possible that privatisation of a distribution company may result in renegotiation of a signed long-term PPA.

Delhi and Mumbai were among the first cities to have privatized power distribution in the country. Thereafter, multiple cities across Madhya Pradesh, Odisha and Gujarat have either privatized power distribution or are planning for it. Given that most Indian state level distribution companies are in financial distress, it is possible that power distribution in many Indian cities will be privatized moving forward.

This post is an excerpt from this week’s INDIA SOLAR WEEKLY MARKET UPDATE. Sign up to our mailing list to receive these updates every week.

You can view our archive of INDIA SOLAR WEEKLY MARKET UPDATES here.

Mr. Akhilesh Magal heads the Project Development team as Senior Consultant at BRIDGE TO INDIA.

In an earlier blog post, my colleague Tobias Engelmeier suggested that the Indian market is for players with long-term strategic interests in solar (read his blog here). While this is true, the market will also see what we call ‘Cowboys’ (players with no strategic interest in solar) who will utilize three levers to drive the market in the initial stages.

Accelerated Depreciation benefit for solar projects

Locking-in on land prices and reaping benefits after 20-25 years

Recognizing that the price of metals will rise multi-fold in the coming years in order to cash-in on the scrap value of the solar power plant.

There are many ‘Cowboys’ or players with no strategic interest in the Indian solar industry. They are attracted by the general buoyancy but also by specific business opportunities. These players have little or no knowledge of solar in India, but want to jump onto the solar bandwagon. The overwhelming interest in the Indian solar market serves to raise awareness in the market, but can be detrimental to the industry in the long run, if they result in poorly planned and poorly constructed projects. For example: A 5 MW project in Uttar Pradesh is operating at a Capacity Utilization Factor (CUF) of 14% compared to some other plants in Rajasthan that are operating at a CUF of 23%. The prime reason to establish the plant in Uttar Pradesh was the pre-availability of land. Cowboys who want to capture the market could potentially outbid other developers without considering the full project cost implications. Already, some market participants are worrying that the current prices of solar energy in India are not commercially viable.

So what makes the Cowboys ride?

– Accelerated Depreciation: Most Cowboys are cash rich real estate developers, SME industrialists, film stars or land bank owners who are looking for ways to reduce their tax burden. Solar provides a great opportunity to do so. The wind sector in India experienced a similar trend in the initial phases. Film stars, politicians and any cash-rich companies cashed in on the accelerated depreciation benefit. We are seeing a similar trend for solar in India. Most of these projects are in the red due to lack of technical know-how.

– Locking-in on Land – Land prices in India are skyrocketing. This is also true for land for solar power projects. For instance, land was available in remote districts of Rajasthan for INR 20,000 per acre before the announcement of the National Solar Mission (NSM) Phase 1. Just after two years, the same land prices have reached INR 500,000 per acre – a rise of nearly 2,400%! Land owners are beginning to recognize the value for their land and demanding much more. The cowboys want to cash-in on this and lock in the land for 20-25 years. The returns from the sale of land would be many times higher than the returns from the solar project. This also means that the quality of the solar plant takes a back-seat.

– Scrap value of power plant – Cowboys also recognize that the prices of copper, steel and other materials that go into building the solar plant will rise multifold with increasing demand for these materials in India. The scrap value can be as high as 15% of total CAPEX.

These ‘outliers’ are making the Cowboys ride – for now. Unless the cowboys make the transition to becoming serious long-term players, they are likely to jeopardize their projects.

Related post: The call of sirens: Is India really a good solar market?

Download our latest INDIA SOLAR DECISION BRIEF, ‘The Project Development Handbook’, for a free overview of the processes, timelines, costs, challenges and opportunities in solar project development in India.

BRIDGE TO INDIA provides a precise, analytical and in-depth update on the Indian solar market every quarter as a part of its INDIA SOLAR COMPASS. This is an excerpt from the January 2013 edition of the INDIA SOLAR COMPASS.

The previous quarter (October to December 2012) has seen a flurry of new solar policy announcements, which seem to have awoken a lulled market.

With the new announcements (totaling 11.3 GW of PV by 2013), government sponsored PV in India appears to be set for maturity.

Up to 5.3 GW of the announced capacity relies on the Renewable Purchase Obligation (RPO) targets set by states.

An investigation for anti-dumping duties against manufacturers from China, the US, Taiwan and Malaysia has been launched in the last quarter. Conclusive evidence can result in the imposition of duties up to 20%.

The states of Tamil Nadu, Andhra Pradesh and Chhattisgarh have announced policies targeting a cumulative 5 GW of solar photovoltaic (PV) installations over the coming years. In addition, the National Solar Mission (NSM) has proposed a target of 6.3 GW of PV installations as part of its phase two draft guidelines until 2017. The announcements totaling 11.3 GW of PV by 2017 mark a significant departure from the state of the market in 2011 and the first three quarters of 2012. There was a slump in project opportunities in the Indian market after close to 1.1 GW had been allocated before December 2010.

With the new announcements, government sponsored PV in India appears to be set for maturity. This is crucial for component suppliers and Engineering, Procurement and Construction (EPC) players looking for new project opportunities, especially in the face of a significant fall in demand in Europe. It is also important for a large pool of project developers and investors who have built their capacities in the early stages of the market and are now ready to expand their portfolios towards achieving scale.

The market needs to be approached with measured optimism. Up to 5.3 GW of the announced capacity relies on the Renewable Purchase Obligation (RPO) targets set by states. Further, the policies of Chhattisgarh and Tamil Nadu specifically target the Renewable Energy Certificate (REC) mechanism as an off-take. With no clear RPO enforcement mechanisms at the state level yet and challenges with the bankability of REC projects, there is a significant question mark on how much of the planned capacity addition will actually translate into projects. Further, Feed-in-Tariff (FiT) based projects under the Tamil Nadu and Rajasthan solar policies are expected to rely on the respective state distribution utilities for the off-take. The utilities of both these states are mired with large financial losses that will challenge the bankability of their Power Purchase Agreements (PPA). In addition, up to 1.5 GW worth of projects under the NSM may be offered Viability Gap Funding (VGF) under which they will have to find alternatives to the payment security backed PPA that was offered by the NTPC Vidyut Vyapar Nigam (NVVN) in the first phase. Such projects too might face bankability issues in the absence of a secured PPA.

Another key development in the last quarter has been the launch of an investigation into the alleged dumping of cells and modules into India by manufacturers from China, the US, Taiwan and Malaysia. If conclusive evidence of dumping is found in the next six months, it could result in the imposition of anti-dumping duties of up to 20% on imports from the countries under investigation.

Manufacturers from the countries under investigation have supplied up to 70% of the modules used in the Indian market so far. If imposed, anti-dumping duties are bound to decrease their competitiveness vis-à-vis manufacturers from India and those from countries outside the scope of the investigation. Project developers will face higher system costs as they will no longer be able to import cheaper modules from abroad. This in turn will dent their ability to offer solar energy at prices that can compete with commercial and industrial prices of electricity across some states in India.

While anti-dumping duties are largely perceived as a necessity for the survival of Indian manufacturing, their benefit will be limited to a handful of Indian cell manufacturers. A majority of Indian module manufacturers rely on imported cells. They will face an increase in the prices of their modules as they will have to bear the import duty on cells. Anti-dumping duties are likely to create a distorted market where certain Indian players will enjoy exceptional advantages. Indian cell manufacturers justify this as a move needed to correct the alleged advantage that international manufacturers have enjoyed in India so far. However, BRIDGE TO INDIA’s opinion is that some international manufacturers have been able to sell at prices lower than their Indian competitors because of their scale and technology advantages under conditions of global over-supply. Anti-dumping duties will restrict Indian projects from capitalizing on cheaper international imports while doing little to improve the fundamental competitiveness of Indian manufacturers.

Download our complete analysis on the previous quarter in the January 2013 edition of the INDIA SOLAR COMPASS, where we answer the key question, ‘What will be the impact of anti-dumping duties in India?’.

Contact us for any further information on the Indian solar market.

Dr. Tobias Engelmeier is Founder and Managing Director at BRIDGE TO INDIA.

No doubt: the Indian solar market has strong fundamentals. Irradiation is very high, power is expensive and in short supply. Solar is getting cheaper. In addition, there are now a host of new policies (NSM phase II, Tamil Nadu, Andhra Pradesh, etc. – please refer to our other blog entries) promising upwards of 4 GW of new solar installations in the coming months. On the other hand, there are only a few players that are really enjoying themselves. Tier 1 Chinese module manufacturers find price pressures too high – as do many EPCs. Project developers still face difficulties in getting their projects financed. The question is: does anyone earn any money? The answer is: no. But those who are ready to try new approaches will do so in future.

Solar in India is a long-term business proposition with moderate returns

‘Quick wins’ are rare

The market has only deceptively low barriers to entry

To tap the great fundamentals, patience and a real business case are needed

On the face of it, solar power in India seems like a no-brainer. And the national and state governments are willing to encourage it in various ways – from providing subsidies to creating demand. Large figures for new allocations are making the rounds. Tamil Nadu alone aims to have 3 GW of installed solar capacity by 2015 and the NSM double that by 2017 (for our assessment of the growth, see the blog’The Indian Solar market – new market, new chances‘). This creates a great attraction from a distance: EPCs and module suppliers in need of new sales opportunities, overseas Indians (often with a finance background) looking for a promising opportunity in India, Indian business houses and land owners with political connections, and many more – they are enthralled by this promise.

However, at a closer look the opportunity is far less straight-forward. In urban slang, the word, I believe, is ‘layogenic’ – or, to go with the 1996 film ‘Clueless’: “A full-on Monet – from far away it’s ok, but from close up it’s a mess”. Once the math is done, solar is a pretty mediocre business proposition. This is, I believe, by-and-large is a success: The Indian government does not overpay for solar power (refer to ‘Rent management in the Indian solar market‘) and allocation processes have so far been transparent and highly competitive (refer to our blog ‘Why the ‘I know the Chief Minister claim’ does not work for solar in India‘). There are also significant risks and uncertainties in the policies, the wider power regulations and infrastructure (including the strength of PPAs with loss-making DISCOMS), the data-basis, and the legal environment that continue to raise concerns about the bankability of solar. Many of the large, 100 MW+ projects being talked about in the market will not come to fruition.

Quick wins are also difficult to realise. Land prices have risen in some areas. Those who sold just the land have profited. However, many of those who wanted to take the process further and have invested into power purchese agreements with a view of selling them on without significant own value addition or constructing a plant with little understanding of the technology have lost money (e.g. their bank guarantees). Even those who knew well what they are doing have made little money. As far as I can see, refinancing of projects post construction has not happened at favorable terms. Selling of completed projects has been difficult, more because of low project IRRs and unmitigated risks than because of legal limitations.

Market entry barriers are only deceptively low. The technology (PV, not CSP) is not difficult to master. Solar projects in other markets (US, Germany) have become household commodities. However, especially in a seemingly simple market, competition is high and making money requires a competitive advantage. That can be found in, for example, a superior ability to raise money at favorable conditions, the provision of real energy solutions to customers, the delivery of quality project development, the mitigatition and hedging of risks, the prediction of pricing developments of the global solar industry, tapping into tax breaks or other policy support, the building of strategically aligned assets and from the point of view of the capital markets.

The hard challenges in the market have been somewhat cushioned by the fact that projects under NSM Phase I and Gujarat have simply ‘lucked-out’, as a large Indian investor recently put it to me. The rapid fall in module prices over the last 18 months has saved project profitability. As per my understanding of the larger industry trends, this cost reduction is not going to be repeated.

If returns are not so exciting, another reason for getting into the market could be strategic. Many participants do not know yet, when or even how they will earn money, but they believe that it makes sense to establish themselves early. However, while there are notable exceptions, many seem to be strategic movers without a strategy and early movers without an early mover advantage.

All this smacks of disappointment. This can be good: The enthusiasm is exaggerated, disappointment separates the wheat from the chaff. And from this more realistic position, the real work to create value starts. It can also be too much. The fledgling industry could get a serious dampener, if too many developers, banks, and module suppliers burn their fingers. It would be difficult to reanimate the industry then. But I don’t believe that will happen. With 1 GW of installed capacity, the market is past this highly vulnerable, nascent stage. Much has already been learned and improved.

This is the good news: The strong fundamentals of the Indian solar market are becoming stronger by the day. Those players who have patience, accept normal financial returns (on the project level, say 15%) and concentrate fully on developing sound power solutions, can look forward to building a busines to cater to a vast, growing market. The single most important factors are: an ongoing, accelerated deregulation of the power industry, which will lead to increasing power costs and a further wave of privatisation of power supply; an underfunded and underperforming grid infrastructure that will make local or regional power solutions more attractive (see our blog: ‘Is the Indian grid ready for expansion to renewable energy?‘); continuously growing power demand across the country with a growing power deficit and falling (in future, less precipitiously falling) solar costs. For more thoughts on this, please have a look at the blog post ‘Making unsubsidized PV work in India‘.

In an upcoming blog post, my colleague Akhilesh Magal will discuss how some project developers are nevertheless looking for ‘quick wins’ rather than sustainable business models.

You can also download our latest INDIA SOLAR DECISION BRIEF, ‘The Project Development Handbook’, for a free overview of the processes, timelines, costs, challenges and opportunities in solar project development in India.

Dr. Tobias Engelmeier is Founder and Managing Director at BRIDGE TO INDIA.

Over the past two years, since we have been working in the Indian solar market, I have had numerous conversations with people who claimed to have access to the Minister of the Ministry of New & Renewable Energy or the Chief Minister of a state and could make “big solar projects work”. I know of none of these conversations that have come to fruition. This is why:

Solar energy, unlike good hydro-power sites or natural resources, is not under the control of anyone, even the Minister

Solar power is sold through long-term Power Purchase Agreements (PPAs) – the time period exceeds those of governments

Barriers to entry in the market are low and PPA allocation processes have so far been quite transparent

Solar does not provide short-term, windfall profits, but pays over a longer period of time if projects are well managed

To develop a solar power project, you need a site. If that site is not someone’s roof-top, it will be someone’s land. Buying land in India is not easy. Especially, if it needs to have certain characteristics. In the case of solar power, these are: suitable terrain and soil for constructing a plant, high irradiation, road access and proximity to a well functioning substation. While this limits the options, so far, there has been no shortage of suitable land. This is not to say that relationships at various levels of the government are not important to understand and expedite various processes, but involving the Chief Minister is usually not necessary. Other than land, there is no resource that could be acquired in a preferential manner. Sunlight is free.

On the PPA side, also, there is little room for receiving Chief Ministerial favors. Solar power is usually sold through long-term PPAs of 20-25 years. Banks have to judge whether to lend money to a project based to a large extent on the strength of the PPA over at least the loan repayment period. That outlasts most governments.

There have been irregularities (a solar scam, even as the Center for Science and Environment claimed) around allocations of projects to Lanco and around plant commissioning dates in Rajasthan. However, public-PPA allocations and all subsequent project development steps have so far worked in a fairly transparent manner. (The partial exception is Gujarat, where the process of allocating FiTs was not clearly defined and open to the public) Given that barriers to entering the market as a project developer are quite low, this has created a healthy competition with significant international participation.

Perhaps the main reason, why solar has not fallen prey to favoritism is that it simply does not pay enough. Solar is a long-term game. It pays those who are professional and patient and can manage risks over a long period of time. The industry is learning that fast. That makes solar power unattractive for those who have short-term profit motivations.

Dr. Tobias Engelmeier is founder and Managing Director at BRIDGE TO INDIA. He consults international companies on developing successful market strategies in India.

The Indian solar market is at an interesting point at the moment: it has come from zero to 1 GW within a period of 1.5 years. Then, it held its breath for half a year. Now it is just about to get going again. Time for a brief look at the status of the market and the main trends driving it. The most important overall trend is that the Indian market has picked-up significantly in the last weeks. New policies have been announced and there is a palpable sense of excitement in the air. We expect the next year to have project allocations in excess of 2 GW.

There has been an introduction of exciting new policies

A shift can be seen from public to private power purchase agreements (PPAs)

The solar renewable purchase obligation (RPO)/renewable energy certificate (REC) market is underperforming

Protectionism is increasing in the Indian solar manufacturing industry

India is a very exciting, progressive policy laboratory: States almost seem to outdo each other. Tamil Nadu has come up with a net-metering provision and solar purchase obligations (SPOs), Andhra Pradesh is looking to match power customers with generators, the National Solar Mission (NSM) will most likely introduce the Viability Gap Funding (VGF). One could complain that it is difficult for an investor to keep track of developments and risks, but that drawback is much smaller than the larger benefit of finding out what works best in India. There is already a keen sharing of best-practices across states and in the future there might be some more convergence. At present this lively, innovative policy space does justice to the complexity of solving the Indian power (not green power) riddle.

Shift from public to private PPAs: The RPO mechanism has started it, but it became clear with the introduction of SPOs in Tamil Nadu. One very good way of encouraging the spread of solar power without burdening stretched public funds is to simply obligate customers who can afford it (industrial and commercial power consumers) to buy it. These customers are often not even too averse to it as they tend to already pay tariffs of INR 5-8/kWh for their grid power and significantly more for diesel power. They need to think of new energy solutions anyway.

RPOs/RECs continue to under perform: This shift to private PPAs will-at present-only work, if obligations are enforced. It is too early to judge the SPO scheme in Tamil Nadu, but the RPO /REC market continues to languish. Trading of solar RECs is slow. Few of the projects that were registered under the REC mechanism were actually completed. There is a sense of frustration with the mechanism in the market.

Project sizes are increasing: When the NSM started, average project sizes for grid-connected power plants were about 5 MW. In batch two, they increased to around 10-20 MW. Now, the project sizes that are discussed in the market often range between 50-100 MW.

Protectionism of manufacturers: In the larger argument between solar project developers and power consumers who want to ensure the lowest cost of solar through unlimited access to international suppliers and Indian cell and module manufacturers who want preferential access to the Indian market to build-up their business, the latter seem to carry the day. The NSM will most likely have a domestic content requirement that might well include thin film as well. Additionally, there is an increasing likelihood of anti dumping duties being levied by mid of next year (please refer to our recent blog post on the topic of anti-dumping duties).

Jasmeet Khurana, Market Intelligence Consultant at BRIDGE TO INDIA, is working on project performance benchmarking, success factors for module sales, financing and bankability of projects in India.

The Indian Solar (PV) Manufacturers’ Association filed a dumping complaint against module imports from China, US, Malaysia and Taiwan in January 2012 with the Directorate General of Anti-Dumping and Allied Duties (DGAD) at the Ministry of Commerce. Indian manufacturers alleged that international photovoltaic module suppliers are selling below cost, or “dumping” in the Indian market. Unlike their counterparts in the U.S. and Europe, Indian manufacturers have not restricted their dumping allegations to just Chinese module suppliers.

The DGAD claims to have found sufficient evidence to order an investigation into the allegations

If conclusive evidence is found, it may recommend an anti-dumping duty which is likely to come into effect only by around August 2013

Even though any anti-dumping duties are likely to spoil an emerging market for international module suppliers, they will have a small window of opportunity right before the implementation of such duties

BRIDGE TO INDIA expects that anti-dumping duties will be enforced selectively on both cells and modules with anti-dumping duties of 20-30%

The DGAD claims to have found sufficient prima facie evidence and is now ready to begin a focused investigation. The ‘period of investigation’ has been determined as between January 1st, 2011 to June 30th, 2012 (18 months).This means that over 600MW of module imports, mostly in Gujarat and batch one of phase one of the National Solar Mission (NSM) will be investigated for the import prices and other terms of sale.

If conclusive evidence is found in the investigation, based on the inputs from the DGAD, the Department of Commerce will then recommend a provisional or a final anti-dumping duty. It is only after this, that the Department of Revenue, under the Ministry of Finance will act upon such a recommendation and impose a duty.

The actual imposition of anti-dumping duties will depend on lengthy and complex proceedings where Indian and international module suppliers will be given due time to put across their respective cases. Based on previous anti-dumping duty investigations in India, it usually takes at least five-six months for any anti-dumping duty to be notified by the Ministry of Commerce and at least another three months for it to be implemented by the Department of Revenue under the Ministry of Finance. Hence, according to BRIDGE TO INDIA, anti-dumping duties are not likely to be implemented before August 2013.

Impact of the timing

Timing of the actual implementation is critical to assess the short-term impact of any such ruling. Projects under batch one of phase two of the NSM are expected to be covered under the Domestic Content Requirement (DCR). As there is a high likelihood of the DCR being extended to thin film modules this time, any anti-dumping duty will not have a significant impact on NSM projects. More clarity on the DCR is likely to be available within a few weeks as the MNRE expects to bring in the draft guidelines for phase two of the NSM (2013-2017).

Assuming that our estimate of the actual implementation date for anti-dumping duties is correct, projects allocated under the Rajasthan Solar Policy can attempt for early delivery and procure lower cost modules. The module delivery for these projects can be managed before August 2013 if the projects are executed on schedule.

Release of the bid document in Tamil Nadu is expected before the end of 2012 and as per the discussions in the consultation meeting on 23rd November 2012, the projects are expected to have a commissioning deadline before the end of 2013. This means that even these project developers can pre-order modules to avoid paying a higher price later.

Given the timing, BRIDGE TO INDIA expects a large number of orders to be placed and delivered just before the anti-dumping duties are implemented. International suppliers will have a small window of opportunity to sell their lower priced modules right before the implementation of such duties.

Likely scenario

BRIDGE TO INDIA does not expect equal anti-dumping duties to be enforced on all the countries and module suppliers under investigation. In fact, it will be difficult for India to enforce anti-dumping duties on module suppliers from the US. Indian manufacturers have petitioned for anti-dumping duties within a wide range of 20-200%. We and even the Indian manufacturers expect that anti-dumping duties of between 20-30% can be enforced selectively on both cells and modules.

Related Posts

Anti dumping duty may be announced soon: Ultimately threatens to negatively impact the industry

Unequal import duties along the value chain are a disadvantage for Indian manufacturers

BRIDGE TO INDIA attended the 6th Renewable Energy India Expo in New Delhi from November 7th-November 9th 2012. While the general air of excitement regarding the Indian solar market was lacking as compared to 2011, there was some cause of excitement for the Indian manufacturing industry. Chinese module companies were astir with the rumor of anti dumping duties being announced in the week starting November 12th 2012. Further, the anti dumping duty became the talk to of the ‘solar’ town when Solar PV TV and PV Magazine in collaboration with BRIDGE TO INDIA, decided to interview some industry members on how they felt, these duties would impact the market.

According to speculation in the industry, anti dumping duties may be anywhere between 20% – 30%

Manufacturers rooting for anti dumping duties, but developers fear rising cost of modules. With rising costs, solar will fight to be competitive in India, says Hareon Solar

BRIDGE TO INDIA feels that ultimately anti-dumping duties will have a negative impact on the market by disallowing Indian manufacturers to be price competitive in the global industry

The interviews were published as part of Solar PV TV’s Weekly News Update. Consultant Jasmeet Khurana was one of the interviewees in the coverage. You can view the video below.

Read more of our views on India’s anti dumping against imported modules here.

Dr. Tobias Engelmeier is founder and Managing Director at BRIDGE TO INDIA. He consults international companies in developing successful market strategies in India.

Last week was a week of conferences and fairs for me – a good opportunity to take stock of what is happening in the Indian solar industry. I attended the Intersolar in Mumbai, where we had our own stall, and the 6th Renewable Energy India Expo in Delhi. Let me share my impressions here. The main takeaways are:

Everyone is looking to sell power under private PPAs

There is less interest in NSM Phase II than in the RPO market

Anti dumping duties were hyped and then did not happen

Quality seems to (slowly) become more valued in a maturing market

The Renewable Energy Expo was around three times larger than Intersolar Mumbai. It had stalls from all renewable energy technologies – although solar dominated. Most Chinese and American solar companies had their stalls there. Europeans and Indians were more present at Intersolar. A few large players, such as Bosch had a booth at both fairs. Overall, it seemed that while there was more action at the Renewable Energy Expo, I had more serious conversations at the Intersolar. These were the themes that came up in my conversations:

Merchant power plants: Many project developers are looking at setting up projects based on private power purchase agreements (PPAs) with industrial or commercial customers. Such plants could be captive, often on rooftops and in the range of 100kW to 2MW or they could be ground mounted and servicing several customers through what is called group captive or Open Access (OA). The latter are typically in the range of 20MW to 100MW. None of these have been built yet, but in the absence of other policy-based project opportunities this is where interest focuses on.

NSM Phase II: There was surprisingly little discussion of the upcoming National Solar Mission (NSM) Phase II. Whenever the discussion turned to the topic, there was a lot of vague second guessing around viability gap funding, the split between PV and CSP. All in all, there was none of the vibrant sense of expectation we saw before the first phase of NSM.

RPO/REC: Both merchant plants and NSM projects are tied to the Renewable Purchase Obligations (RPO) requirements of distribution companies (DISCOMs), captive generators and OA customers. At most of my conversations, there was a sense that the RPO requirements would drive the market through the coming year and there is cautious optimism that RPOs would be enforced even on heavily indebted public sector DISCOMs. The view on Renewable Energy Certificates (REC) is more sombre. They are still seen as a high risk (and high upside) proposition. Many developers are looking for ways to share that risk (and the upside) with power consumers in some way.

Anti dumping duties: These were the “whispers in the corridors”. A Chinese module manufacturer told us that India will impose anti-dumping duties on Chinese modules very soon – it was to be announced this week. As always, at fairs such rumours spread fast and wide. Soon everyone was talking about it. So far, nothing has happened. And, given that there were no announcements on policy hearings yet, we continue to think that duties will not be imposed soon.

Andhra Pradesh and Tamil Nadu solar policies: Most market participants are still mulling over the details, loopholes and implications of these policies. We will come out with Policy Briefs on these policies soon to give our analysis.

Cost/quality: The question was how to ensure that India gets the best solar technology at the most competitive prices? Project developers are becoming more far-sighted and quality conscious. Prices offered are highly competitive. The hitch seems to be with banking institutions: will they finance projects under new (private) PPAs? Will they encourage the spread of new manufacturing technologies that can lower price/increase module efficiency?

Watch a video on our views on the solar trade case in India in collaboration with Solar PV TV and PV Magazine.

Download our latest edition of the INDIA SOLAR HANDBOOK which provides a detailed first look at the Indian solar market.

Dr. Tobias Engelmeier, Managing Director at BRIDGE TO INDIA, has co-authored a scientific paper on ‘Rent management and policy learning in green technology development: The case of solar energy in India‘ along with Dr. Tilmen Altenburg, Head of Department for ‘Competitiveness and Social Development’ at the German Development Institute, Bonn, Germany. The following blog is an excerpt from this paper.

Sir Nicholas Stern has called climate change “a result of the greatest market failure that the world has seen”, because it has potentially huge global effects for the whole world’s inhabitants. In order to keep global warming within tolerable limits, new mitigation technologies must be developed and many conventional greenhouse gas-emitting technological trajectories disrupted.

Investors need to be able to earn above-average returns in the new green industries to build up physical capacities, acquire capabilities and make these industries competitive

The challenge for policymakers is to manage rents so that they reach the targets with a minimum of political capture and waste of taxpayer and consumer money

Solar energy is a socially desirable source of energy, but remains considerably more expensive than energy from other sources for which it requires steadfast government support till it can achieve grid parity

The areas in which it is necessary to accelerate major technological breakthroughs are well known: renewable energy and energy storage technologies, carbon capture and storage technologies, new resource saving materials, new mobility concepts and more eco-efficient agricultural technologies – to name just a few. In most cases, it could take years, or even decades, until carbon-efficient technologies become competitive in the market place. To accelerate their development, reliable long-term policy frameworks are required with attractive subsidies and/or guarantees that reduce the risk and bridge early development and commercial success. In economists’ terms, rents need to be created, that is, investors need to be able to earn above-average returns in the new green industries for as long as needed to build up physical capacities, acquire capabilities and make these industries competitive.

Creating rents for supporting specific industries can, however, have two undesirable effects (Chang 2006). Policymakers tend to act on incomplete information that can lead them to make wrong choices and support technologies which never become commercially viable. Thus, the possibility of earning above-average returns in regulated markets creates a strong incentive for rent-seeking, that is, lobbyists will try to influence regulations in order to increase their rents or stretch them over longer periods of time than are necessary for developing the new industries (‘political capture’). Thus the challenge for policymakers is to manage rents so that they reach the targets with a minimum of political capture and waste of taxpayer and consumer money. Rent management is especially demanding when pressing environmental problems require that established technological trajectories be disrupted and new generations of technologies developed.

In such cases, policymakers must often design support schemes without knowing which technologies will become the commercially successful ‘dominant design’ (Anderson / Tushman 1990) – or the specific capital requirements, the speed with which economies of scale will reduce unit production costs, how long it will take until the new technologies reach cost parity with incumbent technologies, and to what extent the new activity will create knowledge spillovers in related activities. All this makes it very difficult to determine the necessary amount and duration of subsidies or protection. At the same time, uncertainty increases the scope for rent-seeking: industry lobbies have strong incentives to overstate the need for subsidies and protection. Governments must take the trial-and-error approach to testing various policy options and continuously adjust their support in view of the market’s changing realities.

The paper on ‘Rent management and policy learning in green technology development: The case of solar energy in India’ explores how the Government of India creates and allocates rents in its attempt to promote solar energy generation, how it tries to minimize political capture and how it tests and fine-tunes its policies. This case is particularly interesting for two reasons. First, energy from the sun is a socially desirable source of energy that deserves and requires long-term policy support: it is practically emissions-free, is more abundant than other renewable energies in many countries, and can be locally generated, which furthers development. At the same time, solar energy remains considerably more expensive than energy from other sources (conventional, as well as hydro or biomass) and therefore requires steadfast support until it achieves grid parity. The Government of India has recently adopted a ‘National Solar Mission’ that includes a range of new incentives, and some Indian state governments are also experimenting with support measures. India thus provides a unique ‘laboratory’ for learning about solar policy.

To continue reading, click here.

Write to us at contact@bridgetoindia.com for more information on the Indian solar market.

Dr. Tobias Engelmeier, Managing Director at BRIDGE TO INDIA presented on ‘The Indian PV Market: A 12.8GW Opportunity by 2016‘ as a part of a webinar with Solar Promotion on October 11th 2012.

Post his presentation at the webinar on ‘The Indian PV Market’, Dr. Tobias Engelmeier engaged with the attendees in a question and answer session. His answers highlighted the following:

Main challenges faced by Indian solar module manufacturers are price, quality and innovation

Solar energy, being more abundantly available in India than wind power can have better planning for its generation which would reduce grid challenges, making it more preferable than wind energy

CSP continues to be valued as a technology with the potential for indigenization and storage options. This could make it more viable in the future

Q: What are the main challenges of solar manufacturers in India?TFE: Indian manufacturers face challenges on two levels – the global and the national. On the global level, have the same trouble that everyone in the industry has: Great oversupply and, as a result, crippling prices. On the national level, Indian manufacturers have three challenges: price, (perceived) quality and innovation. They are not large enough (50-200MW) to compete on scale with Taiwanese or Chinese competitors. They are also not vertically integrated and thus not able to shift margins between different sections of the value chain. This has been explained further in ‘Status of PV Manufacturing in India’. On quality, they are often better than their reputation and many Chinese competitors. However, their branding is not strong. Innovation – making modules that suit India-like conditions (dust, humidity, low-tech construction, little water for cleaning, etc.) could be an asset, but at the moment there is almost no innovation happening. Like elsewhere, we will see a strong consolidation from the 20-odd manufacturers to two to five (if that). Hopes are currently placed in protective government measures. This is discussed in more detail in our INDIA SOLAR COMPASS, which can be downloaded for free.

Q: How does the product distribution work in rural areas?TFE: There is no single solution for product distribution in rural areas. India consists of very diverse states and regions. The idiosyncrasies become very important when dealing directly with end customers and especially rural ones. There are hardly any established distribution channels (such as e.g. rural supermarkets). I would think, we are currently in the ‘exploration’ phase with respect to rural markets. There are many large and small companies that work here. They have in many cases moved beyond pilots and are beginning to scale. However, they still only reach a small segment of the rural population. And then, there is the payment question. Rural households have a – in pockets surprisingly high, but on average very low – disposable income. For this reason a number of sales channels are linked to microfinance.

Q: What makes solar power development more sustainable and competitive compared to wind energy?TFE: Wind and solar bother have an important place in the Indian energy landscape. Wind power is, of course, cheaper per kWh than solar power by a factor of two. Wind also often comes in big ticket sizes (10-100MW plants) and can draw on 20 years of experience in India and the execution capabilities of large Indian and international companies. That makes it much more bankable. Solar is the newcomer and rising fast. It will be the preferred choice wherever the wind resource is insufficient and wherever smaller, de-central solutions are needed (2MW or less). Solar also has two important long-term advantages: the resource is more abundantly available in India and its generation can be better planned than wind, thus reducing the grid challenges. In the past year, the cost of solar PV has come down so rapidly that it shook up many energy calculations. Much will depend on whether that will continue. At the same time, India has not yet tapped into off-shore wind and is just starting to explore the options. The upcoming report on ‘Renewable Energy in India: An Overview’ written for the Indo-German Energy Forum and available on our website for further information will elucidate the above.

Q: What do you think about grid instability? Don’t you think that, until this is cleared, is not that easy to develop on-grid PV? Don’t you think off-grid PV is likely more promising at the moment?TFE: I agree. Grid instability works in two ways: It will make large, unscheduled power generation feeding into the grid difficult especially in areas with much renewable power generation in bundled (Gujarat and Rajasthan for solar, Tamil Nadu for wind). We already see first local, significant grid bottlenecks. At the same time, the instability of the grid (remember the July 2012 power cut) makes power consumers very keen to increase their supply security. At the moment, they do so with diesel gen-sets. This is very expensive. In future, renewables (especially PV) will likely play a more important role, replacing diesel and also grid power. ‘Off-grid’ is a slightly more complex market. There are, broadly speaking, two types of customers: Firstly, economically strong customers that tend to have infrequent power demand (e.g. food processing) or such significant power demand that they build large fossil power plants (e.g. aluminium, steel). Secondly, there are the rural off-grid households. See answer above for details. Refer to the post on ‘Making unsubsidized PV work in India‘ to know more.

Q: What is the potential for Concentrating Solar Power (CSP) in India?TFE: There was great initial enthusiasm at the beginning of the National Solar Mission, when India auctioned 500MW. Since then, the road has been rocky: site selection was often less than ideal, the learning curve in construction has been high, indigenization of parts has been slow, etc. Since the projects involve the who-is-who of Indian industry (Lanco, Relianc), they will likely be built. Whether the projects will be profitable is doubtful. As elsewhere, CSP has felt the competition from PV due to falling PV module costs. While the CSP share under the NSM Phase I was as high as 50%, it will be significantly lower for phase II. Nevertheless, CSP continues to be valued as a technology for the potential for indigenization and the storage options. The MNRE has recently initiated a number of large pilots to test different applications of CSP technology (low/high heat, hybridization, etc.). Refer to our article on the status of CSP in India we have written for the October 2012 issue of Sun & Wind Energy.

Q: Has the REC scheme taken off? If so, which are the states where this is attractive? Are the developers able to achieve the financial closure for REC projects?TFE: The REC market has a solar and a non-solar component. The non-solar component has taken-off and significant volumes are traded at stable prices. The solar REC market is still at the very beginning. The Central Electricity Regulatory Commission (CERC) is very serious about getting the solar REC market to move. Much will depend on the penalization of Renewable Purchase Obligations (the demand side). While private utilities and captive consumers have been penalized, the large government-run utilities (around 80% of the market) have not. Enforcement will need to happen at the state level. Everyone is waiting and watching. To learn more about the REC market, please visit our blog or download our free INDIA SOLAR DECISION BRIEF on ‘The REC Mechanism: Viability of solar projects in India’

Write to us at contact@bridgetoindia.com for further information on the Indian solar market.

Join our LinkedIn group ‘India’s Solar Future’ and get our team of solar expert to answer your questions on October 18th 2012 at 2:00PM (GMT + 5:30hrs).

BRIDGE TO INDIA provides a precise, analytical and in-depth update on the Indian solar market every quarter as a part of its INDIA SOLAR COMPASS. This is an excerpt from the October 2012 edition of the INDIA SOLAR COMPASS.

The Indian solar market has experienced a lull period this past quarter (July-September 2012). An overview:

A lack of projects through state policies and the NSM has driven interest in the REC mechanism, however regulatory challenges are a major bottleneck

Indian manufacturers have begun contracted sales with projects under the NSM

The MNRE is likely to strengthen the current Domestic Content Requirement (DCR) in the second phase of the NSM, but this will not ensure global competitiveness of Indian manufacturers

In the last quarter (July-September 2012) there has been a capacity addition of only 67.25MW of PV in India, a drastic drop from the 401.74MW of PV added in the first quarter and 340.62MW added in the second quarter of this year. This is a direct result of a low number of project allocations in the Indian market in the first three quarters of 2011. The Indian solar market took off with close to 1.1GW of PV projects allocated between the Gujarat Solar Policy and the National Solar Mission, which happened towards the end of 2010. Since then, the PV market has experienced a lull with allocations of only 350MW by the NSM in December 2011 and another 310MW between the states of Madhya Pradesh, Odisha and Karnataka during the first two quarters of 2012. This has left developers, EPC contractors and module suppliers with very few opportunities in the market, raising serious questions on the stability of demand required for the project related eco-system to develop in a sustainable manner in the country.

The lack of projects through state policies and the NSM since December 2011 has driven interest towards projects under the Renewable Energy Certificate (REC) mechanism. However, BRIDGE TO INDIA’s free report ‘The REC Mechanism: Viability of Solar Projects in India’ shows, while this market has potential, it still faces some critical bottlenecks like the implementation of RPO’s to create demand for RECs and regulations surrounding the use of the open access mechanism for the captive use of power. A project based on the REC mechanism in its current form is not a very viable option. It is critical for project developers to understand future demand for RECs and create new business models that account for various demand and regulatory risks. It remains to be seen if investors and banks in India have the appetite to take on the risk in order to enjoy potentially strong upsides and continued growth. With limited project development opportunities, only entrepreneurial, strategic players interested in investing in new business models around the REC mechanism stand a chance of sustaining their growth in the quarters ahead.

For the manufacturing industry in India, there is some good news. Indian manufacturers have begun selling to projects under the NSM, primarily by integrating downstream through EPC services. Close to 70MW has been sold so far to projects under batch two of phase one of the NSM. In addition, close to 200MW has been tied up for contract manufacturing by international c-Si manufacturers. While this does not yet constitute a drastic reversal of fortunes for Indian manufacturing, it is nevertheless a positive departure from the previous quarters when most manufacturing lines were operating at 15% or less capacity utilization. The MNRE is likely to strengthen the current Domestic Content Requirement (DCR) in the upcoming second phase of the NSM. This is likely to give a further boost to Indian PV manufacturing. However, in order to be competitive in the long-term, Indian manufacturers need to look beyond DCRs and improve their competitiveness in a tough global market.

Click here to download the free October 2012 INDIA SOLAR COMPASS.

You can contact us for any further information on the Indian solar market.

Market Intelligence at BRIDGE TO INDIA constantly tracks the Indian solar market and provides insight on the latest market developments as they occur. This analysis is compiled into our INDIA SOLAR WEEKLY MARKET UPDATE which is sent to members of our mailing list. Subscribe to this list to receive the update every week.

The latest INDIA SOLAR WEEKLY MARKET UPDATE gives an overview of the following:

Kiran Energy’s plans to set up power plants for industrial and commercial consumers

Regulatory challenges that surround the captive commercial market segment

Key questions that need to be answered in context with making the captive commercial market viable

Kiran Energy has announced its plans to set up several solar power projects that will use bilateral power purchase agreements (PPAs) with commercial and industrial consumers. Kiran Energy points out that there is a big demand for power from industrial houses in Chennai, so much so, they could put up a 100MW plant to cater to them. Apart from that, the company is also looking to put up projects in Kartnataka. It is expected that 100MW could come up in a solar park near Bijapur, Karnataka. Another 50MW is planned for rooftop projects in Karnataka. The entire capacity would be based on bilateral power purchase agreements (refer).

Commercial and industrial tariffs in many parts of India have already reached parity with the cost of solar power. With limited policy driven project development opportunities in 2012, many developers are looking at such private PPAs as a viable business opportunity.

Even though the business models for private PPAs make financial sense for both the power consumer and the investor, there are many regulatory challenges around the grid interconnectivity, open access, and the applicability of the Renewable Energy Certificates (REC) mechanism for plants adopting such business models.

Some of the open questions around these business models include:

Why will an industrial or commercial consumer buy solar power and not cheaper thermal or wind power through third-party PPAs?

If the project developer’s SPV takes Accelerated Depreciation (AD) for the plant, it leaves no scope for the power consumer to avail any benefit from AD. Why will then an energy consumer not set up their own plant?

The DISCOMs take away the Universal Service Obligation for the customer, i.e., the DISCOMs in no longer obligated to supply regular power to a consumer. Solar power, that is difficult to precisely schedule, poses a risk for the consumer. How is this risk mitigated for the consumer?

Open access requires power production and injection to be scheduled with a high degree of precision.  How will you, as a power producer, manage power scheduling for solar?

The DISCOM also reduces the contracted demand of the consumer, if the solar power is not available for a certain time period and power overdrawn from the grid, it will cause high financial losses for the client. Who takes on this risk, the consumer or the project developer?

BRIDGE TO INDIA is working to answer these questions and more. Please feel free to get in touch with us to discuss any solutions or to ask us any questions you may have on the Indian solar market.

Subscribe to our mailing list to recieve our INDIA SOLAR WEEKLY MARKET UPDATE.

Dr. Tobias Engelmeier is founder and Managing Director at BRIDGE TO INDIA. He consults international companies in developing successful market strategies in India.  The following post analyses the state of the PV ‘Market’ in India. The ‘Market’ forms one part of BRIDGE TO INDIA’s INDIA SOLAR NAVIGATOR – India’s only dedicated online business intelligence tool that is being designed to enable leading solar companies to take strategic decisions to succeed given the ever-changing landscape of the Indian market.

Solar PV in India will be driven by commercially attractive opportunities, not by government subsidies. These opportunities are already there, but to realize them, some challenges need to be overcome.

Falling PV solar costs, rising costs of coal and oil and India’s vast power deficit pave the way for commercially viable PV solutions

Solar power can already compete with commercial grid power tariffs in many parts of the country. Replacing diesel generator sets and rural electrification could follow soon

Creating drinking water with efficient means could be a key business model of the future

Solar PV is still one of the most expensive ways of generating electricity. Then why should India focus on solar power as opposed to cheaper alternatives to be sufficient for as many people as possible, as quickly as possible? The cost of solar PV has fallen by 40% in the last 18 months, suddenly making it an attractive alternative to diesel power generation and even grid power for some customer segments. Solar PV also has the great advantage of being easily and de-centrally applicable in small generation units (as small as a solar lantern). India suffers from a large and growing power deficit, resulting in the unavailability of grid power to millions of people and major challenges in developing a high quality distribution grid. Solar PV is helping to fill this gap, rather than replacing another, perhaps cheaper form of energy. This is a key difference from developed markets. In the long-term, solar power also promises to provide India with more energy security, as it is a plentiful and domestically available energy source. Also, we can reasonably expect the cost for solar PV power to continue to come down, while at the same time the cost for fossil fuel based power generation is likely to rise, making solar increasingly more competitive. In that scenario, solar PV would find its place based on the commercial, developmental and political merits of the technology for India rather than climate change considerations. If you are interested in reading more about the Indian solar market, you can download our free INDIA SOLAR HANDBOOK and have a look at our other blog entries, where we discuss some of these issues in more detail.

There are a number of segments in the Indian market, where non subsidized solar PV is currently feasible:

Providing commercial tariff customers with solar solutions to complement their current power supply, thus reducing their Levelized Cost of Energy (LCoE). There would probably be no storage and the PV system size would be designed to ensure the peak PV power generation is directly consumed.

Providing telecom towers with hybrid diesel PV solutions to reduce the cost of power to the tower operating company. Out of India’s estimated 400,000 towers, perhaps 50,000 to 100,000 run on more than 10h of diesel. Individual PV system sizes would be small (5-15kW) and managing uptime is crucial.

Replacing diesel back-up. Solar PV power is already cheaper than diesel power in most cases. According to some estimates, there are as many as 60GW of installed diesel gen-sets in India. These range from MW-scale systems powering factories or real estate developments to small systems powering an AC. Here a key concern is the availability of space for PV installations, as many back-up systems are located in urban areas.

Providing electricity to customers who previously did not have any power, especially in rural areas. There are a number of great ideas, companies and projects out there (e.g. Sellco, Simpa Network), but I there are some questions about their profitability, risks (payment by customers who have very little money) and therefore investor attractiveness and scalability.

Despite its feasibility, there are still many challenges that can be seen with providing commercially viable PV solutions to the Indian market:

The most important challenge is to overcome the liquidity gap: On a per kWh basis, PV may already be competitive with other sources of power. However, as opposed to grid power, the system needs to be entirely pre-financed. It is a Capex model competing with Opex models. In order to level the playing field, the solution provider would have to invest into the plant and provide a solution to a customer wherein the solar power is sold per unit. For that, the investor needs a secured payment stream for 15-20 years. Given the Indian legal environment and the dynamic economic development, this is perceived as high risk by many investors.

If the power consumer would invest into the plant himself, he often does so only if the rate of return is at least as high as his core business investment opportunities. Currently, a reasonable return on investment for solar PV in India is 15%. This is too low for many Indian investors.

Developing off-grid systems is often hampered by their limited size. Pilots are needed as a proof-of-concept. However, the transaction costs for projects smaller than 5MW are often considered to be too high. Project development margins for the first projects are low and many banks are unwilling to carry out due diligence for such small projects.

In addition to these systemic challenges, there are a number of regulatory uncertainties (such as with respect to open access regulations) and the availability of information on crucial elements like electrification rates, actual diesel prices or end-user tariffs are difficult to obtain.

Market Intelligence at BRIDGE TO INDIA provides analyses on the Indian solar market in the form of published reports. You can buy our reports by visiting our Reports page.

Dr. Tobias Engelmeier is founder and Managing Director at BRIDGE TO INDIA. He consults international companies in developing successful market strategies in India.

The US Bell Labs or the German Fraunhofer Institutes offer some lessons on fostering innovation for India. If the Indian renewable energy sector adopts these lessons, it could become the world leader in low-cost, renewable energy solutions.

The Bell Laboratories are a great example of how innovation can be fostered: by putting many diverse, smart people together, connecting them to real world challenges and then giving them time

The Fraunhofer Institutes in Germany are similar. They bring together academia, industry and government to work on applied solutions

India so far lacks such an innovation ecosystem. If it were to develop one in renewable energies, it could emerge as the world-leader in low-cost renewable energy solutions

I read a very interesting opinion piece in the New York Times called “True Innovation” about the Bell Laboratories. It contrasts the Bell Laboratories’ “slow and build” approach with Facebook’s “fast and break” approach to innovation. It suggests that “Revolutions happen fast but dawn slowly. To a large extent, we’re still benefiting from risks that were taken, and research that was financed, more than a half century ago”. The writer Jon Gertner has also authored a book on the subject titled “The Idea Factory: Bell Labs and the Great Age of American Innovation”. He makes three very interesting observations about how the Bell Laboratories created an environment conducive to innovation:

Put together a critical mass of diverse, excellent scientists in one physical space, where ideas can come about often due to chance encounters and conversations.

Rigorously link theory to practice by combining fundamental scientific pursuits, ideas and inventions with specific production, product or marketing requirements – each feeding back into the other.

Give the researchers the time, trust and freedom needed to explore new ideas and thoughts over longer stretches and across boundaries of purpose or expertise.

The highly innovative German Fraunhofer Institutes (Fraunhofer Institute on Solar Energy Systems or ISE) work differently. They are greatly specialized and therefore may have less cross-pollination from radically different sciences. Where they excel is in bringing together research with academia (they collaborate with the Freiburg University), industry (they carry out paid research) and venture capital (they churn out many start-up companies). By providing a link between industry needs and long-term academic research, they manage to be both immediately relevant and creatively innovative, as the Bell Laboratories have been.

India currently lacks a comparable innovation infrastructure. That is a shame, because all the pieces are in place: a vibrant industry, a wealth of smart engineers and scientists, funding (both private and public) and – most of all – many great problems to tackle.

In the field of renewable energies, for example, if India wants to fulfill its ambition to become a world leader in solar power, it needs to move from being a consumer of technology developed elsewhere to becoming a producer of technology. Many Indian entrepreneurs and companies are already starting to do so, but could do well with a state-of-the-art innovation center. This could allow them to lift their gaze from immediate economic gain to strategic long-term solutions, to provide defensible technology or solution USPs in a global competition. After having been defunct for many years, the Solar Energy Center in Gurgaon – just outside New Delhi – is starting to pick up pace again and shows some promise. Equally, the Indian Institutes of Technology in Mumbai and Jodhpur want to become centers of solar research.

Where should India’s efforts be directed? Where can India develop an international, best-in-class competence? If, broadly speaking, China has a vast lead in manufacturing of solar components, Germany is most advanced when it comes to system and grid integration and the US has the most professional renewable energy financing scene, India could find a significant and profitable niche in developing de-central solar energy solutions. Such solutions would not only be for its poor and un-electrified villages, but also for its rapidly growing urban, industrial and commercial centers. Developing such know-how would be greatly beneficial and relevant to markets all over the world.

Mr. Mohit Anand heads the Market Intelligence team as Senior Consultant at BRIDGE TO INDIA. Together with his team, he is responsible for the INDIA SOLAR NAVIGATOR, India’s only dedicated online business intelligence tool that is designed to enable leading solar companies to take strategic decisions to succeed given the ever-changing landscape of the Indian market. 

With close to 1GW of installed PV capacity, the Indian market is seen as an upcoming growth driver for the global PV industry. The quick growth, over 800MW in the past two quarters, has been driven by feed-in-tariff based policies. A majority of these projects are concentrated in the states of Gujarat and Rajasthan, pushed by the National Solar Mission and the Gujarat Solar Policy. This segment alone is expected to add a cumulative 3.7GW by 2016 (according to BRIDGE TO INDIA’s market model).

Growth in the market has been seen only on the generation side, and has skipped local manufacturing

Over 80% of projects so far have used internationally manufactured modules

The question is: Will the Domestic Content Requirement help Indian manufacturers pull out of the current slump?

The growth in the market, though impressive, has only been witnessed on the generation side. It has worked to the great benefit of Indian project developers, a mix of Indian and international EPC companies and a host of international module suppliers. On the other hand, Indian module suppliers seem to have missed the bandwagon of Indian PV growth. Over 80% of projects so far have used internationally manufactured modules (based on BRIDGE TO INDIA’s estimates). This is primarily due to the obsolete business models of Indian manufacturers, and the aggressive pricing of their Chinese (and some non-Chinese) counterparts. The Indian manufacturers meanwhile are sulking and are in dire need of solutions, recommendations, prophecies, or perhaps just a stronger Domestic Content Requirement.

In this time of need and crisis, PV Insider brings to us the PV Manufacturing Summit India 2012. The conference, being held on August 1st and 2nd 2012 in New Delhi, aims to answer a key question – “With this much potential and support – why isn’t India already on its way to becoming the PV manufacturing hub of the world?”

I, for my part, will be giving the opening presentation at this conference, on August 1st 2012 at 10AM. I hope to give the participants a sense of the much talked about ‘potential’ in this market. I will argue that India is a 12GW market by 2016 that will grow primarily through commercially driven market segments. I will also give an outlook on the Domestic Content Requirement (DCR) and the impact this will have on sales for module suppliers. Through my presentation, participants will get a first-hand account of the size and scope of this market. This should set the tone for the two days of intense brainstorming on how the Indian manufacturing industry can succeed in the current market environment.

Register for the PV Manufacturing Summit using discount code ‘ANAND’ and receive a $100 discount on your ticket. Write to us at contact@wordpress-117315-688799.cloudwaysapps.com for more details. 

Mr. Mohit Anand, Senior Consultant, BRIDGE TO INDIA, will be speaking on the ‘PV Landscape in India’ at the PV Manufacturing Summit in New Delhi on August 1st 2012.

The Indian PV manufacturing industry is in dire straits at the moment, running their plants well below capacity due to dwindling orders (refer to our latest INDIA SOLAR COMPASS). A fall in demand in European markets has impacted Indian manufacturers significantly, as they have almost entirely relied on them for business so far. In the Indian market, they are losing out to foreign suppliers that are more competitive than them on both price and technology.

Module prices in India are consistently below the international levels

Indian manufacturers are running their plants on extremely low utilization rates of 10-15%

Chinese Tier-1 manufacturers have found it difficult to sell in India, facing competition from Tier-2 manufacturers

With the investments made to build new plants between 2009 and 2012 and the absence of orders, most Indian manufacturers now run their plants on extremely low utilization rates of 10-15%.[1] Indian manufacturers are waiting for the announcement of the new policy for phase two of the NSM. If the government announces a stronger protection mechanism for the second phase of the NSM, these Indian players are ready to ramp up their production. Indian manufacturers will need support from the government to survive amidst the over-supply in the market and become more competitive. Without political assistance the future of the Indian industry is not secure.

The rising supply from China is one of the most discussed issues in India’s PV sector. Suntech has so far sold 70MW and Trina Solar has sold 50MW to India. Both companies use a strategy of aggressive pricing. However, Chinese Tier-1 suppliers stated during Intersolar Munich in June 2012 that Tier-2 suppliers from China have been even more aggressive in the Indian market. As a consequence, module prices in India are consistently below the international levels and such companies have been largely unsuccessful in selling to the market. In the wake of recent trade barriers in the US against Chinese modules, the Indian domestic industry also started to lobby for setting import duties on aggressively priced Chinese modules (typically Tier -2). Some large Chinese producers with strong order books such as Yingli Solar have not sold to India yet and instead still concentrate on higher margin markets. With India’s overall market demand expected to exceed a cumulative 3GW in 2012 and 2013 these companies will need to find an appropriate strategy for the market.[2]

Two scenarios are possible as of now: First Chinese and other international late comers will adapt the market strategy of smaller module suppliers and offer aggressive prices. This will further decrease module prices and raise the pressure on the domestic industry, as well as on the less cost-competitive international suppliers. Second, companies may focus on new, growing market segments outside the FiT policies, build up their own project development teams or offer EPC services. None the less, the FiT driven segment will be the key segment in the next three years. BRIDGE TO INDIA expects that international Tier-1 suppliers will try to focus on this segment with the majority trying to sell modules to projects under the state policies.

Subscribe to the INDIA SOLAR COMPASS now to get detailed analyses on the market. A preview of the report is available on our ‘Reports‘ page.

[1]Statement of Mr Venkataramani, General Secretary, Solar Manufacturing Association in Economic Times on June 8th 2012

[2] BRIDGE TO INDIA market model

Mr. Mohit Anand heads the Market Intelligence team as senior consultant at BRIDGE TO INDIA.

The INDIA SOLAR COMPASS July 2012 brings you updates and analyses from Indian solar policies, projects, industry and financing. Read below the key findings from our research on the market in the last three months.

The biggest ‘Policies’ development is expected at the end of the year with the guidelines for the NSM Phase 2 coming out towards that time

In terms of ‘Projects’, the REC mechanism is gaining foothold in the market. This can be accounted to India’s first project to have been issued RECs in the last quarter. We also present an analysis on the performance of projects in Gujarat

The financial landscape in the market has seen some cause for worry on account of the recent rupee depreciation. Projects who have procured international financing may face a cash crunch

1. The last quarter has seen anáaddition of 360.42MW of solar PVácapacity.

2. Guidelines for phase two of theáNSM are being formulated andáexpected to be announced towardsáthe end of this year.áPhase two will aim to buildá9,000MW of solar power of whichá3,000MW shall be through feedin-átariffs and 6,000MW througháRenewable Energy Certificatesá(RECs) and Renewable PurchaseáObligations (RPOs).

3. There are limited projectádevelopment opportunities thisáyear in the Indian market. Severalácompanies have started lookingáat business models for projectádevelopment around the RECámechanism.

4. The government of India has setáup the Solar Energy Corporation ofáIndia (SECI). The SECI is startingáwith an initial fund of INR20 billion (Ç307m). It will take over the role ofáimplementing the NSM from NVVN.

5. Indian module suppliers are askingáfor anti-dumping and additionaláimport duties on internationallyámanufactured modules. Also,áthey are asking for the DCR toábe extended to cover thin filmámodules.

6. The Rajasthan Renewable EnergyáCorporation Ltd. (RRECL) hasáindefinitely postponed projectáallocation under the RajasthanáSolar Policy. No official reason hasábeen given for the postponement.áThis is most likely due to theáunavailability of funds.

7. Madhya Pradesh has allocatedá125MW capacity to two developersáthrough a competitive biddingáprocess. This bidding was notáguided by any policy.

8. Indiaĺs first solar REC was issuedáto M&B Switchgears Ltd. More RECámechanism projects are expectedáto become operational soon.

9. The payments of three projectsáin Gujarat have been put on holdáby the Gujarat Urja Vikas NigamáLtd. (GUVNL). GUVNL claims thatáthese projects have violated theáclause which states that the poweráproducers have to continue to holdáat least 51% of equity from the dateáof signing of the agreement up toáthe period of two years after projectácommissioning.

10. The Indian rupee has depreciatedá24% since January 2011. This willácause revenue losses for projectsáthat have opted for un-hedgedáor partly hedged internationaláfinancing.

11. In the last quarter (April-Juneá2012) Indian manufacturersáhave not announced any furtheráinvestments to expand theiráproduction facilities.

12. Indian manufacturers now run theiráplants on extremely low utilizationárates of 10-15%.

13. After the imposition of antidumpingáduties on Chineseámanufacturers in the US, Chineseámanufacturers will increase theiráeffort to sell to India.

14. Several companies have startedálooking at business models foráproject development around theáREC mechanism. Companiesálike Kiran Energy, SunEdison,áSolairedirect, IBC Solar andáBRIDGE TO INDIAĺs ownáproject development arm areálooking at project developmentábusiness models around captiveáconsumption and the RECámechanism.

Subscribe to the India Solar Compass now to get detailed analyses on the market. A preview of the report is available on our ‘Reports‘ page.

A recent visit to from New Delhi to Intersolar Munich has shown that the solar world is still buzzing. The main threat to the industry is not the current mismatch of supply and demand and slowing growth rates, but a disturbing trend towards protectionism and provincialism that can be observed in all major markets. Changing our energy set-up has always been a global challenge and a global project. We have benefited tremendously from the internationalization of the PV industry. Costs have come down so rapidly that we are at the threshold of a world where solar can compete without subsidy. We need uninhibited competition and trade to now make it a reality.

The solar industry is more robust and more sober now than two years ago

There is a worrying trend towards local thinking – both, on the industry side and on the market side

The industry as a whole would benefit enormously from uninhibited trade

Following a recent visit to the Intersolar Munich in June 2012, I want to share some ideas on the state of the solar market. Firstly, the industry has matured: It is no longer a big party selling a vision of green plenty, but a collection of more sober problem-solvers who are engaging with the technical, financial and infrastructural details of making solar power mainstream. Secondly, there was an ever so slight sense of optimism. In the past year, many companies have exited or have been bought, others have restructured their finances, changed their management, focus or products. While times are still tough (and I expect more consolidation in the industry), more companies are prepared to weather the storm. Thirdly, Intersolar in Munich is still the place for everyone in the industry to meet. It is a living example of the success of globalisation. What started as a great, global idea (using the sun as the most plentiful source of energy for the planet), has become a great, global economic success (the subsidy driven solar boom of the last ten years) and fantastic example of how international trade, scale, and best-practice-sharing can bring down costs and establish a new technology. As a result, we are now at a level where PV can start competing without government subsidies and where the industry can really take off.

This last point, the globalisation of the industry, is, however, coming under increasing pressure as the tightening market of the last years is now translating into protective policy measures. The US has recently imposed anti-dumping legislation on Chinese module manufacturers in a step to protect its own manufacturers. India wants to build its own (less efficient, more expensive) PV cell and module industry and to that end is debating domestic content requirements in its National Solar Mission (see our India Solar Strategy Brief and our July 2012 Solar Compass for details). China, after growing its industry for years on the back of European markets, is now making it almost impossible for international module manufacturers to compete in its own solar market. All these measures keep the cost of solar high and delay the moment when solar will be a mainstream alternative to conventional power supply options around the world. This has to be the goal. And the best way to achieve it is through international trade.

A global approach is not only impeded on the manufacturing side, it is also facing difficulties on the market side. Germany wants to fundamentally change its power supply – away from coal and nuclear, towards wind and solar. It is called “Energiewende” and Germany is about half way into this vast, highly ambitious project: too far to go back, but without a clear roadmap on how grids and storage have to be set up to replace scheduled power with unscheduled power. What is striking about the project is that it is limited to Germany’s borders. This is absurd as Germany is entirely embedded into a European power infrastructure. There is almost no coordination with its European partners who share a transmission grid with Germany but not Germany’s enthusiasm for renewables (France has a very pro-nuclear stance). There is also very little consideration for harvesting renewables where they are more plentiful. Any investment into solar power will be greatly more rewarding in sunny Southern Europe than in Germany – not to speak of the Sahara desert (the Desertec initiative is on hold).

Solar energy makes great sense and grid parity is within reach. However, this is a global project that needs to be approached with a global mindset, international infrastructure and trade. At Intersolar San Francisco, where I will be in July, I am hoping to see the famous American optimism and “can-do”, which is needed now more than ever: Making solar power work on a vast scale to use its full potential requires a belief in our ability to fundamentally change and improve our lives and a readiness to take risks. These are – in my mind – quintessentially American qualities. This may be a simplistic equation, but: India, where we work, is a vast market for solar. China has proven that it can manufacture more cheaply than anyone else. Germans have experience and a systemic approach. And the US has the most innovative financial industry. It makes sense to cooperate.