Category: Market Outlook

The US Department of Commerce has announced preliminary anti-dumping duties ranging from 31 percent to 250 percent on crystalline silicon solar cells from Chinese manufacturers. This will help India become an alternative manufacturing destination.

The move to protect US manufacturing against Chinese competition is short-sighted

Chinese manufacturers are expected to look for offshore manufacturing opportunities. India could benefit from that

Module prices in India are expected to fall further as China will look to offload its inventory

The US Department of Commerce has announced preliminary anti-dumping duties ranging from 31 percent to 250 percent on crystalline silicon solar cells from Chinese manufacturers, although final ruling from the commerce department is expected only in October. If the final ruling in October goes against Chinese manufacturing, Chinese government will appeal to the World Trade Organization by objecting to the US government findings.

The US unit of Solar World along with the Coalition for American Solar Manufacturing (CASM) had filed a petition for imposing anti-dumping and countervailing duty on Chinese crystalline silicon solar cells. This petition was filed with the US Department of Commerce and the US International Trade Commission (ITC). The petitions demonstrated that Chinese manufacturers are receiving illegal subsidies and are illegally dumping crystalline silicon solar cells into the US market.

To circumvent the US trade barriers, in the short term, many Chinese and other international companies manufacturing in China are also expected to use the tolling services of Taiwan-based suppliers to turn wafers into cells there, and then assemble the modules in China. Module suppliers with manufacturing facilities in south east Asia, India and low-cost manufacturing destinations, who might not be as competitive as the Chinese manufacturers, are also likely benefit from this ruling.

Polysilicon manufacturers in US now fear that China will retaliate with slapping tariff when they announce findings of an investigation into subsidies of solar companies by US states.This is a short-sighted move by the US and is not expected to boost the US solar industry. US might actually end up losing down the stream jobs.

What does this mean for India?

Like many others, the Indian solar manufacturing industry has been unable to adapt to low prices and mass-manufacturing and has seen its export orders dry up as it finds itself unable to compete with global suppliers, leave alone the allegedly subsidized Chinese manufacturers. India has waived off import duties on solar cells and modules to promote solar power generation. Indian solar manufacturers’ only hope of survival right now is the domestic market. They have been lobbying to get basic import duties implemented on imports from China. The government has been rejecting their demands till now, but the US ruling is likely to give more voice to their arguments.

With the US protectionism, the price of solar is expected to increase in the US, but in an already oversupplied international market, Chinese manufacturer will look to offload their inventory in other markets like India. Indian developers might benefit from the lower prices in the short term. Overall, like all other trade barriers, this will also create price anomalies across markets.

India also has the advantage of low cost manufacturing and an additional benefit of domestic content requirement for the National Solar Mission (NSM). Manufacturing in India as compared to China, will not only help companies avoid US tariffs, it will also help them get a large share of the Indian market. This might push India as an alternate manufacturing destination. It will not be easy though. The government will need to give a clear and long term strategy on promoting solar manufacturing in India.

What does it mean for the solar industry?

At the time when solar power is starting to become competitive with conventional power in several locations across the world and when the solar industry is expected to unite to improve technology and aim for affordability, the solar community is divided and embarking on a trade war. This trade war will find some companies and even countries winning and some losing in the short-term, but in the long-term, if we focus on restrictions and look away from the real challenge of trying to free solar of subsidies, the whole world will stand to lose.

The worldwide standard for measuring a solar plant’s performance is the Performance Ratio (P.R.). However, most project developers, investors and EPC contractors in India use the Capacity Utilization Factor (C.U.F.) as the standard of measuring the performance of a plant.

Our team sat down and attempted to demystify these differences. But soon enough, we realized that quite a few people in the industry really do not understand the difference. This is where I figured this is worth sharing with a wider audience.

Let us begin by understanding the definitions of C.U.F. and P.R.

P.R. is defined as:

Where,

C.U.F. is defined as:

Therefore the relationship between the two becomes:

Now that we have established the mathematical relationship between C.U.F. and P.F., what do they actually mean?

The P.R. is a measure of the performance of a PV plant at a given irradiation level. If you look closely at the denominator of the equation for P.R., we have normalized the ratio against the irradiance level for that specific location. Now, if the plant were to be moved to another location with a different irradiance level, then the equation would consider the irradiation level at that location. So in a way, the equation adjusts itself against the location of the plant. This proves to be extremely useful when comparing the quality of a plant (construction and operation) in different locations.

Another important aspect of the P.R. is that it only evaluates the plant performance against the energy available from the sun. That is, it automatically discounts night times, when the sun does not shine. We shall understand why this is important when we look into the C.U.F. formula.

The C.U.F. is a measure of ‘how well a plant is utilized’. This is important because a PV plant is an asset with a limited life and the investor would like to extract as much value from the plant as possible. This is helpful when comparing one or more energy technologies – thermal versus solar or wind, for example. If we take a look at the C.U.F. we see that the formula evaluates the energy generated from the solar plant against 100% of the existence of the plant i.e. 8,760 hours in a year in this case (including night times when it is impossible to generate any energy). This means that if we have a 20% C.U.F., the investment is ‘being usefully utilized’ for 20% of the maximum possible limit. Now, if we move the plant to another location, the CUF will change because the equation DOES NOT adjust itself against variations in locations (look at the denominator!). In that sense, the CUF is unfair because it ignores radiation specific to locations and it ignores night times when the plant really cannot do anything.

To sum up our understanding, the P.R. is a very useful tool to compare PV plants across the world and it directly reflects on the quality of construction and maintenance.  The C.U.F. on the other hand is very useful in comparing different technologies and is particularly important to an investor who would like to know which technology offers maximum value.

The India Solar Compass is a quarterly analysis report with the latest updates on India solar policy, projects, industry and financing.  The key question in the April 2012 edition: ” Is the telecom tower market viable in India?”

The report includes market outlook for the coming quarters with projections for addition to solar installed capacity and expected regulatory developments in India.

12 key findings from the report can be found here.

Fourteen projects have been penalized for missing the January 9th 2012 deadline for commissioning under the NSM. They have lost a cumulative amount of INR280m (EUR4.3m) in bank guarantees.

The Gujarat Electricity Regulatory Commission (GERC) has imposed penalties on 370MW worth of projects for missing the December 31st 2012 deadline for commissioning under the Gujarat solar policy.

Competitive bidding for projects is yet to take place under the Karnataka and Rajasthan solar policies.

Odisha has allotted five projects worth a cumulative 25MW through a competitive bidding process which has resulted in a tariff of INR7 (EUR0.10)/kWh, the lowest in India so far. These projects are outside of a comprehensive solar policy and are meant to help the state meet its RPO.

For batch one of phase one of the NSM, only nine projects (45MW) out of the allocated 30 projects (150MW) came online before the deadline of January 9th 2012.

As of January 28th 2012, the beginning of the new tariff regime, 600.5MW capacity was officially completed under the Gujarat solar policy. However, only 280MW had been actually commissioned before this date. The remaining projects have been categorized as ‘deemed to be commissioned’ and are exempt from the new tariff regime.

Andhra Pradesh signed a solar power agreement with Welspun Energy to set up a 100MW solar PV project in Anantapur district of the state.

At present, the US EXIM bank is the most popular source of funding. It has financed close to 65MW worth of projects in India and has close to 315MW in the pipeline.

Indian module manufacturers like Vikram Solar are investing in integrating along the value chain in order to improve their competitive position in the market.

Solar is competitive as a power solution for telecom towers, depending on their consumption and location.

A Renewable Energy Service Company (RESCO) business model appears to be the most viable to tackle the solar opportunity in the telecom tower segment.

The current quarter will see 320MW of PV installed capacity, led by the completion of projects under the NSM and the Gujarat solar policy.

For more detail on the Indian market, subscribe to the India Solar Compass April 2012.

BRIDGE TO INDIA’s quarterly report on the Indian solar market analyzes policy, projects, industry and financing; the key drivers of this market. The latest edition of the quarterly, explores the telecom tower segment as a significant opportunity that will emerge in the market in the coming 5 years.

In the April issue, we’re looking at:

The last quarter has seen PV projects under both, the National Solar Mission (NSM) and the Gujarat solar policy being commissioned, taking the current total installed capacity of PV in India to 540.4MW. This is the largest PV capacity addition in any quarter in the Indian market so far.

A majority of the projects have managed to complete only after being delayed beyond the deadlines under the respective solar policies.

Commissioning projects has been a challenge in an industry that is yet to gain easy access to project financing.

Developers have further had to deal with tough execution challenges to complete their projects.

The Indian PV manufacturing industry is in dire straits at the moment, running their plants well below capacity due to dwindling orders. None the less, some Indian manufacturers are investing in integrating across the value chain and expanding current production capacity.

Given the continuing fall in solar tariffs, developers are increasingly seeing the Feed-in-Tariff (FiT) segment as being unviable and exploring project opportunities outside this segment.

For the telecom tower segment as well, solar is well positioned to replace diesel generated power which can cost as high as INR25 (EURO0.38)/kWh depending on the location of the telecom tower.

Want more detail on any and every aspect of the Indian solar market?

Then subscribe to the India Solar Compass April 2012.

Andhra Pradesh receives some of the highest irradiation in India. The state has significant renewable purchase obligations (RPO) stemming from its high power demand. In addition, Andhra Pradesh has India’s best performing state power utility (State Electricity Board, SEB). So far, the state has no solar policy in place but it has nevertheless signed a contract for a 100 MW solar power plant with Welspun Ltd.

Andhra Pradesh receives a global horizontal irradiation (GHI) of 1,900 – 2,000 KWh/m2/Year. This is among the highest values in the country after Rajasthan, Gujarat and Tamil Nadu. On further technical parameters, the grid infrastructure in the state is strong with AT&C losses (~16%) significantly lower than the national average (~27%).  Good intra-state power evacuation grids directly translate into good opportunities in grid-tied systems. In addition, there are large infrastructure projects planned to improve inter-state grid connectivity of the state.

Andhra Pradesh has a significant total solar RPO requirement of 551MW until 2016. Solar projects worth 100 MW have already been allocated or are in the process of allocation to meet these obligations. However, there are doubts over the timely implementation of RPO. Policy implementation for the RPO is expected to meet reconsideration requests in absence of availability of options to meet these obligations (lack of enough renewable energy certificates in the country, for example). Therefore, the feasibility of setting up solar plants to meet RPO in the long run is questionable. Notwithstanding these arguments, the long-term power scenario of Andhra Pradesh still provides an opportunity for solar energy: The state currently has a total power demand of 51,563 GWh and a peak load demand of 13,177 MW; the second highest in the country, after Maharashtra. This demand is expected to grow by 48% in next five years as compared to a range of growth of 32% to 72% in rest of the states. Currently there is a total deficit of 2,519 GWh and peak load deficit of 1,586 MW in meeting the power requirements of the state. These account for 5% and 12% of total and peak load power demand respectively. The peak load deficit is higher than the national average (~9.8%). Solar availability is the highest at the peak load time in hot weather conditions. Given these facts, solar is one of the key options to bridge the peak load deficit in the state.

According to the Planning Commission of India report on the working of power utilities in 2011-12, Andhra Pradesh’s SEB reported a net profit of INR11 billion (EUR173m). This makes it one the best performing SEB in the country. The financial health of the SEB makes the PPAs relatively more bankable compared to those by SEBs of other Indian states. Also, AP has been ranked as the third most investor friendly state by a 2012 report by The Associated Chambers of Commerce and Industry of India (ASSOCHAM). The report states that AP attracts 10.05% of the nation’s foreign direct investment (FDI), which amounts to INR121 trillion (EUR1.86 trillion). The public private partnership (PPP) India database corroborates the fact based on information from the Indian Brand Equity Foundation (ibef.org). The database records 96 PPP projects in the state with a contract value worth INR670 billion (EUR10 billion), the highest in the country. More public partnership projects indicate the confidence of private entities in investing in a particular state considering the social, economic and political conditions of that state and therefore corroborate the investment friendliness of Andhra Pradesh.

There are, however, also some caveats to AP’s strong position. For example, there are concerns over the sociopolitical conditions. It is rated 1.42 on a scale of 5 for law and order condition by India Today “State of States” conclave, 5 being the highest. Demands for the state’s division into Andhra Pradesh and Telangana may also pose a risk to the PPA, depending on the location of the plant. AP also has a significant number of districts affected by left-wing “Naxal” insurgents. A further drawback is that Andhra Pradesh does not have a dedicated solar policy, which implies the absence of a well-defined procedure for solar projects in the state. The state had announced in November 2009 that it would introduce a solar policy with a special focus on manufacturing but has not executed on its plans yet. Instead of using a policy guided Feed-in-Tariff (FiT) mechanism to meet RPO requirements, Andhra Pradesh is going for large direct contracts. However, a specific solar policy limits project development opportunities by size or scope. Thus, not having a policy is a positive point for large solar project developer willing and able to negotiate a PPA directly with the government. This is what Welspun Energy Ltd, the energy arm of Welspun Group, has done. Welspun has received a contract worth INR9.5 billion (EUR150m) from AP to set up a 100MW solar power plant in Anantpur district. Vineet Mittal, Managing Director, Welspun Energy Ltd. Says: “we had entered into the agreement with the state government in January, this year, and will complete the project by 2013. We will construct, operate and maintain the power plant and are acquiring land for the project.”

With high irradiation, strong grid infrastructure, significant solar RPOs, second highest peak demand and peak load deficit in the country, best performing SEB and investment friendliness, Andhra Pradesh could very well become the next solar boom state in India.

India’s finance minister, Dr. Pranab Mukherjee, declared that solar thermal plant and equipment in India will now be exempt from import duty. “In order to fully realize our potential in the realm of solar energy, solar thermal projects need encouragement. I propose to fully exempt plant and equipment etc. for the initial setting up of such projects from special countervailing duties (anti-subsidy import duty)”; said the minister while announcing plans for the country budget for the upcoming fiscal year.

Till now the solar thermal sector has significantly lagged behind the solar PV sector in the Indian market. CSP installed capacity in India is a mere 8.5MW (as of February 15th, 2012) as compared to 481.48MW for PV technology. There is no domestic manufacturing base for CSP equipment in India and there are only a handful of experienced technology providers abroad. As such, developers are finding it difficult to find reliable, low-cost options, a necessity to make their projects viable at the low tariffs following the NSM auctions in the year 2011. With an absence of CSP technology in India and a lack of projects for reference, banks are exceptionally wary of funding CSP projects. This has led to stunted growth of the Indian CSP market.

In addition, CSP as a technology faces water issues that will require CSP developers come up with creative plant cooling solutions. There is also consternation about the 30% local content requirement.

While the key challenges to CSP in India remain, an exemption of import duty on plant and equipment contributes to an overall reduction of CSP project costs. This will invite greater investment in the Indian CSP market.

In December of 2011, the Odisha Renewable Energy Development Agency (OREDA) had released an invitation for Request for Selection (RfS) for 25MW worth of solar projects in the state. The last date for submitting the bids was February 7th 2012.  Our sources reveal that the results of the reverse bidding process have now been finalized. The winning bid is a record INR7 per kWh as a levelized tariff for a period of 25 years. The highest bid was placed at Rs. 8.98/KWh.

The winning bid was submitted by Alex Green Energy and it has been allotted the entire spectrum of 25MW as was revealed by a senior official at OREDA. OREDA is planning to offer another RfS in the month of March.

The deadline for reporting of project finance, for the 25MW project, is said to be 210 days from the date of signing of PPA. The commissioning deadline is 18 months from the date of signing of PPA or 20 months from the date of issue of Letter of Intent (LoI) whichever is earlier. It is envisaged that the state-level agencies like OREDA, IDCO, GRIDCO etc. will provide necessary support to facilitate the development of the projects as per the existing industrial policy of the state. This may include facilitation in providing access to project sites, land acquisition for the project and connectivity to the substation of the distribution company or any other transmission utility at the voltage level of 33 kV or above.

From a short-term perspective, the low tariffs strain developer returns. Also, they could jeopardize project performances as developers might look to reduce costs by cutting corners in project execution. However, in the medium to long-term, these lower tariffs will make solar competitive in the commercial and captive consumption space. This will create a market for solar, independent of government subsidies, rapidly expanding the opportunity for solar players in India. 

India is facing a green revolution. Government and business leaders recognize that the scarcity of fossil fuels is one of the major risks for economic growth and understand the urgent need to take countermeasures and make green energy viable. German companies have many of the solutions India needs and they in turn need the Indian market.

Key points:

India has a huge potential for renewables, given its resources, policies and requirements

Success for international companies requires significant adaptation of products and business models

Given the long-term market opportunity adaptation makes economic sense

According to a recent study by Ernst & Young, India is ranked 4th amongst the most attractive countries for investments in the field of renewable energy. Today, a growing number of German companies want to do business in India. They have leading technologies and an excellent reputation in India. However, few succeed in establishing themselves in this complex and dynamic market. India s unique characteristics require an entrepreneurial approach and a long term, proactive strategy.

Many German companies from the wind, hydro, solar and biomass energy sectors expect the subcontinent to be one of the leading markets in the future. Siemens plans to invest 250m in India s renewable energy market. The fast growing Indian economy is driving the rapidly growing demand for power thereby causing a base-load deficit equivalent to 16GW in 2010. This makes the power market in India attractive in the long run.

To ensure a sufficient power supply in the future, India plans to triple its total generation capacity to 450 GW over the next 12 years with renewables playing a major role. On the supply side, renewables will be encouraged through preferential feed-in-tariffs and subsidies. On the demand side, state utilities will be obliged to purchase a minimum share of energy from renewable sources. This creates huge opportunities: from 2012 to 2022, the market for solar power is estimated at 55 billion. Similarly, the market estimated for wind is 53 billion, for biogas is 23 billion and for small hydropower is 12 billion.

According to the Ministry of New and Renewable Energy, by 2022, ten percent of India s electricity will be derived from renewable sources. Now is the perfect time to get involved in the Indian renewable energy market: businesses that step into the market early can actively influence the decision-making and development processes, shaping them to their own advantage. However, in India, business success is neither quick nor easy. Even large companies with a long-term approach, such as the German wind turbine manufacturer Enercon, have faced difficulties.

International companies are confronted with challenges that are not easy to overcome. It is crucial to understand that the country is made up of a variety of individual markets with very different conditions. This is particularly true for renewable energy: energy policy and incentive schemes (such as feed-in tariffs) vary with individual Indian states.

Infrastructure, legal protection and availability of finance are further areas with considerable variations across regions. It takes time to develop an insight into complex market structures, gain consumer confidence and overcome bureaucratic barriers. While doing so, local partners can be of great help as well as can be somewhat of a challenge. They may be able to easily establish contact with decision-makers or give access to distribution channels. India is a country of networks. The success and failure of an enterprise is highly influenced by personal and family relationships. Though they rarely proceed without problems, joint ventures with Indian companies do present an opportunity to take advantage of existing networks.

A peculiarity which applies to infrastructure projects in general and is very distinct in India is the importance of bureaucrats and politicians. For the most part, projects require numerous licensing procedures: to buy property, to fulfil environmental regulations or to feed power into the electricity grid. As a consequence of India s slow and often arcane bureaucracy, many business deals take longer. For this reason, patience is one of the key success factors in the Indian market. Companies such as SMA, Astonfield, Voith or Bosch, have shown that to invest time and capital with a long-term strategy can lead to good results.

Solar power, especially, is now offering a very attractive opportunity for international technology leaders and investors. By launching the Jawaharlal Nehru National Solar Mission, India s government has taken a major step towards simplifying the implementation of projects. Clearand uniform regulations and a long-term approach, now give security to investors and are proof of the Indian government s intentions to establish this market permanently.

Given the aforementioned obstacles, a strategy for India should always be based on a long-term perspective. As a first phase, German companies can position themselves in niche markets by exporting high-end products. However, to make use of the full scale of the market (which is, after all, its most attractive feature), products need to be adapted to the price-sensitive Indian market. This can take the form of modifying the product to better suit local conditions, sourcing and producing in India to reduce costs, or even developing new business models to ensure competitiveness. A research project by Professor Wildemann of the Technical University of Munich, in cooperation with BRIDGE TO IDNIA, is presently investigating the best possible mode of adaptation for German state-of-the-art technology to Indian market conditions.

Siemens is a great example for a company that successfully adapted to India. Having operated in India for 140 years, a research centre was established in 2004. According to CEO Peter L scher, Siemens benefits from the opportunities of Indian growth and offers specially tailored products .

For successful international companies, the main competitors are not their traditional international rivals but fast-growing, rapidly changing and highly price-competitive Indian companies. International technology leaders therefore continue to face serious challenges and competition. However, this competition can be extremely healthy. A company that can offer renewable energy solutions to the Indian customer will find an almost limitless market in India and in other developing countries.

This article originally appeared in German in Sueddeutsche Zeitung in February 2011

India’s hidden solar opportunity lies in captive consumption – and this is starting to make sense right now, far away from the fanfare of the NSM and other government programs.

Key points:

India’s electricity shortage is not going to be met by conventional power, least by government driven policies

The government solar policies, like the National Solar Mission, although successful, cannot possibly scale fast enough to meet the enormous energy challenge

This gives the industry an opportunity to disseminate the solar captive consumption model in India

India’s solar market is currently primarily driven by the National Solar Mission (NSM) and the state solar programs. These, although successful, cannot scale as quickly as India needs them to. India is facing a severe shortage of electricity – some estimates peg this at 14% during peak demand. There is simply no way India can bridge this gap going by the current developments in the energy sector. Coal has its environmental shortcomings and a genuine shortage in supply. The nuclear debate rages in India. Hydro power has its concerns with altering ecosystems and silting of rivers. Among the renewable energies, wind is not as scalable, given India’s limited wind resources. The only other option remaining is to scale energy production through solar energy. Although current policies further this goal, they are insignificant in the larger context. The government of India has set a generation capacity target of 78,577MW by 2012 based on the assumed GDP growth rate of 8% p.a. The target is likely to be missed by 60% resulting in a deficit of 47 GW. In comparison, the government with its flagship solar program – the NSM – targets 20 GW – that too only by 2020.The opportunity for solar energy lies in the largely untapped captive consumption market. The captive market is the key business model for solar in India for the following reasons:

1) It does not depend on government subsidies: As we have seen in Italy, Spain and the Czech Republic, there is a risk that the government can roll-back subsidy schemes in the event of a financial crisis. Investors are growing weary of this risk, which is reflected in the downturn of the solar industry in Europe.

2) No restrictions: The NSM currently has a minimum installed capacity of 5MW and requires previous experience in solar to participate in the auction process. This keeps out smaller players and entrepreneurs – exactly what is needed to kick start a solar market.

3) Minimum transmission and distribution investments: large solar plants are located in remote regions of Gujarat and Rajasthan. They require expensive transmission and distribution and there are high losses associated with it. Captive solar power is located right at the point of consumption driving down electricity prices from solar further.

4) Speed: The procedures of government programs can be quite slow and involve cumbersome bureaucratic processes. Foreign investors are increasingly looking for quicker investment options that require minimum interaction with the government.

5) Bid Price – In an attempt to outbid competitors, there is a tendency to bid for a price that is unrealistic given India’s dynamic project development process and more importantly lack of previous experience in large solar projects. This puts the entire NSM at a risk. Captive projects on the other hand are location specific and allow project developers to customize their energy concept (and therefore the price offered) in a more realistic scenario.

6) Alternate financing options such as the renewable energy certificates (REC): The REC market is taking off. Demand is driven by obligated entities that have to meet their renewable purchase obligations (RPO). This opens up a second revenue stream that makes off-grid projects viable in certain consumer segments.

7) Grid independence: Being independent from the grid has its advantages, especially in areas of intermittent energy supply. Although solar usually cannot meet the demand of heavy loads such as machines, it can meet the demands of low load electrical equipment like lights and computers.

Captive consumption refers to generators set up for the exclusive, local consumption. In case of captive solar energy, storage technology is yet to mature to guarantee a secure round-the-clock supply of electricity. But solar is fast reaching grid-parity in certain consumer segments in India like industries and commercial consumers who especially use diesel as a backup source. These establishments can continue to consume base load power from the grid/diesel and can look to offset a portion (say 10%) of electricity demand from solar – at a price which is lower than the cost of electricity combined from diesel and grid power. Solar EPC (Engineering Procurement and construction) prices have dropped more than 20% in the last two years and will continue to fall by another 10 – 15% in the next year, making captive solar viable across a larger segment of consumers.