Category: Market Outlook

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.

The recent hikes in power tariff by the distribution company B.E.S.T. comes amidst a trend of increasing power prices throughout the country. Rising power tariffs drive up the cost of energy procurement and reduce the overall profitability of industries and commercial consumers. With the economy slowing down, this can only add to the woes of the industrial and the commercial sector. Such consumers of power are actively looking for alternate energy solutions.

In B.E.S.T.’s case, prices have risen by nearly 30% in all consumer categories

Commercial consumers are the worst affected with prices as high as INR 10.79 per unit

Several DISCOMs across the country are faced with huge financial losses and raising power tariff despite stiff opposition remain the only option to stay afloat

The price of solar energy has fallen by nearly 40% over the last two years owing to economies of scale, technological improvements and competitive pressures on OEMs. This has made solar energy cost competitive with industrial and commercial power tariffs. Given the trend of rising power tariffs, it is only a matter of time before solar is cost competitive across all consumer segments. The average price of generation of solar energy is around INR 7 per unit. Commercial consumers of B.E.S.T. for example already pay an average of INR 9.27 per unit – 30% higher than the price of solar energy (see graph).

However, solar energy comes with a few concerns:

Energy consumers do not want to invest in the high capital costs of setting up a power plant

Solar power is intermittent and completely absent during the night times

To work around the first concern, solar companies have started to offer solar energy as a service. These companies are known as Renewable Energy Service Companies (RESCO). The energy consumer does not have to invest in the capital costs of setting up the plant – they only pay for the energy consumed.

By setting up a hybrid system (a mix of grid power and solar power), the intermittency of solar power can be managed. The grid power is used during the night times and cloudy days while solar power is used during the day. These innovative business and technology models are transforming the energy landscape in India. The coming years will see distributed energy taking prominence of which solar will play a crucial role.

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.