14 August 2017 | BRIDGE TO INDIA
We have released our latest report – India Solar Compass – a quarterly update on the Indian solar market. The report contains key information and analysis including tender and project updates, leading players, financing deal flow, policy and market trends etc for Q2 2017 as well as our market forecasts for the upcoming quarters.
Q2 2017 was a landmark period in the Indian solar sector with tariffs falling below the critical threshold of INR 3.00/ kWh making solar power the cheapest new source of power in India. But this has led to all sorts of problems. As we commented in a recent blog, “Falling tariffs are a double-edged sword for the sector. They make solar power more attractive for consumers but are also making investors and lenders jittery. In the near term, they are also creating uncertainty in the minds of policy makers and creating new risks for older projects auctioned at 2-3x higher tariffs.”
- India is expected to become the third biggest solar market worldwide in 2017 with estimated utility scale and rooftop solar capacity addition of 8.4 GW and 1.1 GW respectively;
- Rising competition is squeezing investor returns in both primary and secondary markets;
- Even as long-term market prospects remain bright, the sector faces considerable headwinds from module price rises, tender cancellations, GST and anti-dumping duty related uncertainties in the short run;
India’s total installed solar power capacity reached 15,611 MW (13,951 MW utility scale and 1,660 MW rooftop solar) on June 30, 2017. After a bumper Q1 2017 (end of FY17) when India added 3,120 MW of utility scale solar capacity, pace in Q2 2017 was relatively slow at 1,437 MW against a scheduled capacity addition of 3,300 MW. Highest capacity addition as well as slippage was from the 2,000 MW allocation in Telangana. Around 1,680 MW was due to be commissioned in Telangana during Q2 but only 640 MW came online because of delays arising from land and transmission related issues.
Total utility scale project pipeline, projects allocated to developers, stood at 12,250 MW at the end of the quarter. More than 3,000 MW of new tenders were announced, greater than the aggregate of all new tenders announced in previous three quarters. But at the same time, eight tenders with an aggregate capacity of 2,130 MW were scrapped due to DISCOMs reconsidering their power procurement options.
We expect new utility scale capacity addition of 1,565 MW and 2,265 MW in Q3 and Q4 2017 respectively. Our expectation for total rooftop solar capacity for 2017 is 1,056 MW taking total 2017 capacity addition estimate to 9,443 MW.
Top developers in Q2 2017, on the basis of new capacity added, are Acme Solar, NTPC, ReNew, Adani and Azure. Similarly, Talesun, Hareon, JA Solar, Waaree and Lanco are ranked as top module suppliers for Q2 and ABB, Hitachi, Sungrow, SMA and TBEA are ranked as the top inverter suppliers.
Other key market trends observed during Q2:
- Module prices have spiked up to US ¢ 32-33/ Wp against expectations of about US ¢ 28/ Wp due to demand pick up in China and the USA. But inverter prices have been stable at around INR 1.80/ W.
- 1,500 V systems market is picking up and we expect a near-complete transition to 1,500V systems in India within two years.
- Trackers have been gaining market share in India – we estimate this market to grow from 450 MW in Q2 to 800 MW in Q3. However, sharp fall in module prices is likely to hurt this market in future.
- Actis committed USD 500 million to SPRNG, a new solar platform in India. Debt conditions have continued to soften with interest rates coming down and lenders looking at debt tenors of up to 20 years.
- M&A deal flow is expected to pick up substantially as many PE funds (Ostro, Orange and Equis, amongst others) are looking to sell out and the primary project pipeline is relatively small.
- The new GST regime became applicable from July 1, 2017. Solar power systems and equipment will be taxed at 5% but there is still confusion on GST rate on equipment other than modules.
- The recently released draft National Energy Policy anticipates withdrawal of all incentives and support mechanisms for renewable energy over time.
Overall, 2017 business volumes are expected to grow by 90% Y-o-Y, making India the third largest solar market worldwide. But it is still an unnerving time for project developers and investors as rising competition forces tariffs down and the sector faces headwinds from module price rises, tender cancellations, GST and anti-dumping duty related uncertainty.