Last few weeks have seen feverish activity in the RE sector with several bold announcements from the new MNRE leadership, keen to address the multiple complex issues facing the industry. After announcing a new RE rollout plan entailing tenders of 91 GW of new solar and wind projects by March 2020, MNRE has issued a new concept note on rooftop solar envisaging capital subsidies for residential customers and financial support to DISCOMs – aggregating to INR 235 billion (USD 3.7 billion) – for encouraging growth of this market. It has also issued a concept note for building 10,000 MW of integrated module manufacturing capacity in the country with an incentive package of INR 110 billion (USD 1.7 billion). Lastly, it has issued two expressions of interest for development of 20,000 MW of projects using domestic modules and another 10,000 MW of floating solar projects, both for completion by March 2022.
- The move to make DISCOMs the primary nodal agency for rooftop solar and providing them with milestone-linked financial support is highly desirable;
- Other initiatives for promoting domestic manufacturing and floating solar plants are poorly conceived and unlikely to take off in our view;
- Priority should be to improve policy enforcement and improving execution rather than coming out with newer, more radical ideas;
The most critical aspect of the concept note on rooftop solar is to make DISCOMs the primary nodal agency for this sub-sector. It has two main components – first, it seeks to provide financial support of between 5-15% of capital cost (estimated at INR 5.50 million/ MW) to DISCOMs for up to 35,000 MW of new rooftop solar capacity commissioned across non-residential consumer segments in their respective regions after March 2018. In turn, they are expected to undertake various initiatives for demand aggregation, data compilation and consumer awareness etc. to facilitate growth of rooftop solar. Second, the concept note aims to expand the budget for 30% capital subsidy for residential customers to INR 90 billion. The target is to build 5,000 MW of residential rooftop solar capacity by March 2022. To put that in perspective, we estimate current residential rooftop solar capacity at only about 390 MW.
DISCOMs are indeed best suited to play the central implementation and facilitation role for rooftop solar. Positioning them as a key stakeholder and supporting them financially is a sensible move and addresses one of the biggest challenges facing this market. BRIDGE TO INDIA had recommended this move in a study on rooftop solar about two years ago. But the scheme needs much more work to make it effective and the 40,000 MW target for March 2022 is still highly unconvincing.
The concept note on manufacturing contains a patchwork of old ideas to support domestic manufacturing – assured demand of 12,000 MW for public sector projects, 30% capital subsidy or 3% interest rate grant, tougher quality standards and greater role for public sector.
The sector is facing harsh times as we had commented in our last weekly. It is promising to see MNRE showing signs of earnestness. But apart from the move to incentivize DISCOMs for growth of rooftop solar, most of the new plans including integrated manufacturing and development of floating solar projects are poorly conceived and unlikely to take off in our view. Unfortunately, the sector’s problems are far from over.
Domestic module manufacturers want further protection
After submitting a petition for imposition of anti-dumping duty (ADD) in July 2017, the Indian manufacturers have submitted a new petition for imposition of safeguard duties on all cell and module imports into the country for four years. The Director General of Safeguard (DGS), Ministry of Finance, has already commenced an investigation and sought responses from all stakeholders by January 18, 2018. The safeguard duty petition is a new twist to the ongoing ADD investigation and interestingly, Mundra Solar (Adani), the largest domestic manufacturer, is one of the applicants unlike in the ADD petition. We believe that it is a sign of growing confidence in the domestic manufacturers, who have been encouraged by the government’s response to import duty on solar cells and modules and progress in the ongoing ADD investigation. Solar project developers should brace for more problems.
