India added total solar and wind capacity of 2,074 MW (up 70% over previous quarter) in Q3 2018. Total installed capacity reached 61.1 GW on 30 September 2018 – including 23.2 GW utility solar, 3.4 GW rooftop solar and 34.5 GW wind.
- Quarterly capacity addition has been highly erratic because of uncertain auction time-table;
- The sector faces several challenges related to government policy, transmission infrastructure and financing;
- Unaffected by many of these challenges, rooftop solar is growing robustly and is expected to outshine other RE sources by 2022;
Including expected capacity addition in Q4, total RE capacity addition in 2018 is estimated at 9.4 GW. This is down 34% over 2017 and over 50% short of MNRE’s FY19 plan of 20.8 GW. Next year should be much better with capacity addition jumping to about 15.5 GW. But it is expected to fall again in 2020 and unlikely to recover materially in the subsequent few years. These short-term ups and downs are due partly to volatility in auctions time-table. As the following chart shows, project development, tender issuance and auction time-table have been unpredictable for some time now.
Figure: RE capacity addition and tender progress, MW
Source: BRIDGE TO INDIA research
But long-term outlook for the sector is looking decidedly downbeat for other reasons, most of which are internal – MNRE has failed to decisively address GST and safeguard duty issues. It has also blundered with restrictive tariff caps and poor tender design resulting in tenders getting routinely cancelled and/ or undersubscribed. The latest affected tender is SECI’s 50 MW project in Maharashtra, for which there was only one bidder. Adverse movements in INR and interest rates are not helping. Meanwhile, MNRE has extended time allowed for completing projects from 12-18 months to 21-24 months because of transmission capacity constraints. As a result, we believe that India would fall well short of the March 2022 target of 160 GW for solar and wind power unless decisive remedial steps are taken immediately. Our revised best-case capacity estimate stands at 111 GW. One bright spot in the entire RE market is rooftop solar, which is growing faster than our expectations. We believe that this market is growing at a robust 70-80% annually. Largely unaffected by policy uncertainty and not reliant on land or transmission infrastructure, Indian consumers are beginning to exploit full potential of this opportunity thanks to sharp fall in module prices (down 30% in last nine months). We expect rooftop solar’s share of total solar market to jump from about 10% last year to over 40% by 2022.
