12 August 2014 | Akhilesh Magal
Mr. Tarun Kapoor, Joint Secretary for the Ministry of New and Renewable Energy (MNRE) announced at a conference last week that India might look at following Germany’s lead by going ahead with fixed Feed-in Tariffs (FiT) as opposed to the current system of reverse auctions. The government is considering this in order to rapidly expand India’s solar program.
- The FiT based approach may result in cutting down project development cycle
- MNRE needs to specificy clear criterions to lend transparency and certainty to the market
- A location adjusted FiT structure may ensure a wider spread of solar projects across the country
FiTs can bring in a sense of stability to the Indian solar market that has, in the past, seen record low tariffs that most people in the industry consider unviable. Now that equipment prices have largely stabilized, BRIDGE TO INDIA believes that a move supporting the FiT based approach may prove to be very positive for the sector. It dramatically reduces the project development cycle and cuts down on the time and money spent on working through the complicated bidding processes. FiT approach will also prevent players with little experience in solar to usurp the auctions and create bad precedents. An output driven tariff structure is more preferable than upfront capital subsidies or viability gap funding (VGF). This tariff structure will create stronger incentive for project developers to focus on project quality and rigorous operational processes.
On the other hand, there are various challenges to implementing FiTs. To ensure that solar projects get evenly distributed throughout the country and to avoid stress on the transmission network, an elaborate location based FiT structure needs to be specified taking into account local factors like irradiation, cost of land, power demand-supply situation etc. This policy has been successfully followed in wind and can be easily replicated in solar. However, MNRE needs to lend transparency and certainty to the market by specifying very clearly – availability of funding, expected capacity allocation and process for allocating capacity. Again, we can derive useful learning from the wind experience where uncertainty in PPA execution in some states caused avoidable distress for project developers and lenders.
A location adjusted FiT structure may ensure a wider spread of solar projects across the country but at an additional cost. The central government will need to provide financial aid to states for buying more solar power or give its backing to the PPAs signed by the financially stressed state utilities.
Anti Dumping Duty (ADD) update
The Minister for Commerce and Industry Nirmala Sitharaman clarified in the upper house of India’s Parliament that an ADD between USD 0.11 to 0.81 is likely to be imposed on modules imported from China, Taipei, Malaysia and USA (‘subject countries’). The Ministry of Finance is evaluating the proposal (click here). The government indicated that the duties collected might go towards providing subsidy to projects affected by ADD. BRIDGE TO INDIA has maintained that ADD would cause significant damage to the Indian solar market. And any convoluted move to subsidise the affected projects is going to further distort the market and create a bureaucratic nightmare. See our popular infographic here.
Akhilesh Magal is a Consultant at BRIDGE TO INDIA.