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By: Raj Prabhu, Mercom Capital Group
For a Jawaharlal Nehru National Solar Mission Fact Sheet: Click Here
India installed -980 MW in
2012, slightly lower than our forecast of 1,090 MW. This was largely due to
delays in Gujarat to commission 144.5 MW of PV projects; most states missed
their renewable portfolio obligations (RPO) goals as enforcement is almost
non-existent. Cumulative installations to date in India now stand at over 1.2
GW. In addition, there are 340 MW of PV projects due to be connected to the
grid in March 2013 under the Jawaharlal Nehru National Solar Mission (JNNSM)
Phase I, Batch 2 policy. We are forecasting India to install another 1.3 to 1.4
GW in 2013.
 Indian solar appeared to
have some momentum until it initiated an anti-dumping investigation against
China, Malaysia, Taiwan, and the U.S. relating to the importation of solar
cells. The investigation is based on alleged dumping of solar modules by these
countries into India. The complaint was filed by solar manufacturers in India with
the goal to protect domestic manufacturers that are struggling along with most
PV manufacturers around the globe. For a solar market still in its infancy, starting
a trade war could become a costly distraction when the focus should be to
encourage new technologies, competition and free markets. The U.S. just announced
that it has requested World Trade Organization (WTO) dispute settlement
consultations with the government of India concerning domestic content
requirements in India’s national solar program. The U.S. states that India’s
program appears to discriminate against U.S. solar equipment manufacturers by
requiring developers to use Indian-manufactured solar cells and modules by
offering subsidies to developers that use domestic equipment instead of imports.
The trade dispute is sure to
add unwanted uncertainty to the young Indian market where financing is already
a challenge as it is, and would make investors further skittish. It is surprising that a country with approximately 300-400
million people without power, about 9 percent power deficit and about 10 percent
peak power shortage, has decided to go this route instead of an “all of the
above policy” to meet the power requirement goals.
What
to expect in Phase II?
The Ministry of New and Renewable Energy (MNRE) recently
proposed a draft Phase II policy and opened it up for comments. Phase II would
have a target of achieving 3,000-9,000 MW of solar power through various
batches as previously seen in Phase I.
 The Phase II policy intends to take an aggressive
approach to domestic manufacturing and “domestic content requirements”. Some of
the policy proposals include: cells and modules produced in India to be used for
all PV projects, price preference for domestic manufactured cells and modules, percentage
of domestic content (~50 percent) for both PV and thermal technologies, percentage
of cells manufactured in India, some batches with 100 percent domestic content
requirement, and 50 percent of supply costs (excluding land, taxes, erection,
financing, soft costs) for thermal technologies material to be manufactured in
India.
The other new proposal is the Viability Gap Funding (VGF)
which may end up being applied to most of the projects. Under VGF, developers
will sign a Power Purchase Agreement (PPA) for 25 years to sell power at a
fixed tariff, likely in the Rs.5.5-6/kWh (~$0.10-0.11/kWh range) to the
utilities. The developers are supposed to determine their capital costs to set up
the project, raise the necessary debt and equity, and bid for the VGF
requirement to cover the gap in funding. A pretty risky approach considering
how new solar is to India. According to MNRE, bids will be thoroughly inspected
to discourage aggressive bidding and avoid sacrifice of project performance
over the long term. MNRE has proposed a phased payout – 25 percent at the time
of delivery of at least 50 percent of the major equipment at the site, which
would be based on the cost of total procurement, 50 percent on successful
commissioning of the full capacity of the plant, and the balance of 25 percent
after one year of operation meeting the required generation. VGF could cover up
to 40 percent of the project cost.
 What remains to be seen, is how this will work out in the
final policy. With borrowing costs in India in the 13-14 percent range and no
technical requirement (anybody can bid) in India; banks consider most of these
projects too risky to finance. The government now sees JNNSM as a
public-private partnership. If the policy goes in this direction, solar in
India will soon start to resemble other infrastructure/conventional energy
projects that haven’t been so successful thus far.
Update
on Various India State Policies
JNNSM
- Phase I
Migration - PPAs for Migration projects were
signed on October 15, 2010 for 84 MW (54 MW-PV, 30 MW-CSP). Among Migration
projects, 48 MW have been commissioned out of 54 MW, and 6 MW were canceled as two
project developers failed to execute. 27.5 MW out of 30 MW of CSP projects that
were due to be commissioned by mid-February 2013 will be canceled; only a 2.5
MW CSP project was commissioned.
Batch 1 – PPAs for Batch 1 projects were signed
on January 10, 2011 for 610 MW (140 MW-PV, 470 MW-CSP). PV projects were due to
be installed by January 9, 2012. 130 MW have been commissioned (several were
delayed for months and fined) and 10 MW have been canceled as two project
developers failed to execute. 470 MW of CSP projects are due to be commissioned
by May 2013. Extensions of 6-12 months have been requested for these projects due
to execution difficulties. We confirmed with MNRE that there will definitely be
a delay in these CSP projects being commissioned.
Batch 2 –
Project developers for 340 MW of the 350 MW allocated have signed PPAs with one
of the winning bidders failing to qualify. According to MNRE, 35 MW have
already been commissioned and the rest are due to be commissioned by March 5,
2013.
JNNSM
- Phase II
Phase II policy announcements by MNRE were expected to be
made by the end of 2012. The announcement was postponed until April 2013 but
indications are that the announcement will be further delayed. The target for
installations under Phase II is a wide range between 3000-9000 MW, which would
include different models like VGF and bundling of power. It also looks like
most of the projects might come under the newly proposed VGF scheme.
Tamil
Nadu
Tamil Nadu is proposing a goal of 3,000 MW of solar power
by 2015 through utility-scale and rooftop projects. The state is also
introducing a solar purchase obligation, (SPO) which will mandate a six percent
SPO, requiring a total of 1,000 MW to be generated by 2015.
Tamil Nadu announced a 1,000 MW tender in December 2012
for solar projects of which the qualifying bids only amounted to 494 MW. There
was a wide range of bids, with the highest bid at Rs.17.95 (~$0.34)/kWh and the
lowest bid at Rs.5.97 (~$0.11)/kWh. Bidding for the remaining 506 MW of PV
projects will be announced after current bids are approved and construction
begins.
 Gujarat
Out of the 968.5 MW announced under the Gujarat state
policy in 2010, 824 MW have been commissioned as of 2012. Of the 144.5 MW
pending, 60 MW of PV projects are under various stages of construction and the
state is determining if there will be further penalties imposed for missing the
December 2012 deadline. The other 84.5 MW of projects are facing the threat of
being cancelled. Gujarat has no policies coming up in the foreseeable future.
Gujarat was the only state that went with the feed-in-tariff
route, which was much more lucrative compared to JNNSM and other state programs.
Yet more than a year after the deadline, projects are still struggling to
complete.
Orissa
The Orissa Renewable Energy Agency (OREDA) recently auctioned
off a 25 MW PV project for Rs.7.28 ($0.15)/kWh. OREDA will soon call a tender
to develop another 25 MW of PV projects. The state is scheduled to announce a
new solar policy in the coming weeks.
Madhya Pradesh
The Madhya Pradesh Power Management Company, the holding
company for all DISCOMs (government utilities) of Madhya Pradesh, has signed
PPAs for 225 MW of PV projects with five project developers under a reverse
auction mechanism, and another 50 MW with National Thermal Power Corporation
(NTPC). The winning bids were between Rs.7.90 (~$0.14)/kWh and Rs.8.05 (~$0.14)/kWh.
These projects will help the state meet its renewable purchase obligation of
255 MW by 2014 and there are no plans to announce any new projects or policies
in the near future.
Andhra
Pradesh
Andhra Pradesh announced bids for 1,160 MW of solar
projects in December 2012. The project size is reported to be 5-10 MW each. The
last date for submitted bids has been extended to February 15, 2013.
Chhattisgarh
Chhattisgarh recently announced a solar policy with the
goal to develop 500-1,000 MW of PV projects by 2017. Projects amounting to 225
MW are pending PPAs, which are scheduled to be signed in a month.
West
Bengal
Based on our recent conversation, West Bengal is only
focusing on rooftop and off-grid projects and they are not sure when they might
have a policy framework developed around this.
Maharashtra
Maharashtra State Power Generation Company Limited (MahaGenco)
currently has 150 MW of PV projects under construction due to be commissioned
in March 2013. There are plans to announce another 100 MW of projects soon.
Bihar
Bihar introduced an RPO for 2013 for 50 MW of PV projects
of which a PPA was signed for 3 MW. PPAs for the balance of 47 MW will be
signed by the end of February.
About
Mercom Capital Group
Mercom Capital Group, llc is a clean energy
communications and consulting firm with offices in the U.S. and India. Mercom
consults with its clients on market entry, strategy, policy, due-diligence and
joint-ventures. For more information, visit: http://www.mercomcapital.com. To
get a copy of Mercom’s market intelligence reports, visit: http://mercomcapital.com/market_intelligence.php.
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