Raj Prabhu, Managing Partner, Mercom Capital Group
India has crossed the symbolic milestone of 1 GW in
installations this year; at the time of this update, cumulative solar
installations in India stood at approximately 1,040 MW. India can proudly boast
that it has overcome the uncertainties and growing pains to establish itself as
one of the top solar markets going forward. The Indian solar market is driven
by Jawaharlal Nehru National Solar Mission (JNNSM) with a goal to install 20 GW
of solar power by 2022, however state solar policies, state level RPOs and off
grid projects are quickly catching up.
The JNNSM uses a reverse auction or bidding system to
select projects – the lowest bidder wins. Currently, there are no technical qualification
requirements and participants don’t need any prior solar project development
experience to win a bid. The combination of the lack of technical requirements
and bidding process has driven solar tariffs to some of the lowest rates in the
world ($0.14 - $0.16), creating one of the most challenging business
environments for solar.
While most Indian states have followed the lead of JNNSM
in terms of policy and guidelines, the state of Gujarat decided to go the
feed-in-tariff route. A total of 830 MW have been installed year-to-date (2012)
of which 585 MW were installed in Gujarat.
are we now
Even with achieving the milestone of 1 GW in
installations, the Indian solar industry still faces multiple challenges.
Gujarat’s feed-in-tariff program is by far the most lucrative solar program in India.
Still, it is struggling to reach its goal of installing 968 MW – all of which
were to be originally commissioned by December 31, 2011. After multiple
extensions, the remaining 279 MW are expected to be installed by the end of
JNNSM is also struggling to reach its own goal of commissioning
1 GW under Phase 1, the main reason being that the 1 GW was divided evenly
between PV and CSP. According to the Ministry of New and Renewable Energy (MNRE),
CSP project developers are now asking for a 6-12 month extension to complete
their projects citing non-availability of heat transfer fluid due to limited suppliers
with huge wait times. The extension is unlikely to happen. According to our conversations
with the joint secretary of MNRE, “the issue is under consideration but an extension
is unlikely as they were already given three years to complete the project.”
These CSP projects range from 10 MW to 100 MW in size totaling 500 MW. It
remains to be seen how long these projects will be delayed or if they will be commissioned
at all. When the initial JNNSM policy came out, one of Mercom’s recommendations was to let the markets decide, instead
of the government “picking the technology.” The challenges that CSP pose for
India are numerous – India needs to avoid splitting projects 50:50 in the next
phase, which would likely double the size of the market for PV projects.
Rajasthan, which has one of the best solar resources in
India, has decided to postpone its 200 MW solar program due to funding and
execution issues. While payment delays have also been reported, MNRE has
assured developers that NVVN will make these payments and clear the back log as
soon as possible.
There are also external factors in India challenging its solar
industry, namely high inflation and consequently high interest rates, slowdown
in GDP growth, a severely depreciated rupee and relentless corruption scandals.
Low bids with high interest rates in the range of 13-15% make it challenging to
borrow in India (most Indian banks look at these projects as risky) and
successfully execute a quality project that can last 25 years.
India is and will be a huge market for solar for a long
time to come as long as the government takes the approach that solar is a long-term
strategic investment and creates policy and financial instruments to help
support the industry until it can self-sustain. Conventional energy sources in
India have never been able to deliver as India continues to suffer from power
deficits from shortages of coal (domestic shortages and expensive imports), and
hydro generation, which remains dependent on monsoons that continue to weaken
year after year.
on Various India State Policies
- 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 have been canceled
as two project developers failed to execute. 27.5 MW out of 30 MW of CSP
projects are due to be commissioned by mid-February 2013.
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. It is not yet clear if these projects will be
granted extensions or will be successfully completed.
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 all 340 MW PV projects
have achieved financial closure. These projects are due to be commissioned in
- Phase II
Phase II policy announcements by MNRE are expected to be
made by the year end, with a target of 3,000 MW of grid-connected solar
projects and about 6,000 MW or more through solar-specific RPO schemes.
690 MW of solar projects
have been installed under the Gujarat state solar policy, with 279 MW delayed.
These 279 MW projects will receive newly announced 2012 tariffs (levelized
tariff for 25 years is Rs.10.37 (~$0.19)/kWh for PV projects) which are about 20
percent lower compared to 2011 tariff levels.
Though Gujarat announced
tariffs for 2012-2015, it does not have any plans to announce any targets or
concluded bidding for 80 MW of solar (60 MW-PV, 20 MW-CSP). The average bid for
PV projects came to Rupees 8.37 ($0.17)/kWh, one of the lowest solar tariff
rates in India, and the average bid for CSP projects was Rupees11.13 (~$0.20)/kWh.
There are no updates as to whether PPAs were signed or if financial closure was
reached. The Karnataka Renewable Energy Development Agency has also submitted
recommendations to the state to develop 1,000 MW of solar energy in five years
or 200 MW per year.
The state of Rajasthan has postponed the date to bid for
200 MW of solar projects indefinitely.
The Orissa Renewable Energy Agency (OREDA) auctioned off
a 25 MW PV project for Rupees 7.00 ($0.14)/kWh, the lowest recorded bid in
India. OREDA plans to call a tender to develop
another 45 MW in the next few weeks.
Madhya Pradesh Power Management Company Limited has recently
signed PPAs for 225 MW of PV projects with five project developers under a
reverse auction mechanism. The winning bids were between Rupees 7.9 (~$0.14)/kWh
and Rupees 8.05 (~$0.14)/kWh. Madhya Pradesh also recently announced a solar
policy to fulfill its RPO obligations (88 MW for 2011-12 and 158 MW for
2012-13), also through a bidding process.
Maharashtra State Power Generation Company Limited
(MahaGenco) has 150 MW of solar power projects under development by three
companies. Future plans to develop a 100 MW project in Usmanabad district, 25 MW
in Parbhani district and 125 MW in Yavatmal district are in very early stages
Based on RPO policy, the state is targeting 300 MW of
solar power projects to be developed in the near future.
The Uttar Pradesh New and Renewable Energy Development
Agency recently released its draft solar policy. The state has set a goal to
achieve 1,000 MW of solar installations by March 2017. The draft was to be
submitted for cabinet approval on September 11, 2012 and may take another month
or more for the policy to come into effect.
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
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