By: Raj Prabhu, Managing
Partner, Mercom Capital Group
There was not a lot of movement in terms of solar
installations in India in Q3 2012. Cumulative solar installations stood at 1,045
MW as of November 1, 2012, but there are about 1.1 GW of solar projects that
are due to be installed in the next six months, including approximately 275 MW
of PV projects in Gujarat with a deadline of December 31, 2012 and 340 MW of PV
projects under the Jawaharlal Nehru National Solar Mission (JNNSM), due by March
2013. Another 27.5 MW of CSP projects, which were part of the JNNSM Migration
scheme, are due by February 2013 along with 470 MW of JNNSM Batch II CSP
projects are due by May 2013.
The market is eagerly waiting for the Phase II policy
announcement which is due sometime towards the end of the year according to the
Ministry of New and Renewable Energy (MNRE).
A recently released draft tariff determination for
2013-14 by the Central Electricity Regulatory Commission (CERC) gave a general
sense of where tariffs are headed in the next phase. CERC’s draft indicated a
starting bid of Rs. 8.75 (~0.18)/kWh for PV projects (Batch II projects were
The chart below gives a good idea of the evolution of
tariffs under the JNNSM bidding program over the last three years, and based on
that history we have made assumptions as to potential bid results in Phase II.
A point to note here is that starting bids are just a starting point whereas actual
bids have ended up almost 30-50 percent lower. Using Batch II bids as an
indicator, we are looking at Phase II bids to end up in the ~$0.10-$0.12/kWh
range, some of the lowest in the world. The Indian tariff drops are driven
mainly by aggressive bidding (although record low panel prices help). We
believe it will be difficult for India to sustain such a rapid drop in prices
without the market fundamentals in place and without compromising on quality, a
point we have made before and are making again. For example, to get to its
current level of tariffs, it took Germany, the most successful solar market in
the world, over 30,000 MW of cumulative installations, all the benefits of
economies of scale, and a mature supply chain.
Should India implement a domestic content policy in Phase
II, something that has been constantly discussed, it will make it all the more
difficult to execute projects successfully at these low tariff levels.
The CERC draft tariff
determination is based on total project capital cost of about $1.6 million (Rs.8
Crore) for a 1 MW PV project. Other important assumption is a 13 percent
borrowing cost based on a 70:30 debt-to-equity ratio.
At the recently concluded Renewable Energy Conference in
New Delhi, project developers seemed very interested in the REC scheme because
of the challenges of low tariffs and domestic content requirements under the
JNNSM program. A note of caution here is that even though there is a floor
price on RECs which are more attractive than some of the bids we are seeing for
JNNSM, the price visibility is only for a few years, making a 25 year project much
riskier. The other factor is that the REC mechanism is heavily dependent on RPO
enforcement. Recent news suggests RPO goals for 2012 will be missed by about 30
percent, even though MNRE officials are talking about stricter enforcement and
fines, it is still unclear if that will work. In India it will be one arm of the
government fining the other - will that be effective? Most state utilities are
heavily in debt and depend on the central government subsidies to survive.
There will have to be some tough choices made and a solid foundation laid in
terms of raising tariffs for consumers to reflect current costs and getting the
utilities back in the black for some of these policies to be effective.
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 were 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 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. MNRE is currently
consulting with various industry groups for input before finalizing the policy.
It looks like Phase II projects will also be broken down into batches. A special
emphasis will also be placed of rooftop projects and to further streamline the
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 what it calls a “solar purchase obligation” (SPO) which will mandate
a six percent SPO requiring a total of 1,000 MW to be generated by 2015.
A word of caution: Tamil Nadu is notorious when it comes
to payments and has struggled to pay wind developers over the years. With such
a poor credit history, it may be difficult to get projects financed under the Tamil
Nadu state policy and will be deemed very risky without strong payment
guarantees in place.
There is not much movement in Gujarat by way of installations;
690 MW of solar projects have been installed under the Gujarat state solar
policy, with 279 MW delayed. These 279 MW projects will receive reduced 2012 tariffs,
which are about 20 percent lower compared to 2011 tariff levels. There are no
new plans or policy announcements expected anytime soon.
The Orissa Renewable Energy Agency (OREDA) auctioned off
a 25 MW PV project for Rs 7.00 ($0.14)/kWh, the lowest recorded bid in India. OREDA
has called a tender to develop another 25 MW of PV projects with a bid deadline
of November 15, 2012.
The Madhya Pradesh Power Management Company, the holding
company for all DISCOMs 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 RPO obligation of 255 MW by 2014.
Andhra Pradesh is planning to accept bids for 1,000 MW of
solar projects in about one month’s time. The project size is reported to be 5-10
MW each. According to state officials, more details on this program should be
coming out within the next few weeks from the time of writing this article.
Chhattisgarh recently announced a solar policy with the
goal to develop 500-1,000 MW of PV projects by 2017. According to the state,
projects can sell power to energy exchanges or other states directly.
The government of West Bengal is planning to call a
tender between December and January for 40 MW of PV projects to fulfill its RPO
obligations. The tender is scheduled to be finalized by March 2013.
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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