Solar Market Update – 1st Quarter 2012
Raj Prabhu, Managing Partner, Mercom Capital Group
After over two years of policy deliberations and growing
pains, India is finally seeing solar installations in meaningful numbers.
India’s solar market is primarily driven by the national government’s Jawaharlal
Nehru National Solar Mission (JNNSM) with a goal to install 20 GW of solar
power by 2022, in addition to other state policies. The state of Gujarat has
already installed 655 MW of its 968.5 MW goal. At the time of this update,
cumulative Indian PV installations stood at 964 MW of which 745 MW has been commissioned so far in 2012.
But it is not all sunshine coming out of India. Most
states are emulating the JNNSM bidding - or reverse auction - model driving
down solar tariff rates to some of the lowest worldwide. The Indian State of
Orissa recently recorded a record low bid of Rupees 7.00 ($0.14)/kWh for their
program. While most bidders are actually ‘betting’ that the cost of panels will
keep dropping at a significant pace to make a project viable (if it is built in
the furthest date possible), the low rates are contributing to financing
Under JNNSM, 48 MW were installed under the Migration
Scheme with 6 MW considered to be canceled. 125 MW have been installed to date
under Phase I, Batch I. However, there are 140 MW worth of power purchase
agreements (PPA) signed, meaning 15 MW have yet to be completed. The delayed
projects are a result of funding, infrastructure and implementation issues. We
are starting to see a common theme, whereby extensions are granted in order for
projects to get installed on time.
Gujarat state announced completion of 655 MW of PV projects after about three
months of delays and granted extensions, making up the majority of solar
installations in India. There are still approximately 314 MW of delayed projects in the state
expected to be commissioned at some point this year. These projects will
receive reduced tariffs.
Other PV installations include: 67.5 MW from JNNSM - Rooftop PV
& Small Solar Power Generation Program (RPSSGP) projects, 14 MW from the Ministry of New and
Renewable Energy (MNRE) demonstration program, 40 MW from Rajasthan’s state
policy and 15 MW from other programs.
The bidding system is leading to other challenges, the
biggest being financing. India’s reverse auction together with inexperienced
project developers has resulted in some of the lowest solar tariffs in the
world. In fact, some of the latest winning bids in the states of Karnataka and
Orissa came in lower than the proposed tariff cuts by Italy and Germany. It
took Germany, the most successful solar market in the world, almost 25,000 MW
of cumulative installations, all the benefits of economies of scale, mature
supply chain and expertise to get to the current level of tariff.
Aggressive bidding has made funding even more challenging
as margins become thin or non-existent. Not to mention, borrowing costs in
India can be double its Western counterparts at about 13 to 15 percent compared
to six to eight percent in Europe and the United States. With low tariff rates,
much higher borrowing costs, and a severely depreciating Indian Rupee, currency
hedging can be risky and expensive, creating a triple threat for developers.
Under these conditions of severe price pressure, inexperienced developers may
start taking short cuts in an attempt to find the cheapest way to execute their
projects, raising the question of quality and longevity. Will these projects be
of a quality that will last for the next 25 years?
The State Bank of India also recently announced that they
have limited resources to lend to solar developers, due to the fact that
lending to other power sources, such as coal projects, have pushed them close
to their 15 percent lending cap to the power industry. They are not the only
ones – all Indian state banks have the same limitations. Unless renewable
energy is separated from traditional power sources such as coal, this will be a
Larger companies that try to get in the ‘solar game’ can
leverage their balance sheets to have a better chance at financing terms.
However, even these companies have found it challenging to raise non-recourse
loans because banks see new technology, inexperience, execution, etc. as risks
that are not aligned with rewards, as aggressive bidding is leading to low or
According to Mercom Capital Group’s 2011 Annual Solar
Funding Report, the main lenders are coming from export
banks, government banks and state banks like the U.S. Export-Import Bank,
Export-Import Bank of India, KfW Group of Germany, State Bank of India (SBI),
Asian Development Bank (ADB), International Finance Corporation (IFC), Overseas
Private Investment Corp. (OPIC), PNC Bank, State Bank of Patiala, State Bank of
Travancore and others.
on Various India State Policies
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 will be canceled as two project developers failed to execute the
Batch 1 –
PPAs for Batch 1 projects were signed on January 10, 2011 for 620 MW (140 MW-PV,
470 MW-CSP). 125 MW have been installed and 15 MW are yet to be completed. CSP
projects are due to be commissioned by May 2013.
Batch 2 – Project
developers for 340 MW of the 350 MW allocated have signed PPAs according to NTPC
Vidyut Vyapar Nigam Ltd. (NVVN), the sole off-taker of grid-connected solar
power under JNNSM, with one of the winning bidders failing to qualify. These
projects are due to be completed in March 2013.
Phase II policy announcements are expected to be made
around September or October 2012 by MNRE. There is a possibility of 3,000 MW to
9,000 MW allocated under Phase II.
At the time this article was written, 655 MW have been
installed under the Gujarat state solar policy, with 314 MW delayed with a revised December 2012
deadline. These 314 MW projects will
receive newly announced 2012 tariffs which are about 30 percent lower compared
to 2011 tariff levels.
Though Gujarat announced tariffs for 2012-2015, it has
not announced any targets or goals for installations.
Karnataka recently concluded bidding for 80 MW of solar
(PV-60 MW, CSP-20 MW). The average bid for PV projects came to Rupees 8.37 ($0.17)/kWh,
one of the lowest solar tariff rates in India.
Rajasthan has postponed the date to bid for 200 MW solar
projects until at least August. No reasons were given for the delay.
Orissa recently auctioned off a 25 MW PV project for Rupees
7.00 ($0.14)/kWh, the lowest recorded bid in India.
The Tamil Nadu Energy Development Agency has submitted a
draft solar energy policy to the state government. According to our sources, a solar policy
might be announced at any time. On a side note, Tamil Nadu has been notorious
for non-payment of tariffs owed to wind power companies.
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.