Time for a Reality Check: Status of India’s Solar Energy Industry

Time for a Reality Check: Status of India’s Solar Energy Industry

By Naveen Kumar, SEMI India

It is time for a reality check after the recent announcements from the Government of India and PV Panel Imagethe industry-at-large leading the world to believe that India would be on an exponential growth drive in the renewable energy landscape (solar energy).

Many companies are committing: a $4 billion investment announced by the Adani Group and SunEdison in setting up an integrated solar PV manufacturing facility at Gujarat State; plus a plethora of MW scale commitment from various entities in Solar and other Renewable Energy space.  SunEdison stands out with the highest commitment of 15,200 MW among all entities announced at the RE-INVEST 2015 expo organized by MNRE.

India still has considerable work to do in terms of solar energy adoption to counter its burgeoning energy needs, which stands at ~ 1 percent of its installed generation from all sources, about 4.1 GW of utility scale solar as on May 2015. India is expected to break into the global “top 5” of solar installations with the country expected to have capacity addition of 2.7 GW, which is ~ 250% growth in 2015 overtaking Germany in terms of new capacity additions.

As much as there are opportunities, there are critical issues and challenges that the industry continues to face, which are:

  • Grid infrastructure and its ability to accommodate a high share of renewables
  • Poor financial health of Power Distribution Companies (DISCOMs)
  • Land acquisition issues for the construction of utility scale solar parks
  • Availability of favourable debt financing

According to Bridge to India, India is expected to add 24 GW of utility scale solar PV capacity in the next four years, until 2019. Roof top solar is however slow to catch up in India with an installed base of 350 MW, which is less than 10 percent of total installed solar capacity. Riding on the industry favourable policies introduced by the Government of India in the last 12 months, roof top solar seems to have reached grid parity as grid tariff generally rise at about 5-10 percent annually across India. Commercial and industrial consumers in 12 states have reached grid parity whereas Residential consumers do not have grid parity in any of the states.

Some of the major policies favouring roof-top adoption are:

  • Capital subsidies
  • Accelerated depreciation

Solar Panel Image Though the first policy seemed to have failed on account of poor implementation and lack of or untimely availability of funds, the latter is expected to spur further growth and may be in force until March 2017. In future, this would be augmented with greater provisioning of debt financing and expanding net-metering mechanism across the country for sustaining growth in solar adoption. While the Central Government is working with monetary agencies like Asian Development Bank (ADB), World Bank & KfW, a Development Bank based in Germany, for providing financing support in the form of interest rate subvention, the various State Government are making net metering implementable for roof-top solar installations across the country. Some percentage of growth in roof-top solar installations could be attributed to Accelerated Depreciation (80 percent in the first year equivalent to 25 percent of the capital cost) available to profitable corporate entities.

So what are the issues and challenges going forward?

  • Availability and cost of debt finance: Despite the proposed interest rate subvention scheme and recent announcement on treatment of renewables as a priority sector for lending, debt appetite for rooftop solar projects including availability and cost of debt is expected to be a key challenge as the banks and other lending institutions are still not prepared to assume risks in this sector with non-recourse finance availability still eluding roof-top solar projects.
  • Quality concerns: The rooftop solar market in India very competitive, and excessive cost pressure and poorly trained technicians often lead to poor quality of installations.
  • Legal enforcement of contracts: The legal enforceability of contracts in India is not very robust. The problem is more pronounced for solar, with long pay-back period and PPA contracts of over 20 years.
  • Stability of grid tariff over long term: The unpredictable nature of the movement of grid tariff over long term often leads to speculation and deadlock in negotiation between the consumer and the developer. Though some lenders have a good view on the grid tariff over the long term, pegging the contracted tariff with the grid tariff is not seen as bankable.
  • Credit rating of consumers: Absence of credit rating or poor credit rating of consumers is presenting huge challenges in securing debt finance from lenders for solar projects.

India’s ambitious national solar program has catalyzed rapid growth in the solar market, driving prices for solar energy to impressive lows and demonstrating how government policy can stimulate clean energy markets. In only two years, competitive bidding under India’s National Solar Mission drove prices for grid-connected solar energy to nearly the price of electricity from fossil fuels, at Rs. 7.49/kWh ($0.15/kWh). During that same period, cumulative installed solar capacity in India surged from 17.8 MW to over 500 MW.

Recent Announcements

India Plans Tax-Free Bonds to Fund Renewable Energy Projects

The Indian government, through its enterprises, is planning to raise funds by issuing tax-free bonds for renewable energy projects. At least three government-owned organisations — Power Finance Corporation (PFC), Rural Electrification Corporation (REC), and Indian Renewable Energy Development Agency (IREDA) — will raise more than $600 million through tax-free bonds. The entities will use the funds raised to provide low-cost finance to renewable energy project developers. According to media reports, these entities will provide finance at 10.5 percent, which is comparatively cheaper than the rates on offer by the Indian banks. PFC will use the raised funds specifically to finance solar power projects.

Adani Power Signs 10GW Solar Power Park Deal in India

Adani Power, one of the leading private power generation companies in India, has signed an agreement to set up the country’s largest solar power park. It has entered into an agreement with the state government of Rajasthan to set up a 10 GW solar power park, with the entire capacity expected to be based on photovoltaic technology. The government and the company have now set up a 50:50 joint venture, Adani Renewable Energy Park Rajasthan, for the purpose of setting up the power plant.

The total investment for setting up the project is estimated at around $9 billion. The integrated solar park will have solar module manufacturing units in addition to the power generating units. 

Union Cabinet Approves Raising Solar Power to 100,000 MW

In a major decision to boost use of clean energy in India, the union cabinet on Wednesday decided to quintuple solar energy capacity under the National Solar Mission towards achieving 100,000 MW by 2022. "In an important decision, the Cabinet Committee on Economic Affairs (CCEA) decided that solar power capacity in the country is to go up five times to 1 lakh megawatt by 2022," Telecom Minister Ravi Shankar Prasad told reporters here while briefing them on the cabinet meeting. "This is a giant step and India will become the biggest producer of solar power in the world," he added. Before formally accepting the new target, the Ministry of New and Renewable Energy (MNRE) was asked to come out with an action plan. This now seems to be ready and a summary can be seen in the official press release.

Describing how the ambitious project had elements like many solar projects and grid-connectivity for roof-top solar power, Prasad said an investment of Rs. 600,000 crore (~$95 billion) is being envisaged till 2022. "The government of India is providing Rs. 15,050 crore (~$2.4 billion) as capital subsidy to promote solar capacity addition in the country," Prasad said. "The ministry of new and renewable energy intends to achieve the target of 100,000 MW with targets under the three schemes of 19,200 MW," the cabinet communique said. "Apart from this, solar power projects with investment of about Rs. 90,000 crore (~$14 billion) would be developed using bundling mechanism with thermal power," it added. The CCEA also approved setting up of over 2,000 MW of grid-connected solar projects on build, own and operate (BOO) basis under the Jawaharlal Nehru National Solar Mission.

SoftBank to Invest $20 Billion along with Foxconn & Bharti for Green Energy

Japan's SoftBank, Bharti Enterprises and Taiwan-based Foxconn Technology Group announced a joint venture that will invest $20 billion over 10 years in renewable energy projects, marking the single biggest investment commitment in India after the Narendra Modi government took over last May. SoftBank will own a majority stake in SBG Cleantech while Bharti and Foxconn will take minority holdings, subject to certain conditions. The venture will bid for projects across various states and look to play a role in meeting Prime Minister’s Modi's target of generating 100GW from the sun and 60GW from wind by 2022.

 “Our eyes are trained on India, given the vast potential that the country offers,“ Masayoshi Son, chairman and CEO of SoftBank, said in a joint statement. “We have already made considerable investments in the technology sector here. With this partnership, our goal is to create a market-leading clean energy company, to fuel India's growth with clean and renewable sources of energy.”

The Grid
June 24, 2015