The Indian solar sector has witnessed remarkable strides with the country’s international commitment for reducing its carbon footprint, the urge for energy security, limiting its dependence on fossil fuels and the most important dwindling tariffs of solar energy. As a result, the sector has enhanced its capacity from about 2.5 GW in FY14 to more than 20 GW at the end of FY18. The first quarter of calendar year 2018 has registered the installation of 3 GW of solar. According to Mercom India Research that tracks India’s renewable energy markets, this is the first time India has ever installed over 3 GW in one quarter.
The Government of India has ambitious target of achieving 175 GW of renewable energy by 2022. Out of 175 GW of renewable energy, 100 GW of installed capacity will be achieved from solar. In order to achieve this goal, the Indian government has set a target of auctioning at least 77 GW of additional solar power capacity by March 2020.
Going forward, recently the Ministry of New and Renewable Energy (MNRE) has recently amended the guidelines for selection of solar parks for developers or entrepreneurs. The MNRE has reduced the minimum capacity of a solar park to be developed by entrepreneurs to a mere 100 MW and have done away with the requirement that state has to off-take at least 20 per cent of power from the park, besides a host of other measures to bring transparency in the whole process. While taking note of this, Ankur Agarwal, Senior Analyst, India Ratings and Research (Fitch Group) says, “This is beneficial, considering that foreign players prefer a solar park over individual projects considering the complexities around land acquisition in India. Tax policy till now has also been favourable.”
This initiative has not only help in deflation of solar tariffs but also reducing developers’ time-delay uncertainties associated with land acquisition. This approach has been instrumental in driving economies of scale and procuring global capital flows into India over the last two years, with an immediate boon in the form of a halving of solar tariffs to a record low of Rs 2.44/kWh (US$39/MWh) achieved in mid-2017, states Kashish Shah, Research Associate of US-based Institute for Energy Economics and Financial Analysis (IEEFA) in his report.
According to Sunil Rathi, Director, Waaree Energies, aided by a significant amount of financing support from several commercial and multi-national investment banks, the sector is experiencing considerable growth and development. As a result, several companies are looking into rooftop installations as an investment option now, and this will only improve the prospects for the industry in the years to come.
Further, the government has rolled out incentives, such as generation-based incentives (GBIs), capital and interest subsidies, viability gap funding, concessional finance, fiscal incentives etc.
Long-term policies like RPO target creation, mandating solar installation facilities on buildings, enforcing net-metering etc have brought buoyancy in the solar sector.
Taking a note of these measures, Neha Agrawal, Head of Corporate Strategy & Rooftop Business, Vikram Solar, observes, “These initiatives have made Indian solar sector a lucrative market for investment, and encouraged developers as well as domestic manufacturing.”
Therefore, buoyed by the government’s congenial energy policies, the Indian solar sector is on a growth trajectory. Solar parks in India have recorded 103 per cent year-on-year growth by generating 8.54 billion kWh of electricity in the first quarter of 2018. It is reflected in IEEFA’s report on solar. It affirms that India has five out of ten the world’s largest utility-scale solar projects under construction (See Table 1). The country has further figured in world’s largest operational utility scale solar projects (See Table 2).
Earlier in 2016, India was on the forefront of commissioning the world’s largest solar project i.e. a 648 MW facility in Kamuthi, Tamil Nadu. However, in 2017, China took the lead with the commissioning of 1,000 MW Datang and 1,547 MW Tengger solar projects.
The IEEFA’s report further predicts that by early 2019, India is expected to complete work on a 2,225 MW facility at Bhadla in Rajasthan (about a third of this plant is already operational), a project that will let India regain the title of having the world’s largest solar installation. More is on the way: In April 2018, Chief Minister of Gujarat Vijay Rupani, announced plans for a 5,000 MW solar park covering 11,000 hectares along the Gulf of Khambha.
Cheap imported solar module or panel from China has steered the growth of Indian solar sector as India fulfils 90 per cent of its solar panels or modules requirement through imports from China. The main objective of domestic production of critical raw materials, components and modules under the government’s initiative of ‘Make in India’ was to reduce the cost of solar power generation.
However, experts believe, this initiative has a counter effect on the growth of solar industry. As per the MNRE estimates, although the country has installed capacity for producing 3.1 and 8.8 GW of cells and modules respectively, only 1.5 and 3 GW of the same are used respectively. Agarwal from India Ratings and Research opines that domestic manufacturers are around 20-25 per cent costlier than their international counterparts which leads to an overall cost escalation impact of 30-35 paisa per unit of solar power, forcing them out of the market, at least for large utility scale projects. In the latest Solar Energy Corporation of India (SECI) auction conducted in July 2018, quoted tariffs once again came down to Rs 2.44 per unit kind of levels, broadly around expectations that solar panel or module prices should come down in near future, considering announcement by China in end of May 2018 of slowing down on its solar power incremental generation capacity. But the proposed 70 per cent safeguard duty is a threat to these lower tariffs. If implemented, the duty will increase solar tariffs to Rs 3.3/kW, around 35 per cent higher than the lowest bid value of R 2.44/kWh discovered so far.
So, on one side is the government target to achieve 100 GW by FY22, and on the other is the domestic solar cell or panel or module manufacturing capacity. Ind-Ra affirms that the government should be walking the mid-way. Applying 70 per cent safeguard duty will not mean that domestic manufacturers will become competitive in one day, hampering the overall solar generating capacity target.
On the other hand, India can follow in the footsteps of its peer solar dominant countries like China, US and further explore its solar potential. China’s leverage in indigenous manufacturing of solar panels or module can help India on enhancing its domestic manufacturing capacity. Government support has given China leverage in the world market while easily meeting its own renewable energy targets.
Neha Agrawal from Vikram Solar says, “The country needs to focus on improving its domestic manufacturing capacity, solve policy issues, and invest in manufacturing capacity to realise new opportunities to reach 100 GW by 2022 target and beyond.”
One of the major hurdles that ail the sector is the lack of proper transmission and distribution infrastructure that enables proper evacuation of power from the source to the grid. Rathi, from Wa aree Energies suggests, the upgrading of T&D lines is of utmost importance, currently. Additionally, there is also a need to maintain grid stability when a large amount of intermittent solar power is injected into the grid.
“While UDAY has led to some betterment, at least in some selected states, issues like counterparty quality and delay in payments remain a concern, especially for plants that have bidded aggressively and have low margins for error,” opines Agarwal from Ind-Ra.
The government has taken initiatives such as capital subsidies, interest rate subventions and other supportive measures to solar cell or panel or module manufacturers in order to help the country’s journey towards becoming solar superpower. Agarwal from Ind-Ra states, these measures are better off compared to implementation of safeguard duty, which can derail the whole generation capacity addition target. Overall, we see that 100 GW by FY22 look quite possible, if government keeps it attractive for state DISCOMs to procure solar power, which is the case right now.
The vast range of initiatives and projects launched by the government is a clear indicator of India’s journey towards emerging as one of the largest green energy producers in the world. “Considerable momentum has been building up in the sector, as India moves towards its goal and continues the rapid transformation towards a global solar energy hub,” reiterates Rathi from Waree.
China tops among the list of nations having maximum installed solar capacity of around 140-150 GW. But India will be the fastest growing nation in the world for some years to come, especially after China slowing down on its plan of solar capacity addition. “Picture can be quite different 10 years down the line, when India can be among top 2-3 nations in terms of solar capacities installed,” concludes Agarwal from Ind-Ra.
By Supriya A Oundhakar