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India Solar Map September 2017 

India’s total utility scale solar capacity reaches 16.2 GW by September 2017, 7.5 GW installed in last four quarters.


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NLC India Limited, a government of India owned coal mining company, recently completed auction for a 20 MW solar project integrated with 28 MWh storage capacity in Andaman & Nicobar Islands. This is the first utility scale storage tender in India to announce results. The tender includes provision of complete EPC and O&M services for twenty-five years. Mahindra Susten won the auction with a final all-in price of INR 2.99 bn (USD 46 mn).

  • Replacement of diesel fired power is the most obvious application for solar cum storage plants both commercially and environmentally;
  • Large variation in bid prices suggests inconsistent understanding of technical specification amongst bidders;
  • Utility scale storage adoption in India is expected to be slow as DISCOMs are highly cost sensitive and lack awareness of its technological potential;

There have been four other utility scale storage tenders in India until now by Solar Energy Corporation of India (SECI) and NTPC in the states of Andhra Pradesh, Karnataka and Andaman & Nicobar Islands respectively. But all these tenders, with aggregate capacity of 35 MWh, have been scrapped without any reasons being given.

Andaman & Nicobar Islands is a group of islands in the Bay of Bengal with a total population of 400,000 and aggregate peak demand of 67 MW. The islands get their power mainly from diesel gensets and replacing them with integrated solar cum storage plants is highly desirable from an economic and environmental perspective. As seen in the US, Australia and elsewhere, replacement of diesel fired power is the most obvious application for solar cum storage plants. High cost of storage is not a deterrent because of the very high cost of diesel fired power of about INR 15/ kWh (USD 0.23).

The NLC tender has fairly stringent technical specification with performance warranties and associated penalties for full 25-year duration of the contract. Despite that, the auction received an enthusiastic response from players across the solar (Mahindra, Adani, Hero, Sterling & Wilson and Ujaas, amongst others) and storage (Exide, BHEL) spectrum. There was a huge variation in prices particularly for the EPC component – ranging from INR 1.79 bn for Mahindra Susten to INR 3.42 bn for Hero – suggesting inconsistent understanding of technical specification. SECI’s storage tenders have also faced this problem in the past with bidders struggling to interpret technical requirements.

It is encouraging to see this tender progress but as we stated in a recent note, India is doing very little to capture energy storage opportunity. The underlying problem is a mix of high cost sensitivity and lack of awareness about technical potential of storage. DISCOMs believe that they can use a mix of power cuts and curtailment to balance power demand and supply rather than committing to the use of expensive storage solutions. Our view is that storage will need 3-4 years of techno-commercial advancements before finding scale in India.


Solar Energy Corporation of India (SECI) completed a 1,000 MW wind project auction last week. Tariffs fell to a new low of INR 2.64 (US¢ 4)/ kWh. Winning bidders include ReNew (INR 2.64, 250 MW), Orange Power (INR 2.64, 200 MW), INOX Wind (INR 2.65, 250 MW), Sembcorp Green Infra (INR 2.65, 250 MW) and Adani (INR 2.65, 50 MW).

This auction comes 7 months after the first wind auction in India when tariffs were observed to be around INR 3.46 (US¢ 5.3)/kWh, implying a price reduction of 24% in a relatively short time.

  • Parity in prices means that there is likely to be further alignment between wind and solar power procurement policies and regulations;
  • The main reason for the reduced tariffs is simply increased competition;
  • Rapid reduction in tariffs makes wind power more attractive but also increases dissonance risk for DISCOMs who have agreed to previously pay much higher feed-in-tariffs;

Developers will sign 25-year, fixed price PPAs with SECI, which will in turn sell power to DISCOMs in Uttar Pradesh, Bihar, Jharkhand, Assam and Goa. The developers are free to locate projects anywhere in India and connect to the more reliable inter-state transmission network.

Fall in tariffs makes wind power competitive with solar power (last auction tariff of INR 2.64/ kWh in Gujarat last month) and significantly cheaper than other greenfield sources including thermal, hydro and nuclear. It helps in boosting growth prospects of wind power, which has been struggling vis-à-vis solar power. Wind capacity addition in FY2017-18 is expected to slow down to a mere 1,000 MW or even less in comparison to 5,300 MW of capacity addition in FY2016-17. Price parity also means that there is likely to be further alignment between wind and solar sectors in procurement policies and regulations.

With inter-state transmission charges waived until December 2019, resource rich states in western and southern India can continue to build more capacity to supply power to inland states in north, east and north-east (mainly Punjab, Haryana, Uttar Pradesh, Bihar and West Bengal). Hopefully, cheaper power will pave way for more demand from these states as they continue to lag behind in power supply as well as RPO compliance.

The latest auction was an intensely fought affair going into early hours of next morning. The inevitable question is what explains the 24% tariff fall in just seven months? Wind turbine prices have declined about 8-10% because of the slowdown; debt cost has also come down slightly by about 0.50% in this period but that together accounts for only about 7% tariff reduction. Another relevant but subjective factor is change in offtaker from PTC India, a power trading company (partly owned by the Government of India) to SECI, which enjoys better credit rating. But the main reason is simply increased competition. After the end of feed in tariff regime, states have been slow in coming out with new tenders. This slowdown is forcing developers to be more aggressive to win capacity and meet commitments made to their investors.

We believe that the new wind tariffs are too aggressive. As we stated in a recent blog, fall in tariffs makes renewable power more attractive for consumers but is creating risks for investors and lenders. It also further increases dissonance risk for DISCOMs, which had previously agreed to pay much higher feed-in-tariffs.


Acme Solar and Sembcorp have announced plans to access capital markets for raising equity capital. Acme has filed preliminary papers for an INR 22 bn (USD 336 mn) initial public offering (IPO) with Securities Exchange Board of India (SEBI). Sembcorp has said that it may list its Indian unit either in India or elsewhere. Azure Power was the last Indian renewable IPP to list on New York Stock Exchange (NYSE) about 12 months ago. Our understanding is that Renew Power is also keen to launch an IPO sometime in the coming year.

  • Financial investors looking for exits and developers looking to raise capital for new projects is creating urgency in equity market activity;
  • Deals are held up because of mismatch in pricing expectations and portfolio performance, investors are likely to take a cautious view because of poor performance of previous issues from both conventional and renewable IPPs;
  • Investors are driving hard bargains and closures are likely only for credible developers at the right price levels;

Solar sector has seen significant capacity addition and allocations in the past two years and developers are scrambling to raise capital to sustain business growth. Nine private developers have built up solar portfolios exceeding 500 MW in the past couple of years – Adani (2,038 MW), Acme (1,713 MW), Renew (1,659 MW), Greenko (1,407 MW), Tata Power Renewable (1,382 MW), Azure Power (1,102 MW), Essel Infra (710 MW), Engie (694 MW) and Hero Future Energies (540 MW) in addition to wind capacity as of September 2017. Financial investors, in particular, are looking for exits and that is creating urgency in primary and secondary equity market activity. Adani, Greenko and Tata Power Renewable, because of their large portfolio size, are the other potential candidates for an IPO in near future.

Unfortunately, the infrastructure investment trust (InvIT) and M&A routes do not appear very promising for renewable IPPs. The InvIT structure enjoys tax and regulatory benefits over conventional IPOs but poor performance of initial InvITs – IRB and India Grid, both trading at about 5% below their issue price – has spooked the markets. Investors, financial or strategic, are aware of key risks facing the sector – slowing pipeline and falling tariffs, poor DISCOM credit, uncertainty about grid availability, plant performance etc. They have burnt fingers in thermal power IPOs (Reliance, Jaiprakash, Adani) and even Azure Power has been trading at more than 10% below its issue price.

In such an environment, lots of portfolios, across market, are available for sale or IPOs but deals are held up because of mismatch in pricing expectations. Our view is that investors are driving hard bargains and closures are likely to happen only for credible developers at the right prices.


The US International Trade Commission (USITC) has unanimously agreed that solar imports have caused “serious injury” to local manufacturers. Suniva and SolarWorld are calling for duties of US¢ 40/ Wp on imported cells and a floor price of US¢ 78/ Wp on modules. But USITC may consider all possible remedies including new tariffs, minimum prices or import quotas. Solar industry in the US is against the suggested trade remedies, which they say will lead to market contraction and substantial job losses. USITC has the deadline of November 13 for finalizing its recommendations to the President, who has the authority to accept, reject or modify the recommendations.

  • Trade barriers are expected to have a huge negative impact on the downstream solar industry without any guarantee of positive impact on the manufacturing industry;
  • Past protectionist measures in the US, Europe and India have almost completely failed to meet their objectives;
  • It is highly unlikely that new manufacturing investments will be made at a time of long-term policy uncertainty in an industry facing global oversupply and rapid change;

The reason for a rare use of Section 201 for this investigation is that existing anti-dumping duties on solar imports from China and Taiwan were easily circumvented. But Section 201 is viewed as a relatively blunt instrument, open to challenge under international trade laws. The last Section 201 investigation on steel imports in the US in 2001 resulted in tariffs, which were later withdrawn following a successful challenge by China at WTO.

It appears unlikely that the solar trade case will stand up to scrutiny in the long-term or that it will lead to a genuine long-term solar manufacturing revival in the US. Analysts have pointed out that trade barriers would have a huge negative impact on the downstream solar industry without any guarantee of positive impact on the manufacturing industry. It is also abundantly clear that protectionist measures such as anti-dumping duties in the US and Europe or Domestic Content Requirement (DCR) in India have almost completely failed to meet their objectives.

The Indian government may feel compelled to support domestic manufacturing believing that the solar industry can absorb anti-dumping duties in light of steep fall in solar equipment costs. But duties on imports from four countries (China, Taiwan, Malaysia and the US), currently under investigation, can be easily circumvented. Leading Chinese suppliers such as Trina Solar and GCL Poly have manufacturing facilities in other countries such as Thailand and Vietnam, which are not part of the investigation. As in the US, any trade barriers in India are likely to result in market uncertainty and downsizing, not ideal conditions for making new manufacturing investments in an industry facing global oversupply.

Gujarat 500 MW tender result

Last week, Gujarat conducted auction for a 500 MW state policy tender. The lowest tariffs were quoted between INR 2.65-2.67/ kWh by GRT Jewelers (90 MW), Gujarat State Electricity Corporation Limited (75), Gujarat Industries Power Company Limited (75) and Azure Power (260). These prices may suggest a market correction after the intensely competitive Bhadla auction at INR 2.44/kWh. But our calculations show that these prices are even more aggressive because of changes in market circumstances – implementation of GST, non-availability of solar park, spike in module prices and the threat of anti-dumping duties. In fact, most prominent developers including Fortum, Renew and Orange Renewables stopped bidding at around INR 2.80/kWh mark and the auction was closed in record 74 minutes.


Average clearing price for power on the energy exchange has been inching up from INR 2.61/kWh seen on 2rd September 2017 and spiked up to a high of INR 9.91/kWh last week. Current prices are in the range of INR 5.00 – 6.20/ kWh range. These high prices are in stark contrast to the past two years, when power was selling at near a ten-year low of INR 2.20-3.80/kWh. Exchange prices are regarded as a barometer of overall power demand-supply balance in the country and low prices have been seen as an indicator of excess supply situation.

  • The current spike in spot prices has come about largely because of supply side issues rather than any sustained pick-up in demand ;
  • Shortfall arising from scheduled maintenance of 10 GW of thermal and nuclear capacity, reduced wind and hydro generation and an uptick in demand could not be compensated through India’s underutilized thermal fleet due to a seasonal coal shortage;
  • The spike sends a signal to consumers and DISCOMs that they need to proactively manage their power procurement plans and that reliance on short-term trading comes with its own set of challenges;

DISCOMs meet bulk of their power requirement through long-term purchase contracts under fixed or cost-plus prices. Volume of power traded in the market is only about 150 million units per day, around 4 per cent of total generation of around 3,750 million units per day. Despite low trading volumes, spot prices can be a very useful indicator of supply-demand situation in the country.

Power deficit in India has reduced consistently over the past 5 years. This is primarily because power demand growth has been sluggish even as India continued to add generation capacity at a rapid pace. Co-relation between spot prices of power and power deficit can be seen in the chart below.

Figure – Power spot prices and deficit


The current spike in spot prices has come about largely because of supply side issues rather than any sustained pick-up in demand. There have been slippages in hydro and wind power generation owing to reduced water levels in reservoirs in south India and shortfall in wind resource at the end of monsoon season. This, combined with scheduled maintenance of some thermal and nuclear plants with capacities adding up to 10 GW, and a demand pick from agricultural and air-conditioning loads, has led to a short-term power deficit in the country. Thermal power plants were operating at 58% utilization rate in August but they have been unable to pick up the slack due to seasonal shortage of coal during monsoon season.

Most analysts are unanimous that spike in spot tariff is likely to be temporary given the moderate demand growth and low utilization of thermal projects.

What are the implications for the solar sector? Existing projects are unaffected because they mostly sell power under fixed price, take-or-pay agreements. Demand for new solar projects, which has been affected by the surplus power situation, is linked to secular growth in demand and unlikely to get any boost from the shot-term price movements. But the spike does send a signal to consumers and DISCOMs that they need to proactively manage their power procurement plans and that reliance on short-term trading comes with its own set of challenges.


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