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India Solar Map 2017 

India installed 5.5 GW in the last fiscal and the total utility scale solar capacity reached 12.5 GW by March 2017

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BRIDGE TO INDIA is the leading consultancy and knowledge services provider in the Indian renewable market. We work with all industry stakeholders including technology companies and contractors, project developers and investors, government agencies and developmental institutions. We have a unique vantage point on the market dynamics, combining the 360 degree view from our market intelligence capability with the in-depth analysis performed as part of our consulting and transaction advisory businesses. Our goal is to enable innovative cleantech solutions in India.

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India imported 5.7 GW or about 89% of its total solar module requirement in FY 2016-17. Value of these imports is estimated at USD 3 billion, equivalent to 2.8% of the country’s total merchandise trade deficit. An increasing reliance on imports in a growing and strategically important sector is creating various stress points and raises the risk of a knee-jerk policy reaction by the government which has, until now, been unable to effectively support domestic manufacturing.

  • China dominates global manufacturing and is trying to secure control on the technology upgradation roadmap for solar PV;
  • Over reliance on a single country puts Indian solar sector at a risk of disruption in global supply chain and change in Chinese government policy;
  • The Indian government needs to consider long-term implications for the sector and draw up a well thought out plan for domestic manufacturing instead of introducing short-term support measures;

China has been pumping in billions of dollars in subsidies and other support measures to scale up solar PV manufacturing and dominate global market. The result is massive increase in manufacturing capacity from 23 GW in 2013 to over 70 GW today despite steep fall in prices. It has also been strategically providing support for new technologies through its ‘Top Runner’ program to encourage the industry to migrate to higher-efficiency products and secure control on technology upgradation roadmap for solar PV.

India couldn’t match China’s financial commitment to the sector but provided some breathing room to local manufacturers through Domestic Content Requirement (DCR) and also toyed briefly with anti-dumping duties. However, such protectionist measures have not helped local manufacturing anywhere in the world and share of imports in India has continued to go up from 74% in 2014-15 to 89% in the last year. Notwithstanding various high profile announcements of new manufacturing capacity creation, the only notable player to do so in the last two years has been Adani, which has also deferred its vertical integration plans.

The Indian government’s overriding priority in the sector, so far, has been increasing generation capacity and lowering tariffs. That focus has hurt the prospects of domestic manufacturers who are unable to compete with Chinese imports and have now filed a new anti-dumping duty petition. With cost of solar power crashing to INR 2.44/kWh, there is a risk that the government may be tempted into a knee-jerk decision causing confusion in the market.

We have consistently argued that protectionism will not solve the problems of Indian manufacturers. But ever-increasing share of imports for solar modules is a concern when India plans to meet a significant share of its power requirement from solar and a huge majority of modules are imported from a single country. The entire sector is exposed to the risk of a potential disruption in global supply chain and/or change in international political, trade or economic environment. We have seen how changes related to Indonesian coal production have severely affected some Indian thermal IPPs introducing a series of litigation and regulatory uncertainty.

Given the multi-faceted implications for project developers, investors, DISCOMs and other stakeholders, we need a larger debate on the role of domestic manufacturing in the sector. And instead of considering short-term response to this issue, the Indian government should consider long-term implications for the sector and send a clear policy signal to reduce uncertainty for all stakeholders.

FULL STORY

BRIDGE TO INDIA has released the March 2017 edition of India Solar Map. As per our project database, India installed 5.5 GW of utility scale solar capacity in the last fiscal year reaching total cumulative solar capacity of 12.5 GW by March 2017. Another 12 GW capacity has been allocated to developers and is in various stages of development.

– We expect southern states to continue to dominate the sector in the short-term as 53% of total pipeline is concentrated in Andhra Pradesh, Karnataka and Telangana;
– Adani remains the largest developer with a total portfolio exceeding 2 GW (780 MW commissioned and 1,250 MW pipeline);
– Market volumes are likely to expand by 45% in the upcoming year but we don’t anticipate any new entrant to gain a meaningful foothold as India remains an intensely competitive market;

Southern domination continues in the sector with Andhra Pradesh replacing Tamil Nadu at the top with a commissioned capacity of 1,962 MW. We expect the southern states to continue to dominate the sector for the next 12-18 months as 53% of total solar pipeline is concentrated in the Andhra Pradesh, Karnataka and Telangana.
Greenko, NTPC and ReNew Power are the top three developers on the basis of capacity commissioned during the year. Six project developers have built more than a gigawatt of portfolio in the Indian market including both commissioned and pipeline projects. Adani maintains its status as the largest developer with a total portfolio exceeding 2 GW (780 MW commissioned and 1,250 MW pipeline).

Trina Solar (25.7% market share), Hanwha (10.5%) and Risen (7.6%) are the top three module suppliers with all of them gaining significant market share over last year. Canadian Solar (7.4%) has slipped three places to fourth position. Domestic manufacturers’ combined market share fell to just 10.6% with none of them making it to the list of top 10 suppliers for the first time. With domestic content requirement (DCR) policy shelved, prospects for domestic manufacturers appear very bleak.

In the inverter market, ABB has retained its position as the top inverter supplier with 28.6% market share for the year. TMEIC, Hitachi and SMA are close behind with a market share of around 16% each. Despite its premium pricing, SMA gained market share, up from 11.4% last year, with a single large sale to Greenko.

Outsourced EPC business continues to contract as most large developers rely on in-house execution capability. For the first time ever, self-EPC accounts for over half of the capacity commissioned in the year. Sterling & Wilson was the only EPC company with over 500 MW of deployment (around 9% market share).

Market volumes are likely to expand by 45% as we expect India to add 8 GW in the upcoming year. But we don’t anticipate any new entrant to gain a meaningful foothold in the extremely competitive market.

FULL STORY

“In order to fulfill my solemn duty to protect America and its citizens, the United States will withdraw from the Paris climate accord,” US President Donald Trump said last week. The move has already been criticized extensively within and outside the US. No other country seems willing to support the US, and in fact, the action has prompted several countries to reiterate their commitment to the climate accord. The reason simply is that renewable energy has crossed the point of no return. It is financially and operationally viable and the old ‘carrot and stick’ approach is fast becoming irrelevant. We see a limited short-term impact of this announcement within US and almost no impact on India.

  • Most states and end-consumers, even within the US, will continue to accelerate adoption of renewable energy and other green energy programs because of their improving techno-commercial merits;
  • As the US can only exit the accord after three years, many analysts point out that the decision could be overturned by a new US President before it is implemented;
  • The US decision to withdraw from the Paris accord is unfortunate but largely, a non-event for India’s renewable energy sector;

Soon after President Trump said he would pull out of the Climate Agreement, governors of California, Washington, New York, Massachusetts, Vermont, Connecticut and Rhode Island, representing 15% of the country’s emissions, banded together to continue to work toward the global climate accord target. In addition, 30 leading US corporates including Citigroup, Coca-Cola, Corning, Dow Chemical, DuPont, General Electric, Goldman Sachs, also committed to continue meeting their targets. More states and businesses can be expected to follow suit. Equally important is the fact that according to Article 28 of the agreement, each country that enters into it must remain for three years. They may subsequently choose to withdraw but with one more year of notice. Many analysts point out that a new US President in early 2021 (or earlier) could overturn this decision before it is implemented. Overall, we believe that fallout from the Trump decision on renewable energy and electric vehicles will be very limited even in the US. There may be a limited short-term impact on new investment plans, which may, in turn, impact global supply chain and slow sector progress.

From India’s perspective, the Trump decision would, in all likelihood, be positive for attracting even more technology, investment and expertise from other countries. The US has been an important partner for Indian renewable sector. Overseas Private Investment Corporation (OPIC), the US development finance institution, has funded several Indian developers including Azure Power and ReNew Power. It has also recently committed to provide USD 400 million of financing as part of the US-India Clean Energy Finance Facility (USICEF) for rooftop solar. Meanwhile, United States Agency for International Development (USAID) has been supporting various capacity building and technical assistance initiatives (solar rooftop program for Indian Railways and Indian Oil, net metering programs in Bangalore and Jaipur, off-grid solar). However, the Indian government has maintained that the country’s renewable energy expansion is largely self-financed and the current level of financial support from developed nations is significantly below what was promised. We believe that India would be able to mitigate the impact by suitable planning and recalibration of various programs.

In our view, the US decision to withdraw from the Paris accord is unfortunate but largely, a non-event.

FULL STORY

Last week, we wrote that the proposed 18% Goods and Service Tax (GST) on solar modules could cause major disruption in the industry and affect over 10 GW of projects. Following uproar in the industry, India’s revenue secretary, Hasmukh Adhia, has clarified that the rate of tax on solar modules should be 5% and not 18%. He said that an official clarification in this regard may be issued on June 3 when the GST council meets next. Earlier last week, secretary for Ministry of New and Renewable Energy (MNRE) had also issued a statement that the 18% rate on solar modules seems to be an anomaly and that it should be corrected.

  • Total project capital cost is likely to rise by about 4% as against 10-12% envisaged earlier;
  • Revised rate structure will not have any material negative impact on the industry and will allow project developers to proceed with construction;
  • MNRE needs to still play a hands-on advisory role for all affected entities to ensure smooth transition for the industry;

5% GST rate for solar modules sounds reasonable and consistent with government guidance leading up to the rates announcement. The new tax regime will result in effective rate of indirect taxes to go up from zero to 5% on solar modules and around 3% on engineering and construction services. Impact on inverters is still not clear. Our current estimate is that the total project capital cost will rise by about 4%.

BRIDGE TO INDIA believes that the revised rate structure will not have any material negative impact on the industry because of the buffer afforded by sharp fall in equipment costs. It will allow project developers to proceed with construction. Some developers may still file compensation claims but many of them might simply absorb the additional burden to avoid scrutiny of sensitive commercial information.

As we stated last week, MNRE needs to play a hands-on role by advising all affected entities – project developers, DISCOMs, equipment manufacturers and EPC contractors – to ensure smooth transition for the solar industry.

Other news highlights of the week:

FULL STORY

India’s southern region comprising Andhra Pradesh, Telangana, Karnataka, Tamil Nadu and Kerala accounts for 25% of national power consumption but 45% of total wind and solar power capacity in the country. Penetration of variable wind and solar energy, defined as generation from both these sources as a percentage of electricity consumption, in the southern region was 9% in 2016-17 as against the national average of 5%. Such high rate of penetration raises concerns regarding management of the grid and can result in high grid curtailment rate. South India represents a test case for the country for integration of variable renewable energy into the grid.

  • Increased RE deployment is changing the energy landscape in southern region and raises concerns regarding grid stability and power curtailment;
  • While strides have been made in enhancing transmission connectivity, a lot still needs to be done to enhance grid flexibility and develop ancillary services market;
  • Lessons should also be learnt from successful international experiences in allowing high renewable energy grid penetration;

Enhanced transmission connectivity as well as rapid RE deployment has helped south India in considerably reducing its power deficit from 7.3% in 2013-14 to only 0.2% in 2016-17. But another 9 GW of wind and solar energy capacity is estimated to be under development. Tamil Nadu is already facing the brunt of such high RE generation with wind curtailment rate of as high as 33% in 2013-14.

Significant steps are being taken to enhance transmission connectivity under the government’s green energy corridor scheme. Work has already commenced on an 1,800-km ultra-high voltage transmission link between central and southern India. However, little attention is being paid to other equally important and effective solutions including more accurate generation and load forecasting, ancillary services development (for frequency and voltage stability) and improved flexibility of conventional power plants. For instance, Karnataka is the only southern state to have finalised a regulation on forecasting and scheduling of power. The region is also a laggard in development of ancillary services market. In the first six months of implementation of regulatory reserve ancillary services (April-September 2016), only 6% of the total energy dispatched under “regulation up” service came from southern region.

Lessons should be learnt from other countries including the USA and Germany, which have a similar or higher RE penetration levels. The Electric Reliability Council of Texas (ERCOT) in the USA was successful in reducing wind curtailment rate from 17% in 2009 to 0.5% in 2014 in its region despite the share of wind power generation increasing from 6.2% to 10.6% in this period. It did so by building more transmission capacity, reducing scheduling time interval from 15 minutes to 5 minutes, introducing fast frequency response reserves for instantaneous increase/decrease in power output and various demand response programmes along with rapid deployment of smart meters. Germany has also been successful in keeping curtailment rates below 4%, despite having a renewable energy penetration level of as high as 30%, mainly because of adoption of a variety of market-based mechanisms to enhance grid flexibility and provision of ancillary services. For instance, during periods of excess power supply, the German power trading market fixes a negative price for inflexible power units. Moreover, through retrofits to existing coal power plants, Germany has also made thermal generation more flexible to respond to changes in renewable energy generation.

In order for India to support ongoing renewable energy deployment, it is essential to learn from international as well as domestic experience and make urgent changes to the power system.

FULL STORY

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