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India Solar Policy Brief | November 2017

Anti-dumping duty petition poses risk for all stakeholders including developers, manufacturers and DISCOMs

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The Directorate General of Anti-Dumping and Allied Duty (DGAD) is currently completing an investigation into imports of solar cells and modules from China, Taiwan and Malaysia subsequent to a petition filed by The Indian Solar Manufacturer’s Association (ISMA). The petition is similar to an earlier petition filed in 2012, wherein DGAD had recommended an anti-dumping duty of USD 0.11-0.81/Wp on cells and modules but the Ministry of Finance ultimately decided to not impose any duties to protect downstream project development activity.

This time around, the industry is almost unanimously of the view that an anti-dumping duty will be announced soon as the government is keen to support local manufacturing. But the government still faces a dilemma as to how to balance the needs of solar manufacturers vs project developers and investors?

First, we should assess if the imposition of anti-dumping duty will provide the envisioned boost to domestic manufacturing? The Chinese manufacturers dominate Indian market because their products are about 10% cheaper than Indian counterparts. Most of the Indian manufacturers have sub-scale capacities, high cost base and are completely reliant on imported technology and raw materials. High cost of capital and electricity, poor infrastructure and lack of domestic eco-system means that the odds are stacked against them. Trade barriers may provide short-term relief but are unlikely to change long-term competitiveness of domestic manufacturers. That is why many leading Indian and international companies including Welspun, Sterling & Wilson, Trina Solar, Longi Solar, JA Solar etc have examined setting up manufacturing capacity in India but ultimately decided against it. Despite ten-fold growth in domestic demand in the last four years, Adani is the only new player to make a notable greenfield manufacturing investment so far.

Actual domestic production of modules and cells in FY 2016-17 was a mere 1,746 MW and 591 MW as against total demand of 9,188 MW. Though duties should provide existing domestic manufacturers with an opportunity to grow sales at profitable prices, the key question is whether India will be able to attract enough investments to create a thriving solar manufacturing sector. The European Union and USA have both imposed various protectionist measures in the past, but imports have kept rising and domestic manufacturing has not taken off. The Chinese have been expanding internationally and may be able to circumvent duties by routing exports from other locations.

As per our analysis, if anti-dumping duty is announced in the near future, it will impact about 10,000 MW of pipeline projects. Imposition of 30% duty will increase project cost by about 18%. Developers, already struggling with price rises due to GST and import duties, have no room to absorb additional costs. Unless these projects are grandfathered or the DISCOMs are willing to renegotiate PPAs, the risk of project abandonment for many of these projects is very high. The sector is already reeling from a slowdown in new project procurement and petition has increased uncertainty about the future of upcoming tenders.

The government faces a tough task of striking a right balance between the ambitious ‘National Solar Mission’ and ‘Make in India’ initiative. In our opinion, the imposition of anti-dumping duty will significantly disrupt the former without giving any material impetus to the latter.

Please read our full report on anti-dumping duty and its impact on different stakeholders.

FULL STORY

Recently, there was a news report that the Indian government wants to issue a single 20 GW solar tender to boost solar project development and domestic manufacturing. R.K. Singh, the new Minister for Power and New and Renewable Energy, has also publicly stated that he wants to auction 4.5 GW of wind power contracts in the next few months followed by 20 GW in the next two years for expediting achievement of ambitious clean energy targets.

 

 

There has been a significant lull in announcement of utility scale solar tenders from the Solar Energy Corporation of India (SECI). It has announced only one tender – Bhadla 750 MW – this year in comparison to around 5 GW of new tenders in 2016. There have been expectations of new tenders totalling in Odisha, Chhattisgarh, Delhi, Karnataka, Andhra Pradesh and Bihar but none of these have materialised until now. Furthermore, SECI has again extended bid submission timelines for the ongoing Bhadla-III (250 MW) and Bhadla IV (500 MW) tenders. These projects were supposed to be allocated to developers in Q3 2017. Meanwhile, NTPC has also not made any progress on new guidelines for development of solar projects.

Tendering delays have been caused by multiple factors. We have written extensively about weak growth in power demand affecting DISCOM appetite to issue any new tenders. But equally importantly, the new competitive auction guidelines announced in August 2017, which require use of standard bidding documents, have impacted the timelines. We understand that delays in finalization of these documents is holding up progress of many tenders. Our discussions with sector players also suggest that the Ministry of New and Renewable Energy (MNRE) decision making has slowed down considerably, possibly due to many changes in senior personnel, including appointment of the new minister.

But the developers are getting restless. Many of them have raised funding and are waiting on the side-lines for an opportunity to bid for new projects. These developers have been left high and dry due to reduction of solar power procurement. Due to the vacuum created in the project development landscape, there is a pent-up demand forcing auction tariffs down. They are also concerned about the “looming” anti-dumping duty imposition on solar modules and how it may affect bidding behaviour.

As for the Bhadla projects, it is likely that this tender submission will get delayed again and the reverse auction will take place early next year. Whether tariff bids will be as competitive as the previous Bhadla auction is debatable. Developers such as Acme, which won 200 MW at a tariff of INR 2.44/kWh (4¢) in the auction, has recently expressed “regret” as Chinese module suppliers have increased pricing over the last 3 months lowering return expectations. Other costs have also gone up on account of GST implementation. If there were to be an auction today, we would expect tariffs to move up to INR 2.80/ kWh. But rising tariffs will create another problem – the DISCOMs may walk away creating even more problems for the sector.

FULL STORY

The Government of India has launched SAUBHAGYA scheme for providing universal electricity access to all households in India by March 2019. The government estimates that there are 46 million unelectrified households in India at present and this scheme will primarily target the 30 million below poverty line households not covered by other ongoing electrification schemes. Target households will be provided free or nominally priced connections (but not free electricity). Households in remote, inaccessible areas will be offered decentralised solar power generating systems of 200-300 Wp each with integrated batteries and 5 LED lights, a fan and a power socket.

  • The scheme would potentially have huge multiple economic benefits for the country although the government estimate of 7% demand growth is highly optimistic;
  • The government has announced multiple schemes with seemingly similar objectives and it is not clear how the SAUBHAGYA scheme will be different;
  • Despite provision of decentralised solar power generating systems for remote locations, the scheme is likely to deal a blow to the private off-grid businesses unnerving investors and consumers alike;

The new scheme is operational with immediate effect and is budgeted to cost INR 163 bn (USD 2.5 bn) at an average of INR 5,400 per connection (USD 84). Funds will be used to create last mile infrastructure including poles, cables and electricity meters. Up to 75% of the funding shall be provided by the Indian government (90% for some north-eastern states and union territories) with balance coming from respective DISCOMs, state governments and/or borrowings.

The scheme has been launched with much fanfare. Potentially, it is an important policy development as it would not only improve social, educational and economic status of millions of people but also lead to a much-needed power demand boost. The Ministry of Power believes that the scheme will grow power demand by 80 bn kWh (+7%). This estimate seems highly optimistic to us considering that most target households will be fractional users of electricity. Also, it is important to remember that electricity connection in India does not mean getting regular, reliable electricity. Power cuts are common across the country despite a power ‘surplus’ situation. We estimate actual uplift in power demand to be closer to 2%.

It is also difficult to understand how this scheme is different from multiple overlapping schemes announced in the past. The DDUGJY (Deendayal Upadhyaya Gram Jyoti Yojana) scheme was launched in 2015 with the aim of electrifying all 18,000 unelectrified villages by May 2018. The Modi government also launched the ‘24×7 Power for All’ programme in 2015 with the objective of providing 24×7 power to all consumers across India by 2019. It is hard to escape the conclusion that the SAUBHAGYA scheme is old wine in new bottle.

The provision of decentralised solar power generating systems with integrated batteries for households with no grid supply is a heartening feature although we remain cautious. Such systems would cost about INR 35,000 (USD 540) per household and given the limited funds availability, their use will be highly restricted in our view. On the contrary, launch of this scheme is likely to hurt prospects of multitude of off-grid operators offering market based solutions in the country.

FULL STORY

The Indian solar market is being tested to its limits. GST has increased execution costs. Module prices have shot up when bidders were factoring in another 20% price decline by the end of this year. Chinese module suppliers are even reluctant to supply to India. The government is considering anti-dumping duty petition to support domestic solar manufacturers. But perhaps, the biggest challenge facing the sector is slowing power demand. Lack of visibility over project pipeline is forcing developers to bid aggressive tariffs and reconsider strategic options including consolidation. It is therefore relevant to ask what does the future pipeline scenario look like?

  • Seven states – Karnataka, Andhra Pradesh, Tamil Nadu, Telangana, Rajasthan, Madhya Pradesh and Punjab – together make up over 80% of India’s total installed and pipeline capacity of 27 GW;
  • Other states continue to lag and progress is expected to be slow because of surplus power situation in the country;
  • After peaking at about 8 GW in 2017, India’s utility scale solar capacity addition is expected to stabilize at a much lower level of 5-6 GW per annum for next few years;

The ten largest states in India have power consumption greater than 50 billion units each and together, they account for 75% of India’s total power demand. These states, located mainly in central and southern India, should also account for bulk of solar power demand in the country. Five of these states – Karnataka, Andhra Pradesh, Tamil Nadu, Telangana and Rajasthan – have led the sector growth so far and tied up more than 3 GW of solar capacity each. Madhya Pradesh and Punjab have tied up another 2 GW and 1 GW respectively. These seven states together make up for over 80% of India’s total installed and pipeline capacity of 27 GW. They have front-loaded their solar power demand and are well ahead of their annual targets determined by the Ministry of New and Renewable Energy (MNRE). Solar activity in these states is inevitably expected to slow down going forward and indeed, some of them are already cancelling ongoing tenders.

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Source: BRIDGE TO INDIA research

In contrast, combined installed and tendered pipeline capacity of the three largest power consuming states, Maharashtra, Uttar Pradesh and Gujarat, is lower than that of Karnataka on a stand-alone basis. In May 2017, we predicted that Uttar Pradesh could be a dark horse for India’s new solar allocations. Since then, it has issued a 750 MW tender under SECI scheme and is believed to be considering further tenders. Maharashtra’s power consumption is almost three times that of Andhra Pradesh but its installed solar capacity is just one-third in comparison. Gujarat, a solar frontrunner back in 2012-13, is also lagging way behind. It added a paltry 211 MW in the last two years against almost 1 GW in neighbouring Rajasthan and 2 GW in both Andhra Pradesh and Telangana.

Unfortunately, the prevailing power surplus situation in India suggests that slowdown in solar power demand may continue for 3-4 years. We expect India’s utility scale solar capacity addition to peak in the current year (at about 8 GW) and then stabilize at a much lower 5-6 GW per annum for the next 2-3 years. Rooftop solar is expected to, however, provide some relief by continuing to grow at a healthy rate and becoming a 3 GW per annum market by 2020.

FULL STORY

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