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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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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.


Andhra Pradesh recently became the latest state to notify forecasting, scheduling and deviation settlement regulations for solar and wind power generation. It joins Karnataka, Chhattisgarh, Jharkhand and Uttarakhand, who have already announced these regulations. Six other states including Rajasthan, Gujarat, Madhya Pradesh, Tamil Nadu, Odisha and Manipur have announced draft regulations. Together, these states account for about 70% of operational and under development solar capacity. The primary objective of the new regulations is to make generators more accountable through enhanced forecasting requirements and penalizing them for deviation. Once operational, this should help facilitate large scale grid integration of intermittent renewable power while maintaining grid stability.

  • Industry experts believe that compliance cost for a single project, including penalties, may be around INR 0.02/kWh;
  • Generators can comply with the regulations on an individual basis or on a ‘virtual pool’ basis by joining others;
  • The regulations are highly desirable and developers would happily bear additional compliance cost in return for reduced curtailment risk;

The national power regulator, Central Electricity Regulatory Commission (CERC), first announced a regulation for deviation settlement mechanism back in 2014 and has made three subsequent amendments. All state regulations essentially follow the CERC regulation with some minor variations. For example, CERC regulations apply to wind farms with capacity greater than 10 MW and solar projects with capacity greater than 5 MW but Tamil Nadu and Andhra Pradesh regulations state applicability to all wind and solar generators selling power within the state. Similarly, penalties and permissible deviation limits vary marginally from state to state.

Under the new Andhra Pradesh regulations, power generators are required to provide State Load Dispatch Centre (SLDC) with day ahead and week ahead schedule in 15-minute time blocks with effect from 1 January 2018. They can revise their schedule once every ninety minutes – maximum 16 times a day for wind and 9 times a day for solar power. Penalties are proposed for deviations exceeding 15%. For deviations above 15%, penalties can be as high as INR 0.50-1.50/kWh.

Forecasting and scheduling regulations are commonplace in most of the western countries. As a result, there is abundant and growing expertise in technical and statistical modelling techniques, which can be replicated in India. Compliance will entail investment in new systems, upgradation of IT infrastructure and potential cost of penalties. Industry experts believe that the compliance cost for a single project, including penalties, may be around INR 0.02/kWh.

Generators can also come together to form ‘virtual pools’ to minimise group level deviations and reduce penalty cost risk. New plants expected to be commissioned after 1 January 2018 will not be allowed to commence commercial operation without the required forecasting mechanism in place.

The regulations may be seen as a new operational and financial burden for the sector but are an acknowledgement of its growing importance. Developers would be happy to bear this compliance cost than face greater risk of curtailment. We believe that these regulations are highly desirable as better forecasting and scheduling will enable integration of growing renewable capacity and pave way for future growth.


In a major cabinet reshuffle yesterday, India’s erstwhile Minister of Power and Renewable Energy, Piyush Goyal, demitted office to become the new Minister of Railways. R.K. Singh, an erstwhile bureaucrat and now a Member of Parliament, has been appointed as the new minister. During the 40 months of his tenure, Piyush Goyal initiated important supply side reforms including allocation of coal linkages, increase in domestic coal production, solar parks policy and green corridors program. In this time, thermal power capacity has grown by 60 GW, renewable power capacity by 23 GW and transmission capacity by an aggregate of 25%. Not accounting for latent power demand, these steps have turned India from chronically power deficit to a power surplus country.

  • Surplus power situation, if not addressed through adequate demand side reforms, will affect renewable sector prospects;
  • Rural electrification is unlikely to result in any tangible growth in power demand but may actually increase financial burden on DISCOMs;
  • The incoming minister’s priorities should be to rationalize pricing of power, enforce operational improvements in DISCOMs, deal with the ‘Make in India’ conundrum and improve investor confidence in the sector;

However, power pricing and demand side reforms have not kept pace. Despite UDAY scheme’s success in eliminating USD 36 billion of debt from DISCOMs and rapid electrification agenda, power demand has grown by a CAGR of only 4.5% in the last three years. Thermal power plants are now operating at average PLF of less than 60% as against an expected 75-80%. Resulting stress is percolating to other parts of the sector including renewables where many tenders have been scrapped and PPAs face the risk of renegotiation. The Finance Ministry has called for rationalization of renewable capacity addition and we believe that utility scale solar capacity addition will slow down over the next two years. Now, the government is moving to restrict open access market (elaborated below). These quick fixes may help thermal IPPs and DISCOMs in the short-term, but are bound to hurt renewable energy prospects.

As the government pushes ‘Make in India,’ focus for the new minister should be power pricing reforms to make manufacturing more competitive and boost power demand. It is worth noting here that power tariffs for industrial consumers are higher in India than in many western economies.

Other pressing issues of the hour are anti-dumping duty petition for solar module imports and flagging investor confidence in the sector. Many leading international and Indian investors have entered this market attracted by large scale and strong government commitment. They need validation of their business strategy and reassurance that contracts will be duly enforced to protect their interest.

Consultation paper on open access seeks to further restrict the market

The Ministry of Power has released a consultation paper on open access market. The paper primarily focusses on issues faced by DISCOMs as a result of liberalizing open access – loss of business, stranded assets and other operational difficulties. The paper contends that cross subsidy surcharge (CSS) and additional surcharges are not being calculated correctly leading to under recovery of expenses by DISCOMs. It recommends more stringent scheduling restrictions for open access customers and makes suggestions for computation of CSS, additional surcharge and standby charges. We believe that these recommendations will further increase complexity and cost of open access based power.


InvITs are infrastructure investment trusts set up pursuant to SEBI Regulations 2014 for investment in infrastructure projects. Money raised from InvITs is used to repay external debt and buy back equity investments in underlying project companies. Recently, IRB and Sterlite power successfully launched the first two InvITs for road and power transmission projects by raising INR 50.3 Bn (USD 775 million) and INR 22.5 Bn (USD 345 million) respectively. Other infrastructure and energy asset developers are expected to follow suit later this year.

SEBI regulations mandate a minimum of 80% of assets under an InvIT to be revenue generating for at least a year and at least 90% of distributable cash flow from underlying projects to be transferred to the InvIT unit holders. Thus, unit holders are assured periodic payments from distributable cash flows. An InvIT can only borrow up to 49% of its asset value on a consolidated basis. The overall InvIT structure is akin to a yieldco with tighter regulatory oversight because of its trust structure and attractive tax benefits:

  Tax benefits  
SPV ·         Exemption from dividend distribution tax

·         Interest payments to InvIT not subject to withholding tax

InvIT ·         Exemption from corporate income tax

·         Exemption from dividend distribution tax

·         TDS of 5% (subject to Double Taxation Avoidance Agreement) on interest payments to non- resident unit holders

These tax benefits are worth an estimated additional yield of 0.5–1.0% on total investment.

Some solar developers are also believed to be exploring possibility of launching solar InvITs. Certainly, the structure has some advantages in comparison to conventional IPO route because of the various tax and regulatory benefits. An additional benefit is that by retiring bank debt in existing projects, the InvIT sponsors can free up bank debt appetite for their pipeline projects.

We understand that the IRB InvIT with an enterprise value of INR 59 Bn and average post tax EBITDA of INR 7.3 Bn results in a pre-tax yield of around 12.5% for its unit holders, while Sterlite’s InvIT with an enterprise value of INR 37 Bn and average post tax EBITDA of INR 4 Bn offers pre-tax yield of about 11%. The lower yield expectation from transmission projects is possibly due to their more stable cash flows compared to road projects where revenues depend on traffic growth assumptions. The two InvITs were oversubscribed in primary market, but fall in their prices post listing indicates a stronger yield requirement from the secondary market.

The key issue for solar InvIT feasibility is the return expectation and/or risk perception of solar projects in the institutional investor market, which demands low-risk, stable returns. We expect such investors to seek a higher pre-tax yield (12-14%) from solar InvITs because of the various sector risks – mainly grid curtailment, DISCOM payment risk and long-term plant performance risk. As a result, we believe that the InvIT route will be available only to highly credible developers with strong track record of executing solar projects with best-in-class standards.


Indian solar developers typically factor in a 15-20% annualised fall in the cost of solar modules when bidding for new projects. The assumed price decline may have been even higher in some of the recent auctions. Price increases in the last 2-3 months, therefore, have come as a shock to the sector. Against an expectation of USD 0.28/Wp, prices for the current quarter are being quoted at about USD 0.34/Wp. Goods and Services Tax (GST) rate of 5% has further added to the cost increase. Higher costs and constrained supply as Chinese suppliers renege on module supply contracts are presenting new challenges for Indian developers.

  • Explosive capacity addition, coupled with a reduced polysilicon supply in China is primarily responsible for module price increases;
  • Up to 1 GW of projects, due for completion in the remaining year, may get delayed as a result of higher prices and/or uncertain supply status;
  • Projects also face the risk of imposition of anti-dumping duties, which could be announced as early as September 2017;

China was expected to add 33 GW of solar PV capacity in 2017 but it has already added over 34.9 GW in the first seven months, with 24 GW being added in June and July alone. This explosive capacity addition, coupled with reduced polysilicon supply, has led to drying up of inventories and price increases across the value chain. However, China demand is expected to slow down for the remaining part of the year to just 5-10 GW. A significant part of this new capacity is to be added under the Top Runner program using high efficiency mono and mono PERC solar modules. That should mean a return to an oversupply situation for poly-crystalline modules used in India.

However, some manufacturers insist that prices will continue to be high until the end of the year. They expect strong demand from the US as the Trump administration explores imposition of safeguard duties, which would come into effect in January at the earliest. The prospect of duties is forcing developers in the US to rush ongoing projects or even stockpile modules for future projects.

For India, increased module prices have led to a slowdown in new orders as developers delay procurement in the hope that prices will start falling at some point in the near future. Over 3.8 GW of new capacity is scheduled to come online in H2/2017. This includes state policy projects in Andhra Pradesh and Telangana and central policy projects in Rajasthan, Gujarat, Maharashtra, Karnataka and Uttar Pradesh. These projects were allocated 12-18 months ago at tariffs over INR 4.43/kWh and should be financially viable even at current module prices. Nonetheless, we believe that up to 1 GW of project capacity may get delayed as developers wait for better pricing and/or assured supplies.

A larger risk to Indian projects comes from a possible imposition of anti-dumping duties at home. There is a possibility that Indian authorities could recommend a provisional anti-dumping duty as early as September 2017.


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