India Solar Compass Q2 2017 

New capacity addition in Q2 slows down to 1.4 GW after a bumper Q1; forecast of 9.4 GW for 2017


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We have released our latest report – India Solar Compass – a quarterly update on the Indian solar market. The report contains key information and analysis including tender and project updates, leading players, financing deal flow, policy and market trends etc for Q2 2017 as well as our market forecasts for the upcoming quarters.

Q2 2017 was a landmark period in the Indian solar sector with tariffs falling below the critical threshold of INR 3.00/ kWh making solar power the cheapest new source of power in India. But this has led to all sorts of problems. As we commented in a recent blog, “Falling tariffs are a double-edged sword for the sector. They make solar power more attractive for consumers but are also making investors and lenders jittery. In the near term, they are also creating uncertainty in the minds of policy makers and creating new risks for older projects auctioned at 2-3x higher tariffs.”

  • India is expected to become the third biggest solar market worldwide in 2017 with estimated utility scale and rooftop solar capacity addition of 8.4 GW and 1.1 GW respectively;
  • Rising competition is squeezing investor returns in both primary and secondary markets;
  • Even as long-term market prospects remain bright, the sector faces considerable headwinds from module price rises, tender cancellations, GST and anti-dumping duty related uncertainties in the short run;

India’s total installed solar power capacity reached 15,611 MW (13,951 MW utility scale and 1,660 MW rooftop solar) on June 30, 2017. After a bumper Q1 2017 (end of FY17) when India added 3,120 MW of utility scale solar capacity, pace in Q2 2017 was relatively slow at 1,437 MW against a scheduled capacity addition of 3,300 MW. Highest capacity addition as well as slippage was from the 2,000 MW allocation in Telangana. Around 1,680 MW was due to be commissioned in Telangana during Q2 but only 640 MW came online because of delays arising from land and transmission related issues.

Total utility scale project pipeline, projects allocated to developers, stood at 12,250 MW at the end of the quarter. More than 3,000 MW of new tenders were announced, greater than the aggregate of all new tenders announced in previous three quarters. But at the same time, eight tenders with an aggregate capacity of 2,130 MW were scrapped due to DISCOMs reconsidering their power procurement options.

We expect new utility scale capacity addition of 1,565 MW and 2,265 MW in Q3 and Q4 2017 respectively. Our expectation for total rooftop solar capacity for 2017 is 1,056 MW taking total 2017 capacity addition estimate to 9,443 MW.

Top developers in Q2 2017, on the basis of new capacity added, are Acme Solar, NTPC, ReNew, Adani and Azure. Similarly, Talesun, Hareon, JA Solar, Waaree and Lanco are ranked as top module suppliers for Q2 and ABB, Hitachi, Sungrow, SMA and TBEA are ranked as the top inverter suppliers.

Other key market trends observed during Q2:

  1. Module prices have spiked up to US ¢ 32-33/ Wp against expectations of about US ¢ 28/ Wp due to demand pick up in China and the USA. But inverter prices have been stable at around INR 1.80/ W.
  2. 1,500 V systems market is picking up and we expect a near-complete transition to 1,500V systems in India within two years.
  3. Trackers have been gaining market share in India – we estimate this market to grow from 450 MW in Q2 to 800 MW in Q3. However, sharp fall in module prices is likely to hurt this market in future.
  4. Actis committed USD 500 million to SPRNG, a new solar platform in India. Debt conditions have continued to soften with interest rates coming down and lenders looking at debt tenors of up to 20 years.
  5. M&A deal flow is expected to pick up substantially as many PE funds (Ostro, Orange and Equis, amongst others) are looking to sell out and the primary project pipeline is relatively small.
  6. The new GST regime became applicable from July 1, 2017. Solar power systems and equipment will be taxed at 5% but there is still confusion on GST rate on equipment other than modules.
  7. The recently released draft National Energy Policy anticipates withdrawal of all incentives and support mechanisms for renewable energy over time.

Overall, 2017 business volumes are expected to grow by 90% Y-o-Y, making India the third largest solar market worldwide. But it is still an unnerving time for project developers and investors as rising competition forces tariffs down and the sector faces headwinds from module price rises, tender cancellations, GST and anti-dumping duty related uncertainty.


NITI Aayog, India’s central planning agency, recently released the draft National Energy Policy (NEP). The document sets out national objectives and planning framework for the energy sector for the next 23 years (up to 2040). It comes at an opportune time when India is going through a critical energy transition period. Its main thrust is to let market-based mechanisms guide growth in various energy sources with minimal government intervention. And while a document of this nature is inevitably high-level in its scope, it comes across as simplistic and wishful due to lack of detail, reasoning or prioritization of different plans.

  • By envisioning the share of variable renewable energy (RE) in the electricity generation mix to increase from 5% in FY17 to 24-29% by 2040, the policy sets an optimistic tone for RE growth;
  • The policy suggests gradual withdrawal of all incentives including ‘must run’ status, renewable purchase obligation (RPO) and inter-state transmission charge waiver for the RE sector;
  • Emphasis on traditional large hydro as a source of balancing power and just a passing mention of storage, smart grids and electric vehicles doesn’t fit with the fast-changing technology landscape;

The policy envisions RE capacity (excluding large hydro) to grow from 58 GW at present to 597 GW by 2040 (solar 367 GW, wind 187 GW) at a CAGR of over 10% and RE share of total power output to increase from 5% at present to 24-29% by 2040. While the policy sets an optimistic vision for RE, it does not provide any specific measure to support this growth. It envisages gradual transition towards market-led growth in RE sector, which is desirable for efficient functioning of the energy market as well as long-term growth of RE. However, there needs to be greater clarity on the mechanism and time of withdrawal of incentives such as RPOs, must run status and tax benefits provided to the sector to avoid a negative impact on sector’s growth. For example, we believe that sudden withdrawal of must run status would dampen investor confidence in the market.

On RE integration issues, the draft policy proposes a combination of grid expansion, automation and smart grid based approaches. It also suggests shortening of scheduling and dispatch interval times from 15 minutes, at present, to 5 minutes and development of an ancillary services market. For grid balancing, it proposes reliance on large hydro power plants and gas-based generation.

There are two glaring deficiencies in the policy document. One, it fails to examine past problems and proposes new solutions. For example, it argues correctly that poor financial health of DISCOMs is caused due to tariff subsidies and high T&D losses but the proposed solution – entailing separation of content and carriage – has been mooted for many years without any success. Second, the document largely ignores critical role of new technologies. It vaguely suggests setting up of renewable energy management centers and roll out of smart grids across India but the most promising new technologies – electric vehicles (EVs) and energy storage – have not received the required attention. While the government is considering setting an ambitious target of 100% EVs by 2030, the draft policy’s only suggestion for EVs is to implement time-of-day tariffs.

Similarly, while other countries are already taking long strides in development of energy storage technologies through investments in R&D, incentives for manufacturing and installation of large scale storage facilities, the draft NEP merely mentions ‘the need to push development of storage technologies’.

Overall, the draft energy policy is a missed opportunity to achieve necessary transformation in the Indian energy sector.


Greenko and Azure Power have together raised USD 1.5 billion from sales of green bonds in the last two weeks. Other offshore green bond issuances by ReNew Power, NTPC, Rural Electrification Corporation (REC), IDBI Bank, Axis Bank, Yes Bank and L&T Infrastructure Finance mean that India is amongst the top ten green bond markets in the world with a cumulative issuance of over USD 4 billion. In the first seven months of 2017, India’s green bond issuance reached USD 2.1 billion, sufficient to fund debt for over 3.5 GW of new renewable energy projects.

  • Indian renewable sector needs a significant amount capital (about USD 150 billion) to achieve the ambitious 175 GW target and there is abundant capital available internationally;
  • Renewable assets in India are still considered too risky by global funds due to poor offtaker ratings, frequent payment delays and weak regulatory enforcement;
  • The Indian government should try to reduce risks for private investors but the recent trend of PPA cancellations and renegotiation attempts is not helpful in this regard;

In 2015, the Securities and Exchange Board of India (SEBI) had endorsed the internationally recognized green bond principles, providing regulatory clearance for Indian renewable assets to tap into offshore green bonds. Indian renewable sector needs a significant amount capital (about USD 150 billion) to achieve the ambitious 175 GW target. There is plenty of capital available internationally with sovereign wealth funds, pension and insurance funds but expectations need to be tempered.

First, renewable assets in India are still considered too risky by these global funds. While Greenko and Azure were successfully able to place their bonds, Morgan Stanley owned wind developer, Continuum, failed to do so. It launched a USD 400 million issue but failed to raise the money because of the weak credit profile of its customers (poorly rated DISCOMs). International investors are highly selective about risk and most Indian renewable IPPs, rated 2-3 notches below investment grade, are not deemed sufficiently attractive.

Second, Indian regulators impose strict curbs on offshore issuance of bonds – both by quantum and cost – limiting the prospects of this route. Even so, there is little cost advantage for developers in raising funds through green bonds. Greenko and Azure issues have been completed at rates between 5.0-5.5% resulting in all-in cost of over 9% including hedging cost. This is hardly attractive in comparison to domestic borrowing cost particularly when refinancing risk is taken into account. Main advantage for the issuers is diversification of their funder profile and freeing up of their bank credit lines in India.

To make green bonds more attractive for Indian issuers, the Indian government should try to reduce risks for private investors and developers. NTPC offtake, UDAY scheme, solar park policy and SECI payment security fund are good steps but much more needs to be done. Documentation and risk allocation framework needs to be improved to match international standards. More importantly, we need alignment of policy objectives between central government and states as well as strict enforcement of regulatory framework. Recent PPA cancellations (wind projects) and renegotiation attempts are not helpful in this regard.


India has initiated a new investigation to probe dumping of solar cells and modules from China, Taiwan and Malaysia. The petition for this investigation was submitted by Indian Solar Manufacturers Association (ISMA) on behalf of Indosolar, Websol and Jupiter Solar. The investigation covers both crystalline and thin-film technologies and will affect all imports making up more than 85% of total cell and module sales in India.

  • Proving dumping for solar imports should be relatively easy as Chinese suppliers have been selling modules in India at prices lower than in China;
  • The investigation provides a great test case for design of Indian policy making as there is no evidence from other countries of protectionist duties benefitting the prospects of domestic manufacturers;
  • But with solar capacity addition growing at 100% CAGR in last 3 years and cost of solar power crashing to INR 2.44/kWh, we feel that the government may be more sympathetic to the demands of domestic manufacturers this time;

Dumping is defined as exporting a product at a price that is lower than the domestic price for the same product. For solar imports, proving dumping may not be difficult as it is common knowledge that Chinese suppliers have been selling modules in India at prices lower than in China.

The latest petition follows an earlier probe in 2012-14 on dumping of solar cells and modules, which had recommended anti-dumping duties of USD 0.11-0.81/Wp on cells and modules imported from China, US, Malaysia and Taiwan. However, the Indian government decided not to act on this recommendation following intervention by the then newly appointed Minister for Power, Piyush Goyal as the duties were seen detrimental to the growth prospects of solar industry in India. Instead, domestic manufacturers were promised assured demand through a Domestic Content Requirement (DCR) regime. Loss in the case against DCR at WTO has brought events full circle back to anti-dumping duties.

The dumping investigation will be carried out by Directorate General of Anti-Dumping and Allied Duties (DGAD), who will consider a 15-month period from Apr-16 to Jun-17 to probe dumping and three-year financial data of the petitioning companies to analyse injury to domestic manufacturers. All other affected parties have a period of 40 days to share their response to the domestic industry’s application. While the investigation can take 12 to 18 months, a provisional duty can be announced as early as on 22 September, 60 days after commencement of the investigation. This coincidentally is the same date when the USA is expected to decide on a safeguard duty petition from Suniva.

ISMA has submitted a separate parallel petition to Directorate General of Safeguards to consider imposition of safeguard duty on solar cells and modules. Safeguard duty is defined as temporary measure in defense of the domestic industry which is injured or has potential threat of injury due to sudden surge in imports. Unlike anti-dumping duty, a safeguard duty is country agnostic, is imposed on all imports and can be implemented much faster. In a recent precedent, India imposed safeguard duty of 10 per cent on import of specified steel products.

As we have always maintained, we see little upside to imposition of anti-dumping or safeguard duties on solar cells and modules. There is no evidence from other countries of such duties resulting in any long-lasting benefits for domestic manufacturers. At the same time, any duties raise the risk of side-tracking India’s solar capacity addition target affecting more than 10,000 MW of project pipeline.

Unlike last time around, however, we believe that there is more sympathy within government for imposition of anti-dumping and/or safeguard duties. In our previous commentary, we had highlighted that 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 to protect domestic manufacturers at the cost of causing disruption in the solar market.


BRIDGE TO INDIA has released its latest edition of the India Solar Rooftop Map report. As per the report, India added 678 MW of rooftop solar capacity in FY 2016-17, growing at 81% Y-o-Y. Total installed rooftop solar capacity reached 1.4 GW as of March 2017. Strong market fundamentals including falling costs and improving debt financing mean that the market will continue strong growth trajectory for many years to come.

  • Commercial and industrial customers (C&I) remains the biggest market segment as economic viability is most pronounced for such customers;
  • OPEX model has been gaining market share, doubling from 12% in FY 2014-15 to 24% last year and large public sector procurement programs will drive further growth in this market in the next few years;
  • Yearly capacity addition is expected to scale up to over 2 GW by 2019 and over 3 GW by 2020 presenting attractive growth opportunities for all market participants;

With 65% of total installed capacity, C&I remains the biggest market segment. These consumers account for more than 50% of India’s total power demand and make savings of up to 50% through rooftop solar systems as their grid tariffs are typically between INR 7-10 (US₵ 11-16)/ kWh. Public sector segment is also expected to show robust growth in the coming years because of a strong government push combined with 25-30% capital subsidy. In contrast, the residential segment is expected to grow relatively slowly because of poor economic viability and lack of financing solutions.

OPEX (or BOOT) business model, where a third-party investor owns and builds the system under a long-term PPA with the site occupant, saw new capacity addition of 162 MW in FY 2016-17, accounting for 24% of total market (up from 12% in FY 2014-15 and 19% in FY 2015-16). This market is fairly consolidated as access to capital remains tight and on-the-ground execution is challenging. Top five developers account for over 60% market share – CleanMax Solar (24%), Cleantech Solar (12%), Azure Power (11%), Amplus Solar (8%) and Rattan India (5%). Going forward, we believe that this model will continue to grow but will be increasingly driven by tender-based public sector projects.

As seen previously, EPC for rooftop solar continues to be highly fragmented with over 1,000 registered installers and 35 largest players accounting for less than 35% market share. Only three companies have more than 2% market share – Tata Power Solar (6.4%), Sure Energy (2.5%) and Fourth Partner (2.2%).

In the inverter market, just two companies account for over 60% market share –  Delta Electronics (36%) and SMA (including Zever Solar, 25%). ABB, KACO and Fronius are other noteworthy suppliers with about 5-6% market share each. An increasing market share for ABB and entry of companies such as SolarEdge and Huawei may result in minor changes in the leaderboard in future.

Overall, we believe that rooftop solar market in India is beginning to realize its potential. Annual market size greater than 1 GW in the current year will be an important milestone for the market. We expect India to build a total rooftop solar capacity of 13.2 GW by 2021.


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