India Solar Rooftop - 01 (Landing Page)

India Solar Rooftop Map | December 2017

India adds new rooftop solar capacity of 840 MW in the 12 months ending September 2017

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Last week, we wrote a special bulletin about safeguard duty and its implications for various ongoing and under tender projects. The Director General of Safeguards’ recommendation for provisional duty of 70% has put the industry on tenterhooks. Investors, developers, contractors and manufacturers anxiously await final decision as they worry about navigating through an extended period of uncertainty.

The government has a difficult decision to make but the longer this investigation drags out, the more harmful it will be for the whole sector. We believe that the final duty decision will take about 8-10 months and activity is bound to slow down across the sector until then.

India’s Director General of Safeguards (DGS) has proposed a provisional duty of 70% for a period of 200 days on solar cells and modules. It has issued its recommendations in a preliminary report, completed within just a month of submission of the petition by five Indian manufacturers including Mundra Solar, Indosolar, Jupiter Solar, Websol Energy and Helios (formerly, Moser Baer). The duty is proposed to be levied on imports from all countries except developing countries other than China and Malaysia. In effect, that covers around 90% of cells and modules used in India. The decision has come as a major shock and risks causing major ructions in the sector besides upsetting the government’s 100 GW solar target for March 2022. Coming after the moves to levy 7.5% import duty on modules and GST ranging between 5-18% on various input costs, the recommendation also betrays lack of policy consistency and clarity in various government departments.

The decision process and rationale seem fundamentally flawed to us

The DGS recommendation is based on a very weak premise that rising cell and module imports have caused an injury to the domestic manufacturers. That is self-evident but not, in itself, a reason to protect the domestic industry. More important issues to consider, in our view, are why have the Indian manufacturers failed to scale up, upgrade plants or integrate backwards? Do they have the technical and financial capacity to meet growing demand in the sector? Why is their cost of production higher than the cost of imports? It is a policy failure that rather than addressing these substantive issues, the Indian government is proposing to create trade barriers to support domestic manufacturers. Moreover, DGS report expresses concern about loss of jobs in the manufacturing sector. But it fails to take into account the tens of thousands of jobs created in the downstream design, construction and operation of solar plants because of cheap imports. It is very clear that the sector growth – about 900% in last three years – has been largely underpinned by sharp fall in costs. A trade duty of 70%, or even, say 30%, would result in a substantial slowdown in the sector and lead to loss of many more jobs than potentially to be created on the manufacturing side.

RE is moving down policy priority list

The Indian government is grappling with various challenges, many of them inter-connected and conflicting in nature – a bid to revive economic growth and shore up manufacturing sector under its signature Make in India campaign; improve employment opportunities for more than 15 million people entering workforce every year; pressure to contain fiscal deficit in the face of falling tax revenues; and provide reliable 24×7 power across the country. Upcoming general elections, due in 2019, mean that the political stakes are high. Clearly, MNRE and the 100 GW solar target are struggling to get the desired attention in this complex set of circumstances. MNRE has been making soothing noises but the events of last six months are not reassuring.

Best case scenario for the developers is to get relief for pipeline projects

There has been a strong sense in the industry that some form of duty protection is imminent for domestic manufacturers. After speaking to various public and private sector stakeholders, we feel that a duty decision could be announced as early as in four-six weeks. Developers seem resigned to the decision and their best bet seems to be to: i) delay the final decision as long as possible so that under construction projects are not affected; and/or ii) to get relief for projects already auctioned and awarded. But as we commented in our report on anti-dumping duty, the likelihood of government granting a simple waiver of duties on projects in pipeline seems slim. If such relief is not available, up to 4,500 MW of projects risk becoming unviable and/or abandoned.

Project tariffs would need to increase by about 35% at 70% duty level

There are currently about 4,800 MW of tenders awaiting allocation and MNRE wants to bring out several new tenders in the coming months. A final duty of between 30-70% would mean that tariffs would need to go up by between 17-35%, or about INR 0.45-0.90/ kWh, to maintain financial returns. But some of these tenders have a prescribed tariff ceiling of as low as INR 2.93/ kWh. The DISCOMs are obviously not keen on tariffs going up substantially from current levels creating uncertainty for all new tenders.

Private rooftop solar and open access market would be hit badly by duties

Private market, both rooftop and open access solar, is likely to be the worst affected in our view. Most end consumers are in no hurry to build projects and would prefer to wait until there is complete clarity on duty decision and final costs are acceptable. We believe that this segment could see volumes declining by as much as 50% if a duty exceeding 20% is imposed.

In conclusion, a knee-jerk response to duty petitions risks damaging investor confidence and undermining achievements of the last three years. The government needs to act in concert across different departments and provide long-term policy visibility to ensure continued growth in the sector.

FULL STORY

Last few weeks have seen feverish activity in the RE sector with several bold announcements from the new MNRE leadership, keen to address the multiple complex issues facing the industry. After announcing a new RE rollout plan entailing tenders of 91 GW of new solar and wind projects by March 2020, MNRE has issued a new concept note on rooftop solar envisaging capital subsidies for residential customers and financial support to DISCOMs – aggregating to INR 235 billion (USD 3.7 billion) – for encouraging growth of this market.

Three major auctions were completed last week – two for solar projects by SECI (Bhadla solar park 500 MW and 250 MW respectively) and one for wind projects by Gujarat Urja Vikas Nigam (GUVNL, fully owned by Gujarat government) (500 MW). The solar projects were won by Hero Future (300 MW), Softbank (200 MW), Azure (200 MW) and ReNew (50 MW) at tariffs between INR 2.47-2.49/ kWh (USD 0.04), a very slight increase over the previous auction tariff in Bhadla solar park back in May 2017. Wind tariffs, on the other hand, fell even further to INR 2.43-2.45/ kWh. Projects were won by Sprng (owned by Actis, 197 MW), KP (30 MW), Verdant (100 MW), Engie (30 MW), Powerica (50 MW) and ReNew (93 MW).

Figure: Recent bid tariffs for solar and wind tenders

dec 29

Note: NTPC 250 MW DCR (domestic content requirement) auction in October 2017 is not shown as it has unique pricing fundamentals.

In the previous Bhadla auctions in May 2017, tariffs had touched an all-time low of INR 2.44/ kWh. Since then, module prices have risen by around 20% to USD 0.36/W. Including other cost inflationary factors such as 7.5% import duty on modules and 5% GST, capex has increased cumulatively by about 20% in the last six months. It is remarkable that tariffs have remained relatively unchanged despite such significant increase in capex and a very real risk of anti-dumping/ safeguard duties on modules. There is no material change in any other factors including solar park charges or financing costs in this period.

As per our analysis, module prices would need to fall to an impossible USD 0.16/W (55% reduction in 10 months) for winning bidders to earn a project IRR of 11%. This ignores the impending risk of anti-dumping duties.

The fall in wind tariffs, 33% in just ten months is equally stunning and hard to explain. There is no underlying industry trend that justifies such a significant tariff reduction.

The only way to explain the latest tariffs is that the developers, concerned by slowdown in power procurement, are anxious to win capacity at any cost. We have maintained for some time that renewable auction tariffs are becoming unsustainable, but the problem is getting even worse. Clearly, the industry is not convinced by the MNRE’s new exuberant plan of auctioning 17 GW of solar and 3-4 GW of wind projects by March 2018. But not only are the developers taking undue risk in these auctions, there is also a growing hazard that as and when there is a tariff correction, the DISCOMs would walk away creating challenges for projects yet to come.

FULL STORY

As the year 2017 comes to an end, we take stock of the progress made by the Indian renewable energy sector. It was an eventful year, during which annual capacity addition is estimated to touch record levels of 10.9 GW (+66% over 2016) including utility scale solar (9 GW, +110%), rooftop solar (887 MW, +60%) and wind (4 GW, +11%). Utility scale solar capacity addition actually exceeded our original estimate by 17% because of timeline extensions given in some states (Telangana, Karnataka) and large capacity addition in Karnataka under open access and farmers’ schemes (total 450 MW).

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