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India Solar Excellence – DC cables and performance issues

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Bids for the proposed and much delayed 750 MW solar power tender in the Rewa district of Madhya Pradesh are expected to be submitted early next week (refer our previous blog) although another extension still seems likely. The project is being tendered by Rewa Ultra Mega Solar (RUMS), a joint venture between Solar Energy Corporation of India (SECI) and the Government of Madhya Pradesh. Developers can bid for three project units of 250 MW each in a solar park being developed by RUMS. The tender offers large scale and enhanced bankability because of its unique structuring aspects:

  • Power output will be sold to Madhya Pradesh utilities and Delhi Metro Rail on an open access basis plus the projects would benefit from state government payment guarantee and deemed generation compensation for grid unavailability significantly improving their risk profile particularly in comparison to other state government tendered projects;
  • BRIDGE TO INDIA expects tariffs to fall substantially below the INR 4.00 (US ¢ 5.9)/ kWh mark, the lowest ever for any utility scale project in India;
  • More states may incorporate some of the innovative measures from this tender to lower cost of their solar power procurement;
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In a new policy move, the Ministry of New and Renewable Energy (MNRE) has announced financial incentives for DISCOMs to support rooftop solar installations (refer). The notification proposes a financial support of up to INR 3.75m (USD 55,000)/MW for up to 1,350 MW of rooftop solar capacity. The funds can be used by DISCOMs for multiple activities including upgradation of distribution network and IT infrastructure, building consumer awareness campaigns, setting up consumer helplines, training employees, rating installers etc.

  • Delay in grid connection is one of the main challenges affecting the growth of rooftop solar in India;
  • By offering financial support to the DISCOMs, MNRE is trying to alleviate their concerns about loss of profitable customers and additional network investments required for growth of rooftop solar;
  • Financial support for DISCOMs is a very good move but MNRE needs to make sure that eligibility conditions and funds disbursement process is not unduly restrictive;
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In our last bulletin in 2016, we presented our summary of key sector developments in India in 2016 (refer). Here, we look at key anticipated themes and developments for 2017. We start the year with a pipeline of around 14 GW of utility scale projects, out of which 7.7 GW is expected to be commissioned in the year (growth of around 90% over 2016). Combined with 1.1 GW of expected rooftop solar capacity, India should add a total of 8.8 GW in 2017, ranking it amongst the top three global markets after China and the USA. On the policy front, impact of central government policies related to manufacturing, power distribution (UDAY) and implementation of GST is awaited keenly.

  • As the Indian market ramps up, it will become a key pillar for demand growth when demand in other leading countries including China, Japan and even possibly the USA is expected to slow down;
  • Despite concerns about weak power demand growth and growing incidence of grid curtailment, solar power outlook in India remains very strong;
  • 2017 will be a bumper year for the sector in India with total installed capacity reaching around 18 GW by the end of the year;
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As 2016 comes to an end, it is worth taking a holistic look at the Indian solar sector to analyse key trends, challenges and outlook. Key highlights include record project volumes – both for capacity addition and issue of new tenders, improving power distribution company (DISCOM) financial position as a result of UDAY scheme, steep fall in equipment prices, improving M&A activity and India’s ratification of climate accord adding credibility to the country’s ambitious 100 GW target for 2022.

The year has been bountiful in all respects for the sector with most key indicators growing 2-3x over last year. The country added total solar capacity of 4.9 GW (estimated), an increase of 101% over 2015 and crossed the 10 GW cumulative installed capacity mark. New tenders were floated for 9 GW of grid connected solar projects including 900 MW for rooftop solar systems.

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As solar tariffs fell below INR 5 (USD 0.07)/ kWh, solar power gained parity with other sources of greenfield power. Falling cost has been instrumental in boosting solar demand from the DISCOMs despite total power demand staying relatively weak throughout the year. Both Solar Energy Corporation of India (SECI) and National Thermal Power Corporation (NTPC) are expected to allocate substantial new capacity in 2017 attracting even more competitive tariff bids. We expect the INR 4 tariff level to be breached in early 2017, which will be a radical moment for the entire power sector in India.

Indian project developers asserted themselves strongly in 2016 winning over 90% of tendered capacity. All of the top 10 developers by pipeline capacity are now ‘home-grown’ IPPs and corporates. Successful sale of solar assets of Welspun (to Tata Power), SunEdison (Greenko), Punj Lloyd (IDFC Alternatives) among others and international IPO by Azure has helped instil confidence in the sector’s growth prospects. Falling module prices proved to be a gift that keeps on giving to aggressive bidders. Reduced Chinese demand in the second half of 2016 resulted in prices tumbling by 20% during the year.

India’s rooftop solar segment also crossed the symbolic 1 GW mark in September this year, growing by 135% over last year. Attractive capital subsidies and substantial demand from public sector are expected to continue to provide great demand boost to the segment over the next few years.

All this positivity is somewhat tempered by growing incidence of delayed power purchase payments by many DISCOMs and curtailment risk, two risks which badly affected wind power sector during the year. Solar sector has so far been lucky to escape likely because of smaller capacity (9 GW vs 28 GW of wind power capacity) and much greater political attention. However, these risks pose significant challenges to the sector despite strong government support and UDAY scheme.

The global supply glut in modules consolidated the hold of Chinese suppliers in the Indian market as over 80% of all modules installed in India in 2016 came from China. The World Trade Organization (WTO) declared India’s policy for domestic content requirement illegal and the proposed policy to support local manufacturing seems to be getting delayed. As a result, several ‘Make in India’ plans announced by various Indian and international suppliers have come to a naught.

Looking forward to 2017, we expect total new capacity addition of over 9 GW (up 90% over 2016) and up to 8 GW of new utility scale capacity allocation by NTPC, SECI and states including Madhya Pradesh, Maharashtra and Tamil Nadu. As other international markets including China, Japan and Europe slow down, India will remain one of the fastest growing markets around the world. But we remain pessimistic about the new domestic manufacturing policy.

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Solar Energy Corporation of India (SECI) has issued a tender for development of 1,000 MW rooftop solar capacity on pre-identified central government/ department owned buildings (refer). It is the largest such tender in India’s fledgling rooftop solar market (refer). 700 MW of capacity is proposed to be allocated under the OPEX route, where project developers shall fund and own the solar systems and sell power to the respective government departments under a 25-year power purchase agreement. Balance 300 MW is proposed to be set up under the CAPEX route. Bidding shall be conducted on a state-by-state basis and all bidders will be expected to match the lowest bid (L1) for the respective states.

  • Government customer segment is likely to play a crucial role in scaling up of the rooftop solar market in India as various central government departments and agencies have made commitments to install aggregate rooftop solar capacity of 6 GW for internal consumption;
  • A majority of systems under this tender are likely to be installed on educational and training institutes;
  • With capital subsidies of up to 35-90% available as part of this tender, we expect project costs and tariffs to reach record lows;
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