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Analysis of Utility Scale Solar Tender Results.The report examines recent bidding history for all PPA-based, open category solar projects tendered in India in the last eighteen months

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India achieved a record low solar tariff of INR 3.29 (US¢ 5.1)/kWh in the Rewa tender in February. That record was surpassed last week in an auction conducted by National Thermal Power Corporation (NTPC) for a 250 MW project in Kadappa, Andhra Pradesh, where Engie’s Solairedirect submitted the winning bid of INR 3.15 (US¢ 4.9)/kWh. The project will be built in a solar park, developed by the state government. Ostro, Canadian Solar, Greenko, Azure Power, Adani and Mahindra were some of the unsuccessful bidders.

  • Given that the overall Rewa tender structure was seen as uniquely beneficial to the developers, it is somewhat perplexing to find that tariffs have fallen even further so soon;
  • Slowdown in new tenders is putting pressure on developers, who are anxious to deploy capital and scale up quickly to monetize previous investments;
  • With module prices expected to keep falling through 2017, we are likely to see progressively new lows being achieved throughout the year;

Overall risk profile for Rewa and Kadappa projects is somewhat similar although it can be argued that the Rewa tender is more beneficial to project developers. It incorporates many unique provisions such as state government guarantee, deemed generation benefit and extended construction period of 18+12 months (additional reduction in module costs). It is therefore difficult to explain why Kadappa tariff has come even lower than the Rewa tariffs particularly as solar park charges are relatively higher in Kadappa.

One logical explanation for a new low is that Kadappa was the last of the 3,000 MW solar PV projects tendered by NTPC, the best offtaker in the Indian solar market. We had recently highlighted that pace of new utility scale solar tender announcements and project allocations has slowed down considerably to just 4.2 GW and 6 GW respectively, down 70% and 33% between FY 2015-16 and FY 2016-17. This slowdown is putting severe pressure on the 30-40 active developers in the market. The developer community is hungry for more projects to meet their internal targets and to scale up to monetize previous investments.

Tariffs for NTPC projects have declined by about 32% in the last eighteen months since its first auction in Andhra Pradesh in November 2015 for the 500 MW project won by SunEdison. This sharp decline is largely due to steep fall in module costs (33% in the respective period) and intense competition in the sector. We expect the trend to continue in the upcoming 750 MW auction by Solar Energy Corporation of India (SECI) in Bhadla solar park in Rajasthan.

FULL STORY

Energy transformation has arrived in India. According to the Ministry of New and Renewable Energy (MNRE), India’s total renewable capacity including solar, wind, bio-mass and small hydro grew by around 11.2 GW in FY 2016-17, at par with thermal capacity addition, which registered a decline of 50% in the year.

The country added 5,526 MW of new solar capacity (up 83% over FY 2015-16) and 5,400 MW of new wind capacity (up 63%) in the year. While these numbers are impressive, it is worth noting that the solar capacity addition including rooftop solar is almost 50% below the annual target of 12,000 MW. In contrast, wind capacity addition was +35% over the 4,000 MW target.

Figure – Renewable and thermal power capacity addition, MW

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Sources: CEA, MNRE, BRIDGE TO INDIA research

  • India added 5.8 GW of renewable capacity in a single month as implementing agencies pushed for commissioning of projects before the close of the financial year;
  • There has been a downward trend in new renewable allocations in FY 2016-17 and the 2017-18 target of 20,450 MW will be impossible to meet;
  • As renewables continue to grow, prospects for thermal capacity addition seem limited and we expect renewables to decisively beat thermal capacity addition in the coming years;

The figures released by MNRE suggest that March was a blockbuster month with addition of 5.8 GW renewable capacity in a single month (more than the combined figure for previous eleven months). While financial year end is always busy, we suspect that there was considerable pressure on implementing agencies to boost March numbers to show respectable addition numbers. Second, the developers would also have been keen to bring numbers forward to take advantage of the many financial incentives including generation wind based incentive (GBI) for wind projects, accelerated depreciation and 10-year tax holiday that are going to be significantly cut or phased out completely from April 2017 onwards.

The sector performance on some other measures has been much weaker. Pace of new utility scale solar tender announcements and project allocations slowed down considerably at just 4.2 GW and 6 GW respectively, down 70% and 33% over last year. This downward trend in new allocations is likely to continue, perhaps for another six months, as the government seem to have gone back to drawing board to incorporate learnings from the Rewa tender and India’s first wind tender.

With an even more ambitious target of 20,450 MW for 2017-18 for the renewable sector, it is clear that much more needs to be done to spur further growth. Falling prices will undoubtedly be of major help, but better regulatory enforcement of renewable purchase obligations and the UDAY scheme is critical. Overall, BRIDGE TO INDIA expects 2017-18 to register a very modest growth in renewable capacity addition, which should nonetheless easily come ahead of thermal capacity addition.

FULL STORY

It has been nearly eighteen months since the Ministry of Power announced the vital Ujwal DISCOM Assurance Yojana (UDAY) scheme for financial and operational reform of power distribution companies (DISCOMs) in India (refer, refer). Twenty six states and union territories, including four of the worst affected states – Rajasthan, Tamil Nadu, Uttar Pradesh and Haryana – have signed up for the scheme. The only notable omission is Odisha, which has not signed up because its DISCOMs are partly privately owned. The scheme has been undeniably successful in achieving its most important objective – of restoring financial health of DISCOMs – by transferring almost 75% of their debt to the state governments and reducing interest cost burden on the remaining 25% debt.

  • The financial surgery to deal with soaring debt and losses of the DISCOMs will provide vigour to the entire power sector;
  • As expected, progress on operational parameters such as aggregate technical and commercial (AT&C) losses and tariff hikes remains comparatively weak;
  • Scheme monitoring and enforcement need to ensure that there is no relapse of the bad times;
FULL STORY

The Indian power sector is in early stages of transformation from coal-centric generation to variable renewable power generation (refer). This transformation will pose several daunting commercial and technical challenges for both policy makers and market players. It will also inevitably result in growing incidence of grid curtailment of renewable power, as seen worldwide, for a variety of reasons. It is time to institute a sweeping range of both demand and supply sides regulatory reform for effective management of the grid and providing long-term visibility to private sector investors.

  • As renewable capacity grows, capacity utilization for conventional power fleet could start touching 50% by 2021-22 assuming all renewable power output is evacuated;
  • In an era of cheaper renewables, we need to move away from the ‘must run’ incentivized structure to a comprehensive reform of pricing, grid utilization and related ancillary services;
  • As renewable power becomes more mainstream, it should stop expecting special advantages and compete on equal terms;

A back-of-the-paper calculation shows that if India realistically adds a combined wind and solar power capacity of 110 GW by 2021-22 and power demand grows by 5% annually, capacity utilization for conventional power fleet would drop below 50% at various times in the year, much lower than the critical rate of 55%. High growth in solar capacity addition in conjunction with India’s evening peak demand profile will add further to the woes of grid management.

There are several plans to enhance transmission infrastructure and introduce grid-level battery storage to address the increasing renewable penetration. Current regulatory approach to tackling this risk is predicated almost entirely on providing ‘must run’ status – priority access to the grid – to renewables. This simplistic approach has been very helpful to the renewable sector but is becoming untenable as it ignores the interests of conventional power generators, transmission companies and DISCOMs. There are already many instances of DISCOMs backing down renewable power for various commercial and technical reasons.

In an era of cheaper renewables, we now need compensatory mechanisms for backing down and ramping up conventional power. Developing an effective and economically sound ancillary grid services market should also be a priority. Power tariff structures in India are rigid and need to evolve to ‘time of use’ pricing to shift customer behaviour. Backing down of renewables may become unavoidable in future, so there is a growing clamour for renewable power to have a two-part tariff and do away with the ‘must run status’. However, this needs proper planning and consultation with the private sector so as to avoid a repeat like the coal linkage mess that we saw in the thermal power sector recently.

As renewable power becomes more mainstream, it should stop expecting special advantages and compete on equal terms. Recent Rewa tender allows deemed generation compensation for evacuation risk beyond a specified limit. Sector regulators need to take the lead and work closely with the industry to develop more innovative and workable tariff structures for sustainable long-term growth of the sector.

FULL STORY

BRIDGE TO INDIA is launching India Solar Price Indices, a series of indices to track and monitor key price trends in the Indian solar market. Our objective is to publish pricing data specifically applicable to the Indian solar market – devoid of exchange rate movements or source of equipment. We expect the indices to bring more transparency to the sector and provide reliable, independent information to all key stakeholders including government and regulators, financial institutions, developers, equipment suppliers and contractors.

We plan to release updated price indices every quarter across for four categories:

  • Modules
  • Inverters
  • Utility scale EPC cost (excl land and transmission connectivity costs)
  • Rooftop solar EPC cost

Methodology

We aim to get pricing information by conducting interviews with a diversified group of 6-10 leading project developers, EPC contractors and module suppliers. Final pricing is obtained by taking a simple average of all responses while ignoring any outliers.

BTI India Solar Module Price Index

This index aims to provide pricing information for multi-crystalline PV modules from tier 1 Chinese suppliers for delivery in the next 3 months with a minimum order size of 50 MW.

Based on the methodology described above, our module price index for March 31, 2017 is INR 22/ Wp (US 33¢/ Wp). This price is CIF India, net of any further port or inland transportation costs.

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Note: Prices for past quarters are based on BRIDGE TO INDIA research.

Module prices have been falling steeply due to oversupply and quarterly demand fluctuations in China. Prices have declined 29% y-o-y and 8% over the last quarter.

BTI India Solar Inverter Price Index

This index aims to provide pricing information for central inverters assembled in India for delivery in the next 3 months for a minimum order size of 50 MW.

Based on the methodology described above, our inverter price index for March 31, 2017 is INR 1.9/ Wp. This price is CIF India, net of any further port or inland transportation costs.

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Note: Prices for past quarters are based on BRIDGE TO INDIA research.

Inverter prices have fallen considerable in last two years because of increasing competition and entry of new players like TBEA, Huawei and Sungrow. Prices have declined 21% y-o-y and 5% over the last quarter.

BTI India Solar EPC Price Index

This index provides lumpsum EPC price information for utility scale solar projects of 50 MW size. The price excludes land, transmission infrastructure and all soft-development costs.

Based on the methodology described above, our EPC price index for March 31, 2017 is INR 35/ Wp.

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Note: Prices for past quarters are based on BRIDGE TO INDIA research.

EPC prices have declined 22% y-o-y and 8% over the last quarter.

BTI India Solar Rooftop EPC Price Index

This index provides EPC price information for a 500 kW rooftop solar project on an industrial pre-fabricated metal structure. Our rooftop solar EPC price index for March 31, 2017 is INR 45/ Wp.

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Note: Prices for past quarters are based on BRIDGE TO INDIA research.

Rooftop EPC prices have declined 21% y-o-y and 6% over the last quarter.

FULL STORY

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