Bridge India

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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India’s Cabinet Committee on Economic Affairs (CCEA) sanctioned INR 50 billion (USD 750 million) funding for 30% capital subsidy for rooftop solar installations (refer). The subsidy will be restricted to residential, government, social and institutional segments only and the government expects this subsidy to support total rooftop capacity of 4,200 MW until this budget is exhausted. The fund unavailability issues with previous subsidy schemes are likely to get resolved; Significant changes to allocation process mean that the funds will be better directed to needier customers and potential for abuse will be much lesser than before; and We expect significant growth in the rooftop market particularly in the government and institutional segments but the entire rooftop market will benefit from growth through overall industry learning and skills enhancement.

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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. 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… Read More »

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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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In 2014, India’s Modi government announced a target to install 1 million solar water pumps, equivalent to approximately 3,000 MW, for irrigation and drinking water by 2021 (refer). But actual cumulative installed base stood at merely 25,000 pumps as of April 2016 (refer). The bleak performance is despite the government offering massive subsidies of as much as 75-95% of upfront capital cost of the pumps. Andhra Pradesh, Gujarat and Tamil Nadu have made some progress but overall results are disappointing despite generous capital subsidies being offered to farmers; Poor progress is down primarily to flawed procurement process, over emphasis on capital subsidies and lack of awareness amongst farmers; To improve implementation and reduce subsidy outgo, alternate procurement and financing models need to be explored;

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Rooftop solar market in India has grown at a CAGR of 98% in the last four years. As of September 30, 2016, total installed capacity stands at 1,020 MW (refer INDIA SOLAR ROOFTOP MAP 2016). Growth in this market is being primarily driven by improvement in price competitiveness of rooftop solar power vis-à-vis grid power. Commercial and industrial (C&I) segment currently makes up for almost 63% of this market. The remaining 25% goes to residential and around 12% to government buildings. C&I segment has grown at a compounded annual growth rate (CAGR) of 103% in last four years. As viability improves, BRIDGE TO INDIA expects this segment to almost double by 2017 and then continue its expansion to achieve a CAGR of 51% until 2022.

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Last month, Tamil Nadu Generation and Distribution Corporation Limited (TANGEDCO) floated a tender for 500 MW of utility scale solar projects. This tender has received limited interest and that too predominantly from smaller developers who have submitted 20 bids totalling just 116 MW. This tender follows an allocation of approx. 1,200 MW in early 2015 where a fixed tariff of INR 7.01/kWh (USD 0.10/kWh) was offered to developers. For that allocation, interest was received for a capacity of around 3,200 MW from over 90 developers. Given such large oversubscription, Tamil Nadu tightened qualification criteria significantly for this tender. Bidders were required to own land at the time of bidding and fully commission the projects within 10 months of PPA execution, which is much more stringent in comparison to other tenders. Developers had major concerns about grid curtailment, payment delays and a very tight timeline but no credible steps were taken to address these; A rush to complete the tender in time has in fact proven counterproductive; There is no reasonable justification for why Tamil Nadu does not go through National Thermal Power Corporation (NTPC) or Solar Energy Corporation of India (SECI) for allocations; this could enhance off-take bankability and help… Read More »

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