Bridge India

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… Read More »

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Launching BTI India Solar Price indices

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… Read More »

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Last week, BRIDGE TO INDIA launched its latest report: “Analysis of utility scale solar tenders in India”. This report examines recent bidding history for all PPA-based, open category tendered projects to understand risk-return relationship in the sector. From July 2015 to December 2016, India allocated 12.6 GW of solar projects to private developers through an open, competitive tender process. These tenders have seen tariffs trending downward from about INR 5.50 – 6.00 (US¢ 8.4 – 9.2)/ kWh in mid-2015 to INR 3.29 (US ¢ 5.0)/kWh in 2017 (refer), equivalent to an annualized decline of over 25%. Common perception is that auctions and increased competition are forcing developers to bid aggressively resulting in tariffs coming down so fast. But our analysis shows that changes in equipment costs and other factors are responsible for most of the decline. Adjusted for these changes, tariffs haven’t trended down in the last 18 months. Average harmonized tariff across 24 tenders gives us equity IRR of 14.20%, significantly below the benchmark expectation of 18-20%; Auction based tender process has forced developers to build forward-looking, favorable assumptions for solar module prices, debt refinancing and many other parameters; Inadequate risk pricing poses a severe viability challenge for the sector; To compare tariffs across different… Read More »

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After squeezing global solar module manufacturers out of business, China is at it again. It is using every trick available – government subsidies, domestic quotas, restriction on foreign players and cornering raw material supplies – to dominate energy storage industry, which has been so far led by Japanese and Korean manufacturers such as Panasonic, Samsung SDI and LG Chem. The country is spending billions of dollars subsidising local companies to push them at the forefront of storage and electric mobility technologies (refer). China is spurring a huge domestic supply ecosystem for lithium-ion based batteries through demand creation and incentives; By 2020, it is expected that China will have over 60% of the global lithium ion battery production; Unless India acts now, it is going to miss the bus on domestic manufacturing for a vital upcoming technology;

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Solar module prices are expected to continue declining in 2017 as global supply continues to exceed demand. As the largest supplier and installer of solar modules, China will continue to drive global pricing. The country’s demand is expected to be up to 20% lower than in 2016 – as against a record 34 GW of installations in 2016, it is expected to add only about 28 GW in 2017 – putting downward pressure on prices. Q2 is typically the year’s busiest period in China so we expect to see some hardening in prices in Q2, followed by a steep decline in third and fourth quarters; Global demand is expected to be nearly stagnant in 2017 even as several large suppliers have announced significant expansions; We believe that 2017 is likely to end with prices in the range of US¢ 25-26/Wp;

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India’s first ever wind power auction has resulted in a record low wind power tariff of INR 3.46 (US¢ 5.2)/kWh, just marginally higher than the record low levelized tariff of INR 3.29 (US¢ 4.9)/kWh in the recent Rewa solar auction (refer). Mytrah, Sembcorp, Inox and Ostro are the winning bidders and will be awarded 250 MW each. Successful bidders will sign 25-year PPAs with PTC India, a power trading company (partly owned by the Government of India), which will sign back-to-back PPAs with DISCOMs. The old model of wind procurement had become dysfunctional and significant delays in signing PPAs, rising incidence of grid curtailment and payment delays of up to 18 months were hurting the developers very badly; The sector is likely to shift entirely towards auction based allocation route but this transition may lead to a short-term hiatus in the market; It remains to be seen if investments in transmission grid can keep up with increases in renewable generation capacity and inter-state flows of power; Historically, states have been procuring wind power under a preferential regime with feed-in-tariffs ranging between INR 4.00-6.00 (US¢ 6-9)/ kWh. The move to auctions and replicate solar model has been very successful with tariffs… Read More »

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In January 2017, India’s coal imports declined by 22 percent to 14 million tonnes (refer) because of lukewarm demand from power generating stations. Coal India Limited, which accounts for 80% of domestic coal production, has posted its worst ever financial results for H1-FY17 as revenues declined even as expenses rose (refer). At the same time, PLF of thermal power stations continues to be near all-time lows of under 60% (refer). The Indian government’s aggressive electrification policy – with electrification of over 12,000 villages of the 18,452 unelectrified villages since 2015 – and UDAY reform package for DISCOMs are failing to bolster power demand; India’s coal-fired power sector continues to suffer rising challenges posed by lack of demand, improving price competitiveness of renewable power and growing regulatory risk; Private investors planning long-term investments in coal mining or thermal power generation are likely to be put off by the combination of demand, offtake, regulatory and environmental risks;

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The 750 MW Rewa solar project has seen tariffs fall to a record low of Rs 2.97/ kWh. Levellized tariff works out to Rs 3.29/ kWh, 24% below the previous low of Rs 4.34 seen in an NTPC tender in January 2016. Most of this fall can be attributed to lower equipment cost. Solar module prices, constituting about 60% of capital costs, have fallen by 26% in the last year. The Rewa auction makes solar PV the lowest cost power source in India. In comparison, new coal-fired thermal power today costs about Rs 5/kWh. Gas power is not viable in India due to high cost (over Rs 6/ kWh) and short supply of feedstock. For wind power, even after auctions, tariffs are likely to stay closer to Rs 4/ kWh. The most exciting part of solar technology is that it is still in early stages of its evolution. Further advancements and growth in industry volumes will continue to make solar power ever cheaper. We are potentially looking at solar power costing Rs 2/ kWh by 2020. On top of that, cost of integrated solar-storage systems with 100% power back up is expected to fall below the critical threshold of Rs… Read More »

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