Bridge India

US trade case resonates in India

The US International Trade Commission (USITC) has unanimously agreed that solar imports have caused “serious injury” to local manufacturers. Suniva and SolarWorld are calling for duties of US¢ 40/ Wp on imported cells and a floor price of US¢ 78/ Wp on modules. But USITC may consider all possible remedies including new tariffs, minimum prices or import quotas. Solar industry in the US is against the suggested trade remedies, which they say will lead to market contraction and substantial job losses. USITC has the deadline of November 13 for finalizing its recommendations to the President, who has the authority to accept, reject or modify the recommendations. Trade barriers are expected to have a huge negative impact on the downstream solar industry without any guarantee of positive impact on the manufacturing industry; Past protectionist measures in the US, Europe and India have almost completely failed to meet their objectives; It is highly unlikely that new manufacturing investments will be made at a time of long-term policy uncertainty in an industry facing global oversupply and rapid change; The reason for a rare use of Section 201 for this investigation is that existing anti-dumping duties on solar imports from China and Taiwan were… Read More »

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Average clearing price for power on the energy exchange has been inching up from INR 2.61/kWh seen on 2rd September 2017 and spiked up to a high of INR 9.91/kWh last week. Current prices are in the range of INR 5.00 – 6.20/ kWh range. These high prices are in stark contrast to the past two years, when power was selling at near a ten-year low of INR 2.20-3.80/kWh. Exchange prices are regarded as a barometer of overall power demand-supply balance in the country and low prices have been seen as an indicator of excess supply situation. The current spike in spot prices has come about largely because of supply side issues rather than any sustained pick-up in demand ; Shortfall arising from scheduled maintenance of 10 GW of thermal and nuclear capacity, reduced wind and hydro generation and an uptick in demand could not be compensated through India’s underutilized thermal fleet due to a seasonal coal shortage; The spike sends a signal to consumers and DISCOMs that they need to proactively manage their power procurement plans and that reliance on short-term trading comes with its own set of challenges; DISCOMs meet bulk of their power requirement through long-term purchase… Read More »

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Andhra Pradesh recently became the latest state to notify forecasting, scheduling and deviation settlement regulations for solar and wind power generation. It joins Karnataka, Chhattisgarh, Jharkhand and Uttarakhand, who have already announced these regulations. Six other states including Rajasthan, Gujarat, Madhya Pradesh, Tamil Nadu, Odisha and Manipur have announced draft regulations. Together, these states account for about 70% of operational and under development solar capacity. The primary objective of the new regulations is to make generators more accountable through enhanced forecasting requirements and penalizing them for deviation. Once operational, this should help facilitate large scale grid integration of intermittent renewable power while maintaining grid stability. Industry experts believe that compliance cost for a single project, including penalties, may be around INR 0.02/kWh; Generators can comply with the regulations on an individual basis or on a ‘virtual pool’ basis by joining others; The regulations are highly desirable and developers would happily bear additional compliance cost in return for reduced curtailment risk; The national power regulator, Central Electricity Regulatory Commission (CERC), first announced a regulation for deviation settlement mechanism back in 2014 and has made three subsequent amendments. All state regulations essentially follow the CERC regulation with some minor variations. For example,… Read More »

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In a major cabinet reshuffle yesterday, India’s erstwhile Minister of Power and Renewable Energy, Piyush Goyal, demitted office to become the new Minister of Railways. R.K. Singh, an erstwhile bureaucrat and now a Member of Parliament, has been appointed as the new minister. During the 40 months of his tenure, Piyush Goyal initiated important supply side reforms including allocation of coal linkages, increase in domestic coal production, solar parks policy and green corridors program. In this time, thermal power capacity has grown by 60 GW, renewable power capacity by 23 GW and transmission capacity by an aggregate of 25%. Not accounting for latent power demand, these steps have turned India from chronically power deficit to a power surplus country. Surplus power situation, if not addressed through adequate demand side reforms, will affect renewable sector prospects; Rural electrification is unlikely to result in any tangible growth in power demand but may actually increase financial burden on DISCOMs; The incoming minister’s priorities should be to rationalize pricing of power, enforce operational improvements in DISCOMs, deal with the ‘Make in India’ conundrum and improve investor confidence in the sector; However, power pricing and demand side reforms have not kept pace. Despite UDAY scheme’s… Read More »

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Is there a case for solar InvITs?

InvITs are infrastructure investment trusts set up pursuant to SEBI Regulations 2014 for investment in infrastructure projects. Money raised from InvITs is used to repay external debt and buy back equity investments in underlying project companies. Recently, IRB and Sterlite power successfully launched the first two InvITs for road and power transmission projects by raising INR 50.3 Bn (USD 775 million) and INR 22.5 Bn (USD 345 million) respectively. Other infrastructure and energy asset developers are expected to follow suit later this year. SEBI regulations mandate a minimum of 80% of assets under an InvIT to be revenue generating for at least a year and at least 90% of distributable cash flow from underlying projects to be transferred to the InvIT unit holders. Thus, unit holders are assured periodic payments from distributable cash flows. An InvIT can only borrow up to 49% of its asset value on a consolidated basis. The overall InvIT structure is akin to a yieldco with tighter regulatory oversight because of its trust structure and attractive tax benefits:   Tax benefits   SPV ·         Exemption from dividend distribution tax ·         Interest payments to InvIT not subject to withholding tax InvIT ·         Exemption from corporate income tax… Read More »

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Indian solar developers typically factor in a 15-20% annualised fall in the cost of solar modules when bidding for new projects. The assumed price decline may have been even higher in some of the recent auctions. Price increases in the last 2-3 months, therefore, have come as a shock to the sector. Against an expectation of USD 0.28/Wp, prices for the current quarter are being quoted at about USD 0.34/Wp. Goods and Services Tax (GST) rate of 5% has further added to the cost increase. Higher costs and constrained supply as Chinese suppliers renege on module supply contracts are presenting new challenges for Indian developers. Explosive capacity addition, coupled with a reduced polysilicon supply in China is primarily responsible for module price increases; Up to 1 GW of projects, due for completion in the remaining year, may get delayed as a result of higher prices and/or uncertain supply status; Projects also face the risk of imposition of anti-dumping duties, which could be announced as early as September 2017; China was expected to add 33 GW of solar PV capacity in 2017 but it has already added over 34.9 GW in the first seven months, with 24 GW being added in… Read More »

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The Ministry of Power has issued new “Guidelines for tariff based competitive bidding process” for solar power plants. The guidelines shall be applicable to all projects equal to or greater than 5 MW for supplying power directly/ indirectly to DISCOMs subject to approval from the respective central or state regulator. For the first time in the sector, the government also proposes to issue standard bid documents including request for selection, PPA and other ancillary documents. The proposed changes, while still not going far enough, are a major improvement on the current framework. Introduction of standard documentation, in particular, will be of major help to developers and investors. Significant changes are discussed below: Readiness of project site: The guidelines specify strict timelines for completion of land acquisition, transmission connectivity and other approvals in a timebound manner to avoid project delays. If the power purchaser retains responsibility for these in the form of a solar park, then it must ensure that: i) at the time of bidding, 100% of land is identified and proof of in-principle availability of 25% of land is in place; and ii) within one month of PPA signing, 90% of land is acquired and balance 10% is acquired… Read More »

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India’s Ministry of Finance has released a mid-year macro-economic assessment of the country in the form of second volume of the Economic Survey 2016-17. The Survey reflects work of various government departments and provides valuable guidance to future policy making. The chapter on climate change and energy reiterates recent Central Electricity Authority (CEA) projections – capacity addition for coal based power is expected to be around 50 GW between 2017 and 2022 and nil between 2022 to 2027. As for renewables, the Survey takes a curiously negative view and recommends that India should ‘calibrate’ investments in renewables. – The Survey assesses social cost of renewable power to be around 3 times that of coal power at INR 11 per kWh; – Underutilization of coal fired power stations causing losses for investors and lenders is classed as the most significant contributor to “social cost of renewables”; – The Survey’s ambivalent messaging betrays lack of clarity between different parts of the government, which is a very worrying sign for the sector; The Survey argues that various sources of energy should be prioritized based on an analysis of their holistic impact (“social cost”) on the economy. It defines social cost of a power… Read More »

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