Bridge India

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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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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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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Rapid growth in the US rooftop solar market and the number of net-metering connections has opened a battle-front between utilities on one hand and solar developers and consumers on the other hand. Utilities are arguing against the rationale of giving customers full retail credit for their excess energy and vigorously challenging the current net-metering framework in many states including Arizona, Nevada, Maine, Florida, and Alabama. Future net-metering policy in these ‘battle ground states’ is now being decided by public hearings, ballots, regulatory intervention and court rulings. Evolution of net metering policy in USA holds vital lessons for the fledgling rooftop solar market in India, which is still very small but growing rapidly (refer). Many Indian utilities are already resisting net-metering connections for commercial and industrial (C&I) customers; The current Indian net-metering regulations are too simplistic and they need to be overhauled urgently for sustainable growth of rooftop solar in India; Waivers provided for promoting the rooftop solar market need to be phased out over time and both utilities and customers should be aware about how this transition will happen;

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India’s total installed solar capacity including rooftop and off-grid segments has crossed 10 GW mark, a major milestone for the sector. India is expected to add new solar capacity of 5.1 GW this year, which is a growth of 137% over last year. BRIDGE TO INDIA expects average annual capacity addition of 8-10 GW per annum from next year onwards. The pace of sector activity has picked up tremendously in the last two years (see chart below) because of strong government support and increasing price competitiveness of solar power. India is expected to become the world’s third biggest solar market from next year onwards after China and the USA.

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The Indian government has launched a momentous demonetisation drive to weed out black money and clean up the economy (refer). We have often heard gossip about some of the black money, estimated to be close to INR 30 trillion (USD 440 billion) or about 20% of Indian GDP, finding its way into the Indian solar sector and possibly explaining some of the overly aggressive bidding behaviour in solar projects. It is impossible to ascertain veracity of such claims but the sector seems to have its share of other unethical practices. Other commonly heard chatter is that some project developers over-estimate project costs to draw down more debt and reduce their equity contribution. We do not believe that demonetization will have any material impact on the Indian renewable sector as most leading project developers are backed by reputable Indian and international sponsors with robust corporate governance practices; Indian lenders can help in curbing unethical practices in the sector by improving their risk assessment capability and tightening credit criteria; Poor risk assessment and documentation capability of Indian lenders poses one of the most underestimated challenges for the sector;

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Madhya Pradesh government has come out with a new decentralised renewable energy policy focusing primarily on rooftop solar systems. The policy’s target to install 2.2 GW of rooftop solar capacity by 2022, is consistent with the Government of India’s national rooftop plan of 40 GW by 2022. MP is ­­one of the first few states including Himachal Pradesh and Maharashtra to revise its decentralised renewable energy policy to align with national policy. The policy provides flexibility to consumers willing to set up a project for complete captive consumption, on net metered basis or on gross metered basis with attractive open access incentives The policy is applicable for projects up to a capacity of 2 MW The policy also recognises and extends benefits to rooftop solar installations by Renewable Energy Service Companies (RESCOs) As of September 2016, MP’s total rooftop capacity stood at a mere 13 MW. As per BRIDGE TO INDIA estimates, the state is likely to install total rooftop capacity of only about 650 MW by 2022 in the ‘business as usual’ scenario. The new policy has many consumer- and investor-friendly measures. In our view, the policy has three key elements. First, it allows for both net- and gross-metering… Read More »

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India’s rooftop solar market is growing rapidly with the country adding more capacity in the past 12 months than all previous years put together (refer). However, grid interconnection regulations and processes remain challenging in most parts of the country despite almost all states announcing net- and/or gross-metering policies for rooftop solar. Our survey of industry participants shows that overall implementation of net metering policy remains patchy across the country; The policy framework needs an urgent overhaul to make it more consumer friendly and to make it suitable for evolving technologies and business models; International examples show that effective net-metering implementation can increase rooftop solar adoption by as much as 50%;

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