THE BRIDGE TO INDIA BLOG
Last week, the Ministry for New and Renewable Energy (MNRE) under the new minister held a meeting with the Forum of Regulators (FoR) to discuss ways to revive the Renewable Purchase Obligation (RPO) mechanism (refer). Until parity in terms of landed cost of power (LCOP) between renewables and other energy sources is widely reached, the RPO mechanism can be a key driver for demand for solar power in India.
- The RPO mechanism currently works indirectly, and has failed to have a more direct impact on the solar demand
- RGOs (Renewable Generation Obligations) might be easier to implement than RPOs on loss making distribution companies
- BRIDGE TO INDIA believes that demand creation for solar in India should have more linkages with parity and market forces – rather than focus on obligations
There are no reasonable doubts that man-made climate change is happening and that it is likely to have a devastating effect on the planetary ecosystem, which includes us. Almost everyone knows it. And yet, collectively and individually, politically and privately, we fail to act. I am no exception. Why is that? The blog contains a personal list of hypotheses.
- The cost of fighting climate change is much smaller than the cost of climate change
- This is an intergenerational conflict as much as an international one
- We have psychological, political, institutional barriers that make us act fundamentally irrationally
Last week, the Ministry of New and Renewable Energy (MNRE) released a draft document outlining allocation process for another 1,500 MW of solar PV capacity under phase two of India’s National Solar Mission (NSM) (refer).
- Allocations will be made to bidders on the basis of the highest discount they offer on a benchmark tariff
- The new allocations will have no VGF however, will have a DCR
- Developers proposed to encourage a more even spread of plants (than it is currently) across India by introducing separate tariffs for different states
The recent railway price hikes indicate that the Modi government is capable of taking tough decisions that are unpopular but in India’s long-term interest. This augurs well for the entire economy and in particular for the power sector.
- Power prices need to be deregulated. This will mean prices go up in the short-term, but in the long-term that will ensure a more stable grid
- The Minister of Coal, Power and Renewable Energy, Piyush Goyal has already shown his intent in allowing for greater private participation in the sector
- Indian power sector equities might be en route to a dream run for the next decade
The costs for key solar equipment have fallen moderately in India over the last year. Chinese tier-1 crystalline modules came down by 3%, thin film modules by 6% and inverters by 8%. Cost reductions were thus much more moderate this year than in the year before. Nevertheless, a continuing fall in solar costs is essential for unlocking the grid parity market. This progress will now likely be undone by anti-dumping duties (ADD). For more details, please download our new India Solar Compass (July 2014 edition) here.
- Module prices have fallen significantly in the second quarter of 2014
- The appreciation of Indian rupee is the dominant contributor
- Inverter prices have stabilized in 2014 after a drop in the second half of 2013
In the budget, presented last week, the new government took further measures to support solar manufacturing by eliminating the ‘inverted duty’ structure. ‘Inverted duty’ meant that while there was an import duty exemption on finished solar modules, there was no similar exemption on raw materials and components used in module assembly, thus putting Indian manufacturers at a disadvantage vs. exporters to India. This includes, for example, EVA sheets, back sheets and ribbons. Removing this bias is sound.
- A sound business strategy for creating a healthy domestic manufacturing industry in India is missing
- BRIDGE TO INDIA believes that India does not need to have its own solar cell and module manufacturing industry, if it is much cheaper to buy from abroad
- If India needs to have a domestic solar cell and module manufacturing industry, then two key pieces need to be kept in mind: Strong solar demand and a long-term vision
Finance minister Arun Jaitley announced the new budget for the financial year 2014-15 on 10th of July. The Indian solar sector was looking forward to it as the new administration had signalled strong support and ambitious plans for the industry. Unfortunately, there is very little in the budget for the solar sector. It is, perhaps, still too early, in the new administration, for game-changing policies. There were four key announcements:
- The ten year income tax holiday (section 80 IA) on solar projects has been extended till March 2017
- A total of INR 5 bn (USD 83 m) is dedicated to the development of new ‘ultra-mega’, GW-scale solar projects in Rajasthan, Gujarat, Andhra Pradesh, Tamil Nadu and Ladakh
- Customs duty is waived on copper wire ribbons (used in modules), back sheets and EVA sheets. There are also waivers on duties for imported machines used in the manufacture of solar equipment such as cells and modules
- The clean energy cess on coal and lignite has been doubled from INR 50 (0.8 USD) to INR 100 (1.67 USD) per tonne
The Indian solar market is at a crucial juncture. Anti-dumping duties (ADD) will impact the market – severely if imposed, still substantially even if not (just by creating uncertainty). Projects under the National Solar Mission (NSM) will be affected least. Projects under state policies and parity-based projects might not only be delayed but fully called off. For more details, please download our latest India Solar Compass (July 2014 edition) here.
- If ADD were not tabled in the first place, India would have added over 1.6 GW in next year
- Even if ADD will be scrapped India would add only around 1 GW solar capacity in the next year
- The NSM will be the main contributor to solar growth, irrespective of ADD