India’s total installed solar capacity has grown by over 80% in the last 12 months to reach 8.1 GW. Out of the 3.6 GW capacity added in this period, 2.7 GW has come from four southern states with Tamil Nadu alone adding over 1.2 GW on the back of a generous feed-in-tariff of INR 7.01/kWh (US¢ 10.4/kWh). Tamil Nadu now ranks number 1 for commissioned capacity in both wind and solar.

  • Six states account for 80% of the capacity added in India
  • Including the current pipeline of 14 GW, 55% of total current and planned capacity will be located in four southern states; fresh demand from these states is expected to be muted
  • Market growth beyond 2018 will depend on fresh demand coming from states such as Maharashtra, Gujarat and Uttar Pradesh

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On Sunday, 5th June 2015, one of India’s leading economic journalists, Swaminathan Aiyar, in his weekly column “Swaminomics”, wrote that India should wait for five years before trying to implement big plans for solar (refer). He argues that solar is still a comparatively expensive energy generation technology and that because India is an evening peak country, increasing the share of solar would be a “double whammy”, by driving up indirect costs for thermal, peak power generating sources. As a result, he concludes, India should go all out on solar only after it is fully established that the cost breakthrough has been achieved and the technology is more mature. While there are interesting insights in the article, we disagree with his conclusions. Here is why.

  • Solar costs are not as high as Swami claims. In fact, upcoming NSM bids will show that it’s neck to neck with        new thermal projects.
  • India is an evening peak country right now but as the economy develops the peak will move into the daytime          (cooling).
  • Global investors already see the social and economic appeal of solar and are moving out from coal to the                sector.

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As the Indian solar sector grows in size and prominence, equity raising and portfolio sales are also gathering pace. Three major deals were announced last week – Azure Power is selling a minority stake to Canadian asset manager Brookfield to raise USD 75 million (refer),  Acme Solar is raising USD 120 million though the mezzanine route from Piramal Enterprises’ Structured Investment Group (refer) and SunEdison has finally agreed to sell its commissioned and pipeline capacity of 1,300 MW to Greenko (refer). While Azure Power has a commissioned plus pipeline capacity of over 1,000 MW, Acme Solar’s commissioned plus pipeline capacity stands at over 1,800 MW. With developer portfolios growing at a rapid pace over the past few quarters – 6 Indian developers have now got total commissioned plus pipeline capacity of over 1,000 MW – raising capital has become urgent priority for the sector.

  • Access to capital including scale and cost of capital is the most important strength and differentiating factor for project developers
  • In the face of falling bid tariffs, portfolio and minority stake sales instill much needed confidence in the market and help kick-start a secondary market for solar transactions
  • Debt capital market transactions by Greenko and Tata Power show new financing avenues and signal maturing of the sector

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International Solar Alliance (ISA) was launched at the climate summit in Paris on 30th November 2015 amid much fanfare with membership from the solar resource rich countries lying between the Tropic of Cancer and the Tropic of Capricorn. ISA has set out lofty ambitions to accelerate development and deployment of existing clean solar energy technologies in these countries. A total of 121 countries agreed to join the alliance and India took up the chair, showcasing itself in a leadership role (refer) along with France as the founding partner.

  • India has offered funding for off-grid demonstration projects and some administrative support, but as a founding member and a leading proponent in the sector, it needs to put in more effort to create a practical roadmap for ISA
  • Progress so far is underwhelming and it appears that ISA is lacking clear thrust and definition of its organisational objectives
  • To gain a voice in the fight against climate change and become a meaningful partner for developing countries, ISA should aggressively garner more funding, build a competent organization and consolidate other international initiatives under its unified umbrella

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The Ministry of New and Renewable Energy (MNRE) is currently in the process of finalizing guidelines for 5,000 MW of new solar projects with National Thermal Power Corporation (NTPC) as an off-taker. These projects are expected to be tendered over the next three years with actual timing and geographical spread depending on demand from power utilities. Draft guidelines are expected to be released over the next 2 months.

  • NTPC may fix the solar power tariff at INR 4.50/kWh (US 6.7 cents/kWh) and ask developers to bid for an additional Generation Based Incentive (GBI) per unit of electricity
  • A concept similar to deemed generation is likely to be introduced for the first time for solar power procurement in India
  • The move to GBI is preferable over viability gap funding (VGF) structure as it incentivises better performance and encourages quality consciousness

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