BRIDGE TO INDIA has just released results from its first ever survey of the most influential private sector decision makers in the industry as part of the Indian Solar Handbook 2016 report (download your free copy here). Most of the 27 participating CEOs said that they expect their businesses to grow by an average of 3-5x by 2020 with 37% of them believing that their business will grow by more than 10x by 2020. This optimism is based on the expectation that the market will also grow at an impressive compounded annual growth rate (CAGR) of 45% per annum until 2022.

  • The industry is most concerned about transmission connectivity/ grid failure, debt financing and INR depreciation risk
  • The industry has also rated central government’s policies for the sector as ‘Good/ Very Good’
  • Most CEOs are positive about the prospects of domestic manufacturing

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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 part of the memorandum of understanding signed under the UDAY scheme, the Ministry of Power has allowed a roll forward of the Renewable Purchase Obligation (RPO) for Uttar Pradesh by seven years (refer). Meanwhile, state power distribution companies in Odisha have got a stay on enforcement of RPO from the state High Court. These incidents set bad precedents for the country’s solar targets, which are conceptually based on compliance with the RPO mechanism. On the other hand, states such as Telangana, Andhra Pradesh, Karnataka and Jharkhand are rapidly scaling up their solar programs and going way beyond their RPO targets. In fact, there is more solar power capacity planned in Telangana and Jharkhand in the next two years than their respective 2022 targets set by the Ministry of New and Renewable Energy (MNRE).

  • The RPO mechanism has by and large failed because of poor regulatory framework and non-compliance on the pretext of poor financial health of distribution companies
  • Some states are increasingly adopting solar power because of its economic advantages combined with environmental and political credentials
  • Going forward, we expect the RPO mechanism to become more of a measuring stick than an underlying driver for new capacity addition in the country

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India received 263 GW of private sector renewable investment commitments at Re-Invest last year. New developers continue to enter the market on an on-going basis resulting in over-subscription for most bids and dramatic falls in tariffs. On the face of it, with so much interest in the market, shortage of equity investors should not be an issue. But many developers seem to be bidding for projects first and planning to raise capital later. The question is: will they all be able to raise capital at the current tariff levels and in time to meet the stringent deadlines?

  • The market is in uncharted territory as none of the sub-INR 5.00/kWh (US 7.50 cents/kWh) projects have closed financing yet
  • Developers are hoping for a reduction in equipment cost but there is a possibility of prices firming up at least in the 6-9 month horizon; implementation of GST also poses a risk to these projects
  • Over the next one year, we believe that a significant number of projects are likely to get delayed or cancelled and tariffs may either stabilize or even rise marginally from current levels

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In March 2016, the Government of Haryana revised its state solar power policy which was launched two years back. The new solar policy is a six-year policy spanning 2016 to 2022. Under the new policy the target is to add 3200 MW of solar power by 2022. This target is in line with central government target to add 100 GW of solar power by 2022 for which the state renewable purchase obligation (RPO) requirements are also increased from 3% to 8% now. As per Ministry of New and Renewable Energy (MNRE) and National Institute of Solar Energy (NISE), Haryana has an overall solar potential of 5 GWp (refer).

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