BRIDGE TO INDIA provides a precise, analytical and in-depth update on the Indian solar market every quarter as a part of its INDIA SOLAR COMPASS. This is an excerpt from the January 2013 edition of the INDIA SOLAR COMPASS.
The previous quarter (October to December 2012) has seen a flurry of new solar policy announcements, which seem to have awoken a lulled market.
- With the new announcements (totaling 11.3 GW of PV by 2013), government sponsored PV in India appears to be set for maturity.
- Up to 5.3 GW of the announced capacity relies on the Renewable Purchase Obligation (RPO) targets set by states.
- An investigation for anti-dumping duties against manufacturers from China, the US, Taiwan and Malaysia has been launched in the last quarter. Conclusive evidence can result in the imposition of duties up to 20%.
The states of Tamil Nadu, Andhra Pradesh and Chhattisgarh have announced policies targeting a cumulative 5 GW of solar photovoltaic (PV) installations over the coming years. In addition, the National Solar Mission (NSM) has proposed a target of 6.3 GW of PV installations as part of its phase two draft guidelines until 2017. The announcements totaling 11.3 GW of PV by 2017 mark a significant departure from the state of the market in 2011 and the first three quarters of 2012. There was a slump in project opportunities in the Indian market after close to 1.1 GW had been allocated before December 2010.
With the new announcements, government sponsored PV in India appears to be set for maturity. This is crucial for component suppliers and Engineering, Procurement and Construction (EPC) players looking for new project opportunities, especially in the face of a significant fall in demand in Europe. It is also important for a large pool of project developers and investors who have built their capacities in the early stages of the market and are now ready to expand their portfolios towards achieving scale.
The market needs to be approached with measured optimism. Up to 5.3 GW of the announced capacity relies on the Renewable Purchase Obligation (RPO) targets set by states. Further, the policies of Chhattisgarh and Tamil Nadu specifically target the Renewable Energy Certificate (REC) mechanism as an off-take. With no clear RPO enforcement mechanisms at the state level yet and challenges with the bankability of REC projects, there is a significant question mark on how much of the planned capacity addition will actually translate into projects. Further, Feed-in-Tariff (FiT) based projects under the Tamil Nadu and Rajasthan solar policies are expected to rely on the respective state distribution utilities for the off-take. The utilities of both these states are mired with large financial losses that will challenge the bankability of their Power Purchase Agreements (PPA). In addition, up to 1.5 GW worth of projects under the NSM may be offered Viability Gap Funding (VGF) under which they will have to find alternatives to the payment security backed PPA that was offered by the NTPC Vidyut Vyapar Nigam (NVVN) in the first phase. Such projects too might face bankability issues in the absence of a secured PPA.
Another key development in the last quarter has been the launch of an investigation into the alleged dumping of cells and modules into India by manufacturers from China, the US, Taiwan and Malaysia. If conclusive evidence of dumping is found in the next six months, it could result in the imposition of anti-dumping duties of up to 20% on imports from the countries under investigation.
Manufacturers from the countries under investigation have supplied up to 70% of the modules used in the Indian market so far. If imposed, anti-dumping duties are bound to decrease their competitiveness vis-à-vis manufacturers from India and those from countries outside the scope of the investigation. Project developers will face higher system costs as they will no longer be able to import cheaper modules from abroad. This in turn will dent their ability to offer solar energy at prices that can compete with commercial and industrial prices of electricity across some states in India.
While anti-dumping duties are largely perceived as a necessity for the survival of Indian manufacturing, their benefit will be limited to a handful of Indian cell manufacturers. A majority of Indian module manufacturers rely on imported cells. They will face an increase in the prices of their modules as they will have to bear the import duty on cells. Anti-dumping duties are likely to create a distorted market where certain Indian players will enjoy exceptional advantages. Indian cell manufacturers justify this as a move needed to correct the alleged advantage that international manufacturers have enjoyed in India so far. However, BRIDGE TO INDIA’s opinion is that some international manufacturers have been able to sell at prices lower than their Indian competitors because of their scale and technology advantages under conditions of global over-supply. Anti-dumping duties will restrict Indian projects from capitalizing on cheaper international imports while doing little to improve the fundamental competitiveness of Indian manufacturers.
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