The market this quarter: The July 2013 edition of the INDIA SOLAR COMPASS
BRIDGE TO INDIA has launched the July 2013 edition of the INDIA SOLAR COMPASS, a quarterly market analysis report to the Indian solar market. This post is an excerpt from the report’s ‘Overview’ section.
In the previous quarter (April 2013 to June 2013), the Indian solar market was predominantly focussed on new project allocations in Tamil Nadu, Andhra Pradesh, Uttar Pradesh, Punjab, Rajasthan and Karnataka. Each state allocation came with its own set of challenges. However, overall, they have been able to create a significant interest from developers and will fuel demand for components and EPC in the next year. The signing of Power Purchase Agreements (PPAs) has not been completed for most states, except Rajasthan, but it is expected that the total signed capacity will reach more than 1.5 GW. In the coming weeks, the market will eagerly await allocations for a capacity of 750 MW under the National Solar Mission (NSM), phase two batch one, the process for which is to begin in July.
- Despite the changed allocation process, from what had been communicated earlier, developers in Andhra Pradesh and Tamil Nadu have shown a will to make it work
- The viability of tracking systems is expected to improve only in so far as their cost decreases as a percentage of the total plant cost
- BRIDGE TO INDIA expects that India’s cumulative installed capacity will exceed 2 GW by the end of 2013
The most worrying aspect of these allocations has been the kind of uncertainty that we have seen in Andhra Pradesh and Tamil Nadu. Both the states have had to resort to changing the allocation process significantly from what had originally been communicated. In both cases, this had been a result of a poorly planned and executed process. On the positive side, both states and the developers have shown resilience and a will to make it work. Tamil Nadu now expects to allocate a capacity of 690 MW. In the case of Andhra Pradesh, the arbitrary and ex-post changes in tariff identification will hurt investor confidence more permanently. The state is expected to allocate a capacity of around 300 MW as compared to the planned 1,000 MW, even after originally being oversubscribed.
The sudden influx of allocations helped reduce the intense bidding competition that had previously characterized the Indian market. Allocations in Tamil Nadu and Uttar Pradesh were both under subscribed and the average tariff quoted by the developers across all allocations was more than INR 8 (Euro 0.12/$ 0.16)/kWh. This is significantly higher than the tariff of INR 6.45 (Euro 0.10/$ 0.13)/kWh, currently offered in Rajasthan.
As most prominent developers in India have been allocated projects under one or multiple state policies, these allocations are also expected to reduce the level of competition for projects under the NSM. Adding to this, as developers can opt for project capacities as high as 100 MW under the NSM, informed smaller and new developers will most likely stay away from the bidding based competition.
In our ‘Key Question’ in this edition, we look at tracking technology. Only about 80 MW of the 1,746 MW solar PV capacity installed in India is using some form of axis tracking technology. The question we asked was: under Indian conditions, does an increased yield and revenue justify the additional investment for an axis tracking technology? We found that at current prices, the increase in the Equity Internal Rate of Return (EIRR) increases only marginally when using horizontal single axis and dual axis tracking systems. For vertical single axis tracking systems, the EIRR actually decreases. Even a marginal increase in EIRR probably does not justify the additional risk involved in adopting this technology. Therefore, the low adoption of axis tracking technology in India makes sense. In the future, the viability of tracking systems is expected to improve only in so far as their cost decreases as a percentage of the total plant cost.
A capacity of over 1.7 GW has already been installed in India and close to 1.5 GW of PV is currently under development. BRIDGE TO INDIA expects that India’s cumulative installed capacity will exceed 2 GW by the end of 2013. There’s also a lot of momentum building up for new capacity additions in 2014, which could easily exceed 2 GW. This is expected to take India’s installed solar PV capacity to 4 GW by the end of 2014. Until now, 80% of India’s solar PV projects have been installed in Gujarat and Rajasthan. In future, the focus will shift from the West to the South (Tamil Nadu, Andhra Pradesh and probably also Karnataka).