The market this quarter: The October 2012 edition of the INDIA SOLAR COMPASS
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 October 2012 edition of the INDIA SOLAR COMPASS.
The Indian solar market has experienced a lull period this past quarter (July-September 2012). An overview:
- A lack of projects through state policies and the NSM has driven interest in the REC mechanism, however regulatory challenges are a major bottleneck
- Indian manufacturers have begun contracted sales with projects under the NSM
- The MNRE is likely to strengthen the current Domestic Content Requirement (DCR) in the second phase of the NSM, but this will not ensure global competitiveness of Indian manufacturers
In the last quarter (July-September 2012) there has been a capacity addition of only 67.25MW of PV in India, a drastic drop from the 401.74MW of PV added in the first quarter and 340.62MW added in the second quarter of this year. This is a direct result of a low number of project allocations in the Indian market in the first three quarters of 2011. The Indian solar market took off with close to 1.1GW of PV projects allocated between the Gujarat Solar Policy and the National Solar Mission, which happened towards the end of 2010. Since then, the PV market has experienced a lull with allocations of only 350MW by the NSM in December 2011 and another 310MW between the states of Madhya Pradesh, Odisha and Karnataka during the first two quarters of 2012. This has left developers, EPC contractors and module suppliers with very few opportunities in the market, raising serious questions on the stability of demand required for the project related eco-system to develop in a sustainable manner in the country.
The lack of projects through state policies and the NSM since December 2011 has driven interest towards projects under the Renewable Energy Certificate (REC) mechanism. However, BRIDGE TO INDIA’s free report ‘The REC Mechanism: Viability of Solar Projects in India’ shows, while this market has potential, it still faces some critical bottlenecks like the implementation of RPO’s to create demand for RECs and regulations surrounding the use of the open access mechanism for the captive use of power. A project based on the REC mechanism in its current form is not a very viable option. It is critical for project developers to understand future demand for RECs and create new business models that account for various demand and regulatory risks. It remains to be seen if investors and banks in India have the appetite to take on the risk in order to enjoy potentially strong upsides and continued growth. With limited project development opportunities, only entrepreneurial, strategic players interested in investing in new business models around the REC mechanism stand a chance of sustaining their growth in the quarters ahead.
For the manufacturing industry in India, there is some good news. Indian manufacturers have begun selling to projects under the NSM, primarily by integrating downstream through EPC services. Close to 70MW has been sold so far to projects under batch two of phase one of the NSM. In addition, close to 200MW has been tied up for contract manufacturing by international c-Si manufacturers. While this does not yet constitute a drastic reversal of fortunes for Indian manufacturing, it is nevertheless a positive departure from the previous quarters when most manufacturing lines were operating at 15% or less capacity utilization. The MNRE is likely to strengthen the current Domestic Content Requirement (DCR) in the upcoming second phase of the NSM. This is likely to give a further boost to Indian PV manufacturing. However, in order to be competitive in the long-term, Indian manufacturers need to look beyond DCRs and improve their competitiveness in a tough global market.
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