Weekly Update: Has India lost its sheen for solar PV investments?
Since 2003, Ernst & Young has been releasing its global quarterly publication, renewable energy country attractiveness index (RECAI) that ranks 40 countries on the attractiveness of their renewable energy investment and deployment opportunities. This index is based on a number of macro, energy market and technology-specific indicators.
- India’s RECAI ranking for solar investments has gone down perhaps due to high cost of financing and infrastructure barriers
- Only 500 MW of 2.5 GW capacity allocations expected in 2013 are likely to have a DCR depending on the result of the case at WTO
- Depreciating value of an Indian rupee would keep investors away from India in the last quarter, however, in the long run India is likely to remain attractive for solar investments
In the 37th issue of RECAI for May 2013 (refer), India has lost considerable ground in the index for the country’s attractiveness for solar investments. In the previous quarter, for example, India was ranked third in position for solar PV after the US and China and was ranked fifth in position for solar CSP. This gave India a second overall position in the solar index. This quarter, however, India has moved down to the eighth position for solar PV, retaining the fifth position for solar CSP.
According to Sanjay Chakrabarti, E&Y India, the reason for the drop has been that the bankability is jeopardized by the high cost of financing and significant infrastructure barriers (refer). He goes on to explain that there are issues in India with regards to the US complaint with the World Trade Organization (WTO), regarding domestic content requirements and India’s anti-dumping investigation for solar cells from the US, mainland China, Taiwan and Malaysia.
BRIDGE TO INDIA, however, believes that there is very little explained in the report about reasons that have resulted in a drastic downward trend for investment attractiveness for India. Markets such as Germany, Japan, Italy, Australia and Canada, which have moved up with respect to India are perhaps more mature than the Indian market and are expected to see more volumes in any case.
Not much has changed in the past quarter as far as the bankability and financing of projects is concerned. There are a lot of issues with the same, however, lenders are getting more comfortable with solar projects with time (refer to the Decision Brief on ‘Bankability and debt-financing for solar projects in India‘).
The domestic content requirements (DCR) have been around since the beginning of the NSM. In the current scenario, of the 2.5 GW capacity allocations expected in 2013 across India, including all state policies, only about 500 MW is likely to have a DCR. Even this can be put to question if India loses its case at the WTO. The interim order on the anti-dumping can be expected soon and it would be unwise to pre-judge the result.
Key reasons that would keep investors away from India for the last quarter would be the depreciating Indian Rupee and the uncertainty and flip-flops seen in the Andhra Pradesh (refer) and Tamil Nadu (refer) allocations. The Indian Rupee has lost over 10% of its value against the US dollar in the last quarter. Since 2011, it has lost over 32%. A weakening Rupee has a severe impact as it increases the cost of imported equipment, of servicing of un-hedged external debt and of future currency hedging. However, it is unlikely that these factors have been taken into consideration for the purpose of their analysis.
BRIDGE TO INDIA believes that while India’s long term attractiveness for investments into solar is intact, the current position for its placement among global peers might be debatable.
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