What are the trends in the Indian solar market?
Dr. Tobias Engelmeier is founder and Managing Director at BRIDGE TO INDIA. He consults international companies on developing successful market strategies in India.
The Indian solar market is at an interesting point at the moment: it has come from zero to 1 GW within a period of 1.5 years. Then, it held its breath for half a year. Now it is just about to get going again. Time for a brief look at the status of the market and the main trends driving it. The most important overall trend is that the Indian market has picked-up significantly in the last weeks. New policies have been announced and there is a palpable sense of excitement in the air. We expect the next year to have project allocations in excess of 2 GW.
- There has been an introduction of exciting new policies
- A shift can be seen from public to private power purchase agreements (PPAs)
- The solar renewable purchase obligation (RPO)/renewable energy certificate (REC) market is underperforming
- Protectionism is increasing in the Indian solar manufacturing industry
India is a very exciting, progressive policy laboratory: States almost seem to outdo each other. Tamil Nadu has come up with a net-metering provision and solar purchase obligations (SPOs), Andhra Pradesh is looking to match power customers with generators, the National Solar Mission (NSM) will most likely introduce the Viability Gap Funding (VGF). One could complain that it is difficult for an investor to keep track of developments and risks, but that drawback is much smaller than the larger benefit of finding out what works best in India. There is already a keen sharing of best-practices across states and in the future there might be some more convergence. At present this lively, innovative policy space does justice to the complexity of solving the Indian power (not green power) riddle.
Shift from public to private PPAs: The RPO mechanism has started it, but it became clear with the introduction of SPOs in Tamil Nadu. One very good way of encouraging the spread of solar power without burdening stretched public funds is to simply obligate customers who can afford it (industrial and commercial power consumers) to buy it. These customers are often not even too averse to it as they tend to already pay tariffs of INR 5-8/kWh for their grid power and significantly more for diesel power. They need to think of new energy solutions anyway.
RPOs/RECs continue to under perform: This shift to private PPAs will-at present-only work, if obligations are enforced. It is too early to judge the SPO scheme in Tamil Nadu, but the RPO /REC market continues to languish. Trading of solar RECs is slow. Few of the projects that were registered under the REC mechanism were actually completed. There is a sense of frustration with the mechanism in the market.
Project sizes are increasing: When the NSM started, average project sizes for grid-connected power plants were about 5 MW. In batch two, they increased to around 10-20 MW. Now, the project sizes that are discussed in the market often range between 50-100 MW.
Protectionism of manufacturers: In the larger argument between solar project developers and power consumers who want to ensure the lowest cost of solar through unlimited access to international suppliers and Indian cell and module manufacturers who want preferential access to the Indian market to build-up their business, the latter seem to carry the day. The NSM will most likely have a domestic content requirement that might well include thin film as well. Additionally, there is an increasing likelihood of anti dumping duties being levied by mid of next year (please refer to our recent blog post on the topic of anti-dumping duties).