Bridge India

MNRE seeking a rooftop solar target of 10 GW by 2018

BRIDGE TO INDIA understands that based on the rooftop solar target of 40 GW of by 2022, the Ministry of New and Renewable Energy (MNRE) is in advanced stages of working on a central government supported sub-target of 10 GW for rooftop and other small grid-connected solar projects by 2018. This is expected to further be divided into yearly targets of 2 GW, 4 GW and 4 GW for the three years.

  • The subsidy mechanism is expected to be replaced by an interest rate subvention scheme
  • BRIDGE TO INDIA hopes that quality of new projects is not adversely impacted by aggressive plans
  • Though some detail has started emerging on how the overall 100 GW target may be achieved, but market is still waiting for a coherent roadmap for the sector

And although the MNRE has recently approved capital subsidy allocation for around 300 MW of rooftop projects being planned by SECI, state nodal agencies and institutions such DMRC and IOCL (refer), we believe that it is in favor of completely scrapping the subsidy scheme. This step is being influenced by the inputs received during the stakeholder meeting organized by MNRE on 19th March 2015 (refer). The subsidy mechanism is expected to be replaced by an interest rate subvention scheme although it may take some time before that is finalized. As part of the interest rate subvention scheme, the MNRE is planning to reduce effective interest rate for rooftop solar projects to around 8.5% p.a. helping to reduce the levelized cost by around 10%. The MNRE is already believed to have received funding interest of EUR1 billion from kfW, USD 500 million from Asian Development Bank and USD 500 million from the World Bank. If this goes through, this should be enough to provide debt to around 2.5 GW of rooftop solar (or 25% of the 10 GW target by 2018). Our understanding is that the USD 500 million funding from World Bank is likely to be restricted to sale of power (or RESCO/OPEX) projects.

These targets are very ambitious from a short-term capacity ramp up perspective. Until now, India has been adding only around 50 MW of rooftop solar a year. Going from these numbers to 2 GW of new capacity addition in 1 year sounds implausible as there is simply not enough execution capacity (trained manpower, distribution network, financing) in the sector. By rushing through with such aggressive plans, we hope that quality of new projects is not adversely impacted.

The good news is that some detail has slowly started emerging on how the overall 100 GW target for 2022 may be achieved. The central government has already announced plans to develop 15 GW of utility scale projects by 2019. The bad news is that most of the new announcements seem to be ad-hoc. The market is still waiting for a larger coherent roadmap for the sector and an understanding of where and how these pieces of policy will eventually fit in.

1 comment

  • When you say that the interest rate subvention scheme will replace the capital subsidy scheme, are you referring to the Viability Gap Funding policy?