Around this time last year, India announced its ambitious target to install 100 GW of solar by 2022 (refer). This target was then officially adopted by the Indian cabinet in June 2015 (refer). It is a good time to take stock and assess progress towards this target.
- Investment appetite, particularly from international investors, in the sector has increased substantially
- There has been considerable activity on operational front including policy formulation, project tenders and solar park development combined with rapid fall in the cost of solar power. But intense competition raises doubts on sustainability of new found price points
- Distributed solar still lagging as there is relatively lower policy support and market momentum behind it
Following the announcement of 100 GW target, the government received (non-binding) investment commitments of over 171 GW for solar project development from over 50 developers (refer). International developers such as ENEL Green Power, ENGIE, FRV and Sembcorp have also announced their entry into India with significant acquisitions or project development plans. In October 2015, we saw Sany Group, China, announcing plans to invest USD 3 billion in Indian by 2020, Chint Group, China, announcing plans to invest USD 2 billion by 2020 and SoftBank/Foxconn/Bharti joint venture signing its first USD 2 billion memorandum of understanding in Andhra Pradesh for 3 GW of solar as a part of its overall plan to invest into 20 GW of solar projects (refer). During Prime Minister Modi’s recent visit to the UK, a large European project developer, Lightsource, signed a memorandum to develop 3 GW of solar capacity in the country. Last week, China’s Trina Solar signed an agreement with the government of Andhra Pradesh to invest INR 28 billion (USD 420 million). Moreover, there are several manufacturing capacities being planned by Adani Group, JA Solar, Hanwha and Q CELLS amongst others.
The critical question now is – how many of these commitments will actually fructify? India is a very competitive market and aggressiveness of the ongoing bids will determine whether or not many of these commitments materialise. The new competitive bidding process that led to tariffs falling to INR 4.63/kWh will probably mean that many of these new players will continue to look at the market from the sidelines and hope for the competition to ease before they put down their money. While India offers a very large attractive market to solar developers and manufacturers, intense competition is driving pricing down and making the risk-reward unfavourable for them.
The government on its part has taken up several policy measures over the last one year to support the sector. Amendment to the Electricity Act proposes to increase the RPO target to 10.5%, amendment to the National Tariff Policy is expected to make it easier for states to reflect the RPO cost in consumer tariffs, interstate transmission charges are being waived off and states have been advised to lower intra-state open access charges, REC pricing regime has been re-worked to make it more realistic, solar parks policy is in place and a similar solar zones policy is in the works, most states have been convinced to announce net-metering policies and subsidy for rooftop solar expected to be re-instated. Central and state government led project allocations have now gathered pace. The total pipeline of yet to be commissioned projects that have been allocated or are in the process of being allocated now exceeds 14 GW. The government expects these projects to be commissioned over the next two years. More allocations are on the horizon.
Overall, at least for the utility scale target of 60 GW, the market perception has been evolving. Although still very ambitious, in just one year, the targets seem more reasonable that they did when they were originally announced. However, relatively little movement in the rooftop solar market still casts serious aspersions on that part of the target.
