India’s Solar Industry is Betting BIG on 2022
Hybrid and round-the-clock power projects will see significant growth this year
The challenges during the year notwithstanding, 2021 turned out to be one of the better years for the Indian solar industry. The outlook for 2022 looks promising, according to stakeholders from across the sector.
Solar capacity additions have been consistent in the last few years, except for 2020, on account of the Covid-19 pandemic.
India has an aggressive installation target of 280 GW of solar by 2030. Reaching the target requires adding nearly 24 GW of solar each year – a daunting prospect.
India added 7.4 GW of solar capacity in 9M 2021, an increase of 335% compared to 1.73 GW in the same period in 2020, according to Mercom India Research’s recently released report Q3 2021 India Solar Market Update. India’s cumulative installations at the end of Q3 2021 stood at 46.6 GW.
2021: One of the better years for the solar sector
In 2021, the installation numbers were affected by several reasons: the second wave of the Covid-19 pandemic, spike in raw material prices, increase in freight charges, and disruptions in the global supply chain. The ongoing projects were impacted, but better preparedness led to fewer disruptions than last year.
Pinaki Bhattacharyya, the Managing Director and CEO, Amp Energy, said, “2021 proved to be a comeback year for renewables in India. The sector displayed resilience and strength despite the unprecedented setbacks faced in 2020 due to the Covid-19 pandemic and has been able to achieve significant milestones.”
“We were able to reach 100+ GW of installed renewable capacity despite the challenges. The solar installed capacity surpassed wind, increase in investments in the sector with large merger and acquisition deals being announced, and aggregation across the supply chain,” he said.
Outlook for 2022
Stakeholders believe that renewables in general and solar in particular will grow in 2022.
“The commercial and industrial (C&I) segment is fast becoming the major consumer of renewables driven by cost savings and their RE100 targets. The utility sector slowed down with delays in PPA signing. The right-directional approach is that the government graduated from the regular plain vanilla tenders to floating solar, peak power, round-the-clock, and more hybrid bids. The success of the initial bids has ensured that such tenders will be the next growth frontier. We believe that with the proper focus and approach, we would be able to achieve the target of 500 GW of renewable energy by 2030. 2022 will prove to be a more decisive year for renewables in India,” Bhattacharyya said.
Ritu Lal, Senior VP and Head (Institutional Relations), Amplus Solar, agreed. “Energy transition in India is gaining momentum, and we expect 2022 to be a record year for the growth of solar. Even though there will be challenges regarding raw material prices and supply fluctuations, we look forward to significant capacity additions across all solar segments – utility, hybrid, distributed, and residential. We will see more wind-solar hybrid projects in 2022 and also solar for generating green hydrogen in the utility sector. We also see attractive growth potential in the residential rooftop solar and battery storage this year.”
Vinay Pabba, CEO and Founder of VARP Power, feels that the solar sector is in the initial stages of the steep ramp of the archetypal ‘S curve.’
“2022 will be the last year for achieving the milestone of 100 GW and would be a good time to pause and reflect before powering on towards the next target of 300 GW by 2030. I see record capacity addition in 2022 as developers race to meet project execution timelines and clear backlogs of delayed projects. We hope that the proposed solar tariff hikes and the non-tariff barriers like the Approved List of Models and Manufacturers (ALMM) will be deferred to give the industry breathing time to adjust to the new requirements arising from these compliances.”
According to Pabba, supply chain disruptions and the high price of solar modules and cells will continue to plague the solar sector well into Q2 of CY 2022. Projects will get delayed as developers defer module purchases, hoping to soften prices.
He believes that energy storage will come into its own in 2022 and demand a seat at the table. Round-the-clock and hybrid tenders will drive more deployment of grid-connected storage. Indian manufacturing across the solar value chain, wafers, cells, and modules will ramp up substantially.
Manjesh Nayak, Director and CFO of Oorjan Cleantech, was equally optimistic. “Individuals are actively considering the transition to non-conventional energy sources and consumption. Solar in particular and renewables, in general, should see a lot of demand. Further, the ‘Aatmanirbhar Bharat’ policy should push domestic manufacturing of hardware. If implemented effectively, along with a dedicated policy push for net-metering and subsidies, it would facilitate the growth of the solar sector.”
Nayak expects the solar sector to explore novel configurations and business models as it exercises its competitive muscle. In 2022, the sector might witness a surge in solar-plus-storage installations, the exploration of the floating solar market, and the expansion of community solar projects into new markets.
N Venu, Managing Director and CEO, India and South Asia, Hitachi Energy, said 2022 would see green shoots of recovery in core sectors – mainly government-owned metals and oil and gas industries.
“With India aiming to hit 500 GW in renewable energy by 2030, the pace of development in sunrise sectors will also pick up. As ESG (Environmental, Social and Governance) gains spotlight, industry-wide collaboration in greening the power infrastructure and investment in sustainable power solutions will help India progress steadily toward its energy goals. Yet challenges ranging from new variants of the Covid-19 virus, high commodity prices, and raw material shortages will likely weigh on market recovery,” he commented.
A top executive from ReNew Power said, “The basic customs duty (BCD) is expected to be implemented by April 1, 2022, and, so, there will be a shift towards ‘Make in India,’ which is critical from an energy security perspective. Further, with PLI-linked capacity coming into play, India should become a net exporter from a net importer of solar equipment. There will be fewer vanilla bids coming in as DISCOMs realize the need for value-added products. Therefore, we foresee more bids coming in where projects have one-hour storage, which will give additional value to DISCOMs. We further foresee that such innovation will increase in future years to up to three hours by 2025.”
“Despite some current uncertainty around PPAs, we expect that PPAs for all pending capacity will be resolved in the initial six months so that we can move forward, and new bids can come: This will also increase investor confidence and inflow of foreign capital in the country,” he added.
Bringing the manufacturer’s perspective to the table, Avinash Hiranandani, Global CEO and MD of RenewSys, said, “This year, everything depends on the implementation of the BCD. If BCD doesn’t come in April, the domestic manufacturing industry will take a big hit. It will push the domestic manufacturing industry back by 5-7 years. The ‘Make in India’ plans will be in big trouble. All the stakeholders have pinned their hopes on this. It has already been promised, and it will be a big boost for the manufacturing segment. The demand side is there, and the supply side will also build-up, and we are capable of meeting the demands going forward.”
Wishlist for 2022
The industry is looking at the government for more support to make the renewable energy targets a reality.
Bhattacharyya wants the government to provide soft loans to manufacturers and not impose artificial duties. “The imposition of BCD must be deferred by 3-6 months for manufacturing capacity to be deployed in India. Otherwise, renewable energy prices may increase further to make it unviable for consumers,” he said.
Lal calls for a holistic developmental approach because renewables is not just one industry but an ecosystem. A long-term policy framework, programs for boosting financing for the solar sector, support for the rooftop segment, including a concrete plan that does away with distribution companies’ opposition to reforms, are on his wishlist.
“While the government is working towards integrating the domestic solar supply chain through the production-linked incentive (PLI) program for solar module manufacturing, issues like unpredictable tariff and non-tariff barriers and frequent policy changes continue to hamper solar capacity growth despite increasing demand,” he said.
Focus on Rooftop Solar
Stressing the need for better-balanced growth for the sector, Lal noted that the underperforming rooftop segment should be given the requisite support it desperately needs. “While at first glance, a utility-scale generation might seem like the way forward, a closer analysis will reveal that the net delivered price of energy at the point of consumption will perhaps be in favor of distributed generation, which does not require land acquisition, creation of dedicated transmission lines and distribution infrastructure.
For Pabba, the biggest ask is benign and supportive policies and regulations, especially when the solar sector faces a multitude of challenges, including the supply chain quandary, high modules prices, environmental issues (Great Indian Bustard, etc.), and the Covid-19 rebound. “The sector hopes that the regulatory and policy ecosystem understands these challenges the sector is passing through and tune and re-calibrate policy and its implementation.”
“Two major initiatives were taken last year: The imposition of the BCD on imported solar cells and modules, and the announcement of the Production Linked Incentive (PLI) program for domestic solar manufacturing. With these two announcements, the timelines were aligned to ensure sustainable capacity addition in India at the most optimal tariffs. As a result, developers who set up solar capacity will have to import modules in the short term. Our suggestion, therefore, is to ensure alignment with the entire BCD pushed out by one year. Alternatively, there should be grandfathering of existing bids, and the BCD on cells at least should be pushed out by one year because India does not currently have sufficient cell manufacturing capabilities to support our capacity development program,” added the executive from ReNew Power.
The executive said battery storage would be an essential part of the overall energy transition agenda. Therefore, it would require support in the initial few years until a domestic ecosystem is established.
“The government of India has come up with a PLI scheme for storage manufacturing in India, and it will take some time to start coming out with storage systems. We suggest that there should be lower rates of taxes, and there could be a roadmap towards that announced for the time being and then possibly higher taxes in the future when manufacturing makes a headway. Currently, our focus in the energy ecosystem is on low tariffs, while the focus should be on lower system costs. Therefore, high-capacity utilization factor bid constructs should be encouraged to ensure low system costs. General Network Access, which is currently under draft stage under the ‘Connectivity and General Network Access to the Interstate Transmission System (ISTS) Regulations, 2021,’ can be a gamechanger for the sector,” he noted.
From the manufacturing side, Hiranandani said, “The ALMM list has been issued, and most domestic manufacturers have already registered. The ALMM should be implemented for all projects with government subsidies and should not be limited to projects with subsidies from the central government. The PLI program is also going the help the domestic manufacturing segment going forward. Also, we are paying 12 % GST for the finished products in solar panels, whereas the input GST is 18%. 6% always gets stuck, which is significant for large-scale panel manufacturing. The government should look to make the input and output value the same.”
Making his case for a policy push for large-scale solar development, Nayak said, “India’s solar ecosystem has come a long way. It is developing to become self-sufficient in terms of technology, manufacturing, hardware supply, and funding to support ongoing expansion. 2022 is critical since March 2022 is the first deadline for the 175 GW target. The government needs to give a policy push for large-scale solar implementation, certainty around the signing of PPAs (power purchase agreements), attracting foreign investments, improving the transmission and distribution infrastructure, and supporting banking. This would help us meet our 2030 target.”
The general sense of optimism among the stakeholders that things will be much better in 2022 is tempered by their concerns over Covid-19 and other challenges that continue to disrupt the solar space.
“Solar installations could grow by 30-50% in 2022, which would make it the best year for solar in India by far. However, policymakers need to be extremely careful as they push to make India a production hub for solar that they do not throttle demand growth by affecting price or supply negatively,” said Raj Prabhu, CEO of Mercom Capital Group.
“Clear execution plans, long-term policy stability, and lowering offtake risk should be the focus to attract foreign investments at a larger scale to facilitate rapid market expansion,” Prabhu added.