India Solar Market Update – 2nd Quarter 2012
September 7, 2012
India has crossed the symbolic milestone of 1 GW in installations this year; at the time of this update, cumulative solar installations in India stood at approximately 1,040 MW. India can proudly boast that it has overcome the uncertainties and growing pains to establish itself as one of the top solar markets going forward. The Indian solar market is driven by Jawaharlal Nehru National Solar Mission (JNNSM) with a goal to install 20 GW of solar power by 2022, however state solar policies, state level RPOs and off grid projects are quickly catching up.
The JNNSM uses a reverse auction or bidding system to select projects – the lowest bidder wins. Currently, there are no technical qualification requirements and participants don’t need any prior solar project development experience to win a bid. The combination of the lack of technical requirements and bidding process has driven solar tariffs to some of the lowest rates in the world ($0.14 – $0.16), creating one of the most challenging business environments for solar.
While most Indian states have followed the lead of JNNSM in terms of policy and guidelines, the state of Gujarat decided to go the feed-in-tariff route. A total of 830 MW have been installed year-to-date (2012) of which 585 MW were installed in Gujarat.
Where are we now
Even with achieving the milestone of 1 GW in installations, the Indian solar industry still faces multiple challenges. Gujarat’s feed-in-tariff program is by far the most lucrative solar program in India. Still, it is struggling to reach its goal of installing 968 MW – all of which were to be originally commissioned by December 31, 2011. After multiple extensions, the remaining 279 MW are expected to be installed by the end of this year.
JNNSM is also struggling to reach its own goal of commissioning 1 GW under Phase 1, the main reason being that the 1 GW was divided evenly between PV and CSP. According to the Ministry of New and Renewable Energy (MNRE), CSP project developers are now asking for a 6-12 month extension to complete their projects citing non-availability of heat transfer fluid due to limited suppliers with huge wait times. The extension is unlikely to happen. According to our conversations with the joint secretary of MNRE, “the issue is under consideration but an extension is unlikely as they were already given three years to complete the project.” These CSP projects range from 10 MW to 100 MW in size totaling 500 MW. It remains to be seen how long these projects will be delayed or if they will be commissioned at all. When the initial JNNSM policy came out, one of Mercom’s recommendations was to let the markets decide, instead of the government “picking the technology.” The challenges that CSP pose for India are numerous – India needs to avoid splitting projects 50:50 in the next phase, which would likely double the size of the market for PV projects.
Rajasthan, which has one of the best solar resources in India, has decided to postpone its 200 MW solar program due to funding and execution issues. While payment delays have also been reported, MNRE has assured developers that NVVN will make these payments and clear the back log as soon as possible.
There are also external factors in India challenging its solar industry, namely high inflation and consequently high interest rates, slowdown in GDP growth, a severely depreciated rupee and relentless corruption scandals. Low bids with high interest rates in the range of 13-15% make it challenging to borrow in India (most Indian banks look at these projects as risky) and successfully execute a quality project that can last 25 years.
India is and will be a huge market for solar for a long time to come as long as the government takes the approach that solar is a long-term strategic investment and creates policy and financial instruments to help support the industry until it can self-sustain. Conventional energy sources in India have never been able to deliver as India continues to suffer from power deficits from shortages of coal (domestic shortages and expensive imports), and hydro generation, which remains dependent on monsoons that continue to weaken year after year.
Update on Various India State Policies
JNNSM – Phase I
Migration – PPAs for Migration projects were signed on October 15, 2010 for 84 MW (54 MW-PV, 30 MW-CSP). Among Migration projects, 48 MW have been commissioned out of 54 MW, and 6 MW have been canceled as two project developers failed to execute. 27.5 MW out of 30 MW of CSP projects are due to be commissioned by mid-February 2013.
Batch 1 – PPAs for Batch 1 projects were signed on January 10, 2011 for 610 MW (140 MW-PV, 470 MW-CSP). PV projects were due to be installed by January 9, 2012. 130 MW have been commissioned (several were delayed for months and fined) and 10 MW have been canceled as two project developers failed to execute. 470 MW of CSP projects are due to be commissioned by May 2013. Extensions of 6-12 months have been requested for these projects due to execution difficulties. It is not yet clear if these projects will be granted extensions or will be successfully completed.
Batch 2 – Project developers for 340 MW of the 350 MW allocated have signed PPAs with one of the winning bidders failing to qualify. According to MNRE all 340 MW PV projects have achieved financial closure. These projects are due to be commissioned in March 2013.
JNNSM – Phase II
Phase II policy announcements by MNRE are expected to be made by the year end, with a target of 3,000 MW of grid-connected solar projects and about 6,000 MW or more through solar-specific RPO schemes.
690 MW of solar projects have been installed under the Gujarat state solar policy, with 279 MW delayed. These 279 MW projects will receive newly announced 2012 tariffs (levelized tariff for 25 years is Rs.10.37 (~$0.19)/kWh for PV projects) which are about 20 percent lower compared to 2011 tariff levels.
Though Gujarat announced tariffs for 2012-2015, it does not have any plans to announce any targets or installation goals.
Karnataka recently concluded bidding for 80 MW of solar (60 MW-PV, 20 MW-CSP). The average bid for PV projects came to Rupees 8.37 ($0.17)/kWh, one of the lowest solar tariff rates in India, and the average bid for CSP projects was Rupees11.13 (~$0.20)/kWh. There are no updates as to whether PPAs were signed or if financial closure was reached. The Karnataka Renewable Energy Development Agency has also submitted recommendations to the state to develop 1,000 MW of solar energy in five years or 200 MW per year.
The state of Rajasthan has postponed the date to bid for 200 MW of solar projects indefinitely.
The Orissa Renewable Energy Agency (OREDA) auctioned off a 25 MW PV project for Rupees 7.00 ($0.14)/kWh, the lowest recorded bid in India. OREDA plans to call a tender to develop another 45 MW in the next few weeks.
Madhya Pradesh Power Management Company Limited has recently signed PPAs for 225 MW of PV projects with five project developers under a reverse auction mechanism. The winning bids were between Rupees 7.9 (~$0.14)/kWh and Rupees 8.05 (~$0.14)/kWh. Madhya Pradesh also recently announced a solar policy to fulfill its RPO obligations (88 MW for 2011-12 and 158 MW for 2012-13), also through a bidding process.
Maharashtra State Power Generation Company Limited (MahaGenco) has 150 MW of solar power projects under development by three companies. Future plans to develop a 100 MW project in Usmanabad district, 25 MW in Parbhani district and 125 MW in Yavatmal district are in very early stages of planning.
Based on RPO policy, the state is targeting 300 MW of solar power projects to be developed in the near future.
The Uttar Pradesh New and Renewable Energy Development Agency recently released its draft solar policy. The state has set a goal to achieve 1,000 MW of solar installations by March 2017. The draft was to be submitted for cabinet approval on September 11, 2012 and may take another month or more for the policy to come into effect.
About Mercom Capital Group
Mercom Capital Group, llc is a clean energy communications and consulting firm with offices in the U.S. and India. Mercom consults with its clients on market entry, strategy, policy, due-diligence and joint-ventures. For more information, visit: http://www.mercomcapital.com. To get a copy of Mercom’s market intelligence reports, visit: http://mercomcapital.com/market_intelligence.php.
Image Credits: Wikimedia Commons (CC-BY-3.0)