India Third Quarter Solar Market Update – Indian Solar Market Shifts Gears Into Phase 1 – Batch 2
October 12, 2011
Indian Solar Market Update – Third Quarter 2011
The Ministry of New and Renewable Energy (MNRE) announced in August that 35 of the 37 photovoltaic (PV) projects amounting to 140MW were able to submit evidence of funding and all of the seven concentrated solar power (CSP) projects amounting to 470MW were able to secure funding under Phase 1, Batch 1 of JNNSM. This is a very optimistic sign for the JNNSM solar program as there were doubts about the ability to secure funding on most of the projects due to the low bids submitted. What is not clear is if these projects were mostly funded by banks and financial institutions as project funding or if they were primarily funded through balance sheet funding. All PV projects in Batch 1 are due to be commissioned around the second week of January 2012 and Batch 1 CSP projects are due to be commissioned in May of 2013.
Jump to Phase 1, Batch 2
New guidelines for Batch 2 of JNNSM were issued by MNRE and the present set of guidelines is applicable to the Second Batch of the photovoltaic projects to be selected during 2011-12 for about 350MW. These guidelines will have no bearing on the projects which were selected in the First Batch in 2010-11. There are several changes in the guidelines for Batch 2 compared to the guidelines of Batch 1. Click here for Batch 2 policy factsheet.
Project sizes for Batch 2 have increased to 20 MW from 5 MW to facilitate cost reductions through economies of scale and companies (or group of companies) can now bid up to 50 MW worth of projects each.
India chose to extend its domestic content clause requiring crystalline silicon cells along with modules to be manufactured in India. Its domestic content clause has already driven away project developers from crystalline silicon (c-Si) panels towards thin film and adding the requirement of c-Si cells to be manufactured in India will only further drive the market towards thin film as long as thin film remains price competitive. With high borrowing costs in India, project developers are increasingly looking towards U.S. and other foreign financial institutions for funding and the domestic content requirement will be a big obstacle, especially if these lender countries cannot sell their own products in the Indian markets. The U.S. Export-Import Bank for example has been very active but will only fund projects based on equipment and panels purchased from U.S. companies.
Bidding for Batch 2 is predicted to get very aggressive just as it did for Batch 1, especially since PV panel prices fell 45 to 50 percent since the last auction was announced. The challenge for MNRE will be again to balance the bidding range to encourage competition but not drive it down to nonviable levels.
One component that is still lacking is a qualification requirement. In Batch 2, anyone can bid, regardless of experience level. Until this element is corrected, there will always remain a doubts as to the ability and quality of projects developed by inexperienced bidders.
Batch 2 Highlights:
– Projects offering the maximum discount in Rs/kWh will be selected first (bidding)
– Maximum capacity of a single PV plant increased to 20 MW from 5 MW
– Plant capacity can be in multiples of 5MW (from 5MW to 20MW)
– A company can bid for a maximum of 3 projects totaling 50MW.
– Deadline for achieving financial closure increased to 7 months from the 6 months.
– The timeline for commissioning of projects is extended to 13 months from 12 months.
– Partial commissioning of a project shall be accepted by NVVN subject to the condition that the minimum capacity for acceptance of partial commissioning shall be 5 MW and in multiples thereof.
– Controlling shareholders of the project must maintain at least 50 percent control for 1 year compared to 26 percent.
– Domestic requirement – it will be mandatory for all crystalline silicon projects to use cells and modules manufactured in India. PV Modules made from thin film technologies or concentrator PV cells may be sourced from any country.
– The Net Worth of a bidding company should be equal to or greater than Rs 3 Crore (~$639K) for project capacity up to 20MW. For every MW additional capacity beyond 20 MW, additional net worth of Rs. 2 crore (~$426K) would need to be demonstrated
Solar Capacity in India
Cumulative grid connected solar PV capacity in India as of the end of September amounts to only 46 MW, and approximately 52 MW if CSP projects are included. However, projects announced under JNNSM, Gujarat State program and other state programs put India’s solar pipeline, including CSP projects, to well over 2 GW. It still remains to be seen what percentage of these projects will be successfully commissioned, but a growing pipeline like this could potentially place India in the spotlight as one of solar’s emerging markets.
Solar in India
With policies like JNNSM being implemented and renewable energy gaining importance as a future energy source in India, understanding the perceptions of consumers about renewable energy is a vital factor for these policies to succeed.
Mercom Capital Group recently conducted a survey in India to gauge the awareness and perceptions of Indian consumers towards renewable energy and solar titled ‘India Renewable Energy Awareness Survey. According to the survey results only 56 percent of Indian consumers have heard of ‘renewable energy’ or ‘clean energy’, and only 27 percent of consumers have heard of ‘energy efficiency’. Although awareness was low, 71 percent of Indian consumers surveyed are willing to pay higher rates for electricity from renewable energy sources, which is a big positive. Solar was the most identified form of renewable energy among consumers.
Some of Mercom’s survey findings included:
– When asked about benefits of renewable energy, 81 percent pointed out ‘good for environment’ as a benefit, 54 percent said ‘no power cuts’ and 47 percent said ‘lower energy bills’ were benefits of renewable energy.
– Solar was the most identified form of renewable energy with 92 percent of the consumers having heard of it, mainly due to the prevalence of solar water heaters. Only 49 percent of consumers had heard of wind energy.
– 82 percent of survey respondents overwhelmingly support renewable energy projects and 90 percent said government should support renewable energy.
Overall we found a general lack of education and understanding about renewable energy and energy efficiency. For any policy or program to achieve broad success, there needs to be a sustained education and communications initiative to get the consumers’ buy-in.