Indian Solar Industry Confronts Coronavirus Crisis

Recent reports show that over ₹160 billion worth of solar projects could be affected


The Coronavirus pandemic is proving to be the solar industry’s biggest challenge this year, and the repercussions are being felt across industries all over the globe.

Global supplies have been severely affected. The disruption has spread much farther than China because of the scale at which the country’s manufacturing operates. Most other solar markets are also reeling under the pandemic and have closed down in one form or the other.

The Indian solar industry was already facing several challenges and is coming off a weak year. Solar installations in 2019 only amounted to 7.3 GW, a 15% decline year-over-year. In its Q4 & Annual 2019 India Solar Market Update, Mercom forecasted 8.5 GW of solar installations for 2020 before the coronavirus pandemic started affecting the markets.

Indian solar project developers are concerned about the delays their projects might face because of the production slowdown in China and the lockdown orders in India, which are in effect until April 14, 2020.

In a recent online survey conducted by Mercom India Research, almost 70% of the respondents said their business would be affected by over 15% due to Coronavirus.

Mercom Solar Survey - By how much Is coronavirus affecting your revenues adversely.

83% of the survey participants expect solar component supply shortages because of Coronavirus.

Mercom Solar Survey - Do you anticipate supply shortages due to coronavirus

According to Mercom’s India Solar EXIM Tracker, China was the largest exporter of solar modules and cells to India in the calendar year (CY) 2019, with a market share of nearly 78%.

“The outbreak of coronavirus has led to delays in the procurement of modules, panels, inverters, and other small components, further leading to a delay in commissioning deadlines,” said Sanjeev Aggarwal, managing director, and chief executive officer (CEO) at Amplus Solar, a rooftop solar developer.

“If demand remains unmet, it can lead to an increase in the cost for the developers, who will have to opt for other expensive markets. This will eventually lead to a hike in prices. Thus, this issue is bound to affect the entire industry world over, if not rapidly catered to,” Aggarwal added.

Lockdowns in China have forced manufacturers to run their facilities at lower utilization rates or to stop operations completely. Even manufactured modules are facing delays because of export and import restrictions at ports.

“The pandemic has disrupted production and transport in China, and this has severely impacted the delivery timelines of key equipment. The virus outbreak has caused an increase in the cost of PV modules, which will thereby increase the solar tariffs,” said Pinaki Bhattacharyya, CEO Amp Energy India.

“Although it is an evolving situation, and the long-term impact of the pandemic is still to be seen, the Indian government has declared it as a force majeure situation for project developers who would miss deadlines due to the effect of the coronavirus outbreak,” Bhattacharyya added.

Module prices are expected to go up, at least in the short term due to both the China situation and because of the higher costs of Indian modules, should developers opt to source locally. This will increase overall project costs.

“Since most of our raw materials come from China, our production and product delivery schedules have been interrupted because of the outbreak and the restrictions,” said Abhishek Ranjan, Assistant Manager (Quality) at Premier Solar Systems, an Indian solar PV manufacturer.

“We are forced to use raw materials sourced domestically despite higher costs and lower quality. We are left with no other choice until the situation improves,” Ranjan added.

However, considering the adverse impact of the Coronavirus pandemic on the global economy, the Ministry of New and Renewable Energy (MNRE) has issued an official memorandum which states that the time extension in scheduled commissioning of renewable projects due to the disruption of supply chains will be treated as a ‘force majeure’ event.

“We have already written to the SECI and other agencies notifying them of the outbreak and requesting them for an extension of the deadline for our projects. We are unable to procure components, and thanks to this, a lot of pending orders from Q1 will get delayed even further. Multiple vendors have written to us saying that their shipments and delivery schedules have been impacted,” said an executive from a large Indian solar project developer.

“We are continuing with other activities like engineering and plant-related work at these sites, but it is presently difficult to assess the impact on the project timelines because of the situation,” the executive added.

However, the Ministry has clarified that the clause does not excuse a party’s non-performance entirely but only suspends it for a specified duration.

Further, the Ministry decided that all project developers claiming the disruption and seeking time extensions should make a formal application to Solar Energy Corporation of India (SECI) or the National Thermal Power Corporation (NTPC) or other implementing agencies, giving documentary evidence in support of their claim.

“We are beginning to receive force majeure notifications from some of our suppliers related to this unfortunate development,” said Murali Subramanian, President of Azure Power, an independent power producer (IPP), on an earnings conference call.

“While we do not expect this to have much effect on our operations for the next couple of months if the supply chain is indeed affected for a prolonged period, we believe that the force majeure clauses in our power purchase contracts will allow us extensions on our projects under construction without any penalty,” he added.

Recently, speaking in the Rajya Sabha, Union Power Minister, R.K Singh explained that the Indian solar industry is under no compulsion to import cells, modules and other equipment from China. He noted that they were free to meet their requirements from domestic or other sources.

However, he stated that the Ministry of Finance has already clarified that the “force majeure” clause may be invoked when considered appropriate in cases where the disruption to supply chains due to the coronavirus pandemic can be shown.

“Because of the situation in China, there is a shortage of wafers in the market right now, and we are unable to utilize our plants at full capacity. We are expecting this to be the situation for at least two more months,” said an executive from a prominent Indian solar cell and module manufacturing company.

“To meet expenses in the coming two months, we will have to increase our prices until everything is settled in China,” the executive said.

The government’s move allowing the force majeure clause to be invoked for cases where genuine delays and disruptions is a good start for the industry. The relief it gives for the developers is similar to the “change in law” clause that was allowed previously for delays and inconveniences due to the imposition of safeguard duty.

Meanwhile, in China, solar manufacturers with facilities far away from Wuhan city of Hubei Province, the center of the epidemic, have reported that their operations have not been seriously affected. Some, like Growatt, with their facility located in Shenzen City, about 1,200 km away from Wuhan, have confirmed that they resumed production on February 14, 2020.

The Chinese solar inverter manufacturer added that most of its material suppliers are located in or around Shenzen, and the outbreak has had little impact on its supply chain and transportation. It said it had taken precautionary and protective measures for its employees and facility and that so far, none of its employees have been affected by the virus.

“Growatt has worked with clients on shipments and inventory before the Chinese New Year. So, our demand and supply in overseas markets are not affected by the outbreak. Shipments planned in February are expected to be delayed a little bit, but overall, we have no big issues,” said Rucas Wang, Regional Director at Growatt.

Although some Chinese manufactures are confident that it will have little impact, the outbreak in China has resulted in a supply chain disruption that has had rippling effects across industries in the world. Because of the intensity of the epidemic, all provinces and cities were forced to implement protocols for public health emergencies. This delayed the resumption of public work to prevent the infection from spreading resulting in a shortage of human resources.

“Manufacturing, testing, and exporting are nearly normal across the country except for the regions that have been affected the worst by the infection,” said a spokesperson from Heraeus, a German solar photovoltaic manufacturer with facilities in China. It added that it resumed production on February 10th, with the government’s approval.

Most of the Chinese manufacturers Mercom spoke to said that they expect the impact of the outbreak to be temporary and that they expected things to go back to normal in another three to six weeks. They also were optimistic about the prospect of everything settling down by March. But that has not been the case.

“It will take at least six weeks for things to recover from the present situation. The industry has to resume and overcome the challenges; otherwise, the rising economic cost will be drastic, resulting in cash flow issues,” according to inverter manufacturer, Ginlong Solis.

At the same time, some manufacturers have not been affected severely by the outbreak. “Our solar inverter and UPS factories are located in Fujian province, where operations are not severely affected. Any order demand or service will still be strongly and promptly supported,” said Kehua Tech, a solar inverter manufacturer.

Other Chinese suppliers, Mercom spoke to said that the situation could take a few more months to normalize.

Most Indian developers were waiting to place their orders in April or May so that the shipment would arrive in July after the safeguard duty expired, expecting shipments to arrive in Q4 2020. In these cases, project deadline extensions will be critical, they added.

A SECI official told Mercom that the developers affected by module supply issues could approach them for extension of project commissioning deadlines under the force majeure clause. Once the cases are reviewed individually, the timeline extensions will be awarded based on the developers’ requests after assessment. Developers need not approach the regulatory commission on this issue. It was also pointed out that the transmission lines for some of the projects that are to be completed by October, will not be ready until December 2020.

“What started as a supply chain disruption mostly stemming from China has now spread downstream into development activities in India. The more immediate challenge for the Indian solar industry is to gauge the impact of the coronavirus pandemic in the country and when work can safely resume after the current lockdown,” said Raj Prabhu, CEO of Mercom Capital Group. “The solar industry is entering unchartered territory. It is more important than ever to follow safety protocols, but at the same time maintain momentum and keep moving forward,” he added.