Industry Says Lockdown + 30-Days Extension for Stranded Solar Projects Not Enough

An extension of six months is necessary to bring the industry back on track, stakeholders believe


In April, the Ministry of New and Renewable Energy (MNRE) came up with a blanket commissioning time extension for all renewable energy projects under construction in the country because of the lockdown that followed the COVID-19 outbreak. The ministry granted an extension of 30 days for normalization in addition to the total lockdown period. According to the MNRE memo, the period of lockdown is from March 25, 2020, when the lockdown started, to May 31, 2020.

The stakeholders, however, believe that the 30 days’ extension is insufficient. The developers want extension should be increased to at least six months to meet the challenges of labor mobilization and other logistical constraints as a result of the lockdown.

The ministry added that for a blanket extension, there would be no requirement for case-to-case examination, and there would also be no need to produce documentary evidence to get the extension. The nodal agencies dealing with renewable energy projects are advised to treat the delay due to the COVID-19 crisis as force majeure. The force majeure clause is invoked in the event of unforeseeable circumstances that prevent the parties from fulfilling a contract.

This latest directive by the ministry was preceded by the directions issued by the MNRE to Solar Energy Corporation of India (SECI), NTPC, and other officials in March to treat the disruption in the supply chain in China due to the outbreak of the pandemic as force majeure.

The wheels of the economy have started turning again, albeit slowly, with the partial lifting of the lockdown in select cities and states. Businesses and industries have resumed activities in a phased manner; however, with the number of COVID cases increasing in many parts of the country, we could see further delays.

Speaking on the blanket extension and the current situation because of the COVID-19 pandemic, Manoj Gupta, Director, Corporate Affairs at Fortum India Private Limited, said, “Given the current scenario, which is affecting all the industries, it is imperative to provide projects with an extended deadline. Even though the construction of renewable energy projects was allowed from April 20 onwards, the actual ground working situation was completely invisible due to construction and travel restrictions imposed by the states and local authorities due to the COVID-19 pandemic.”

Migrant labor

Though economic activity is limping back to normalcy, the return of the labor force from the cities to their hometowns has accentuated. It is going to take a while before the workers are back, and the work on the ground resumes its pace. This development amplifies the growing chorus of extending the blanket extension to six months. And even if the workers come back, it will be hard for the project developers to adhere to the protocols of social distancing and other necessary measures put in place in the wake of the COVID-19 crisis.

Gupta also added, “The practical situation at the site is taking much longer than usual. In the last 3-4 months, the on-ground construction activities have not been executed at all due to the lockdown, labor shortage, and other issues related to grid connection and land acquisition. Given all these constraints, we would propose that the government provide a blanket extension of six months for all the projects which are currently under construction. This will boost the confidence of the industry to achieve the ultimate goal of commissioning of 100 GW solar project by 2022.”

Mercom India Survey_What percentage of the workforce does your company have right now.

The solar companies are also faced with logistical challenges and a financial downturn as a result of the lockdown. According to many stakeholders, the period from April to June has been particularly difficult for many companies. As the monsoon sets in, it’s only going to prolong the lean patch for the solar industry.

According to an executive at a large project developer, “The lockdown plus 30 days of extension is no way sufficient to complete the stranded projects. With no public transport in place, it is difficult to bring the workers back. Some of the workers have gone back during the third lockdown, and they would not be returning anytime soon. After June, the monsoon starts, and the construction will be hampered. For a 100 MW project, there will be about 5,000 workers on site, how do you maintain social distancing and ramp up construction?”

While the supply chain for the construction activity is expected to normalize in the coming weeks, the lack of labor force is going to be the biggest impediment for the engineering, procurement, and construction (EPC) companies. This could lead to further delays for projects that are under construction and add to the overall cost, which is quite a concern for solar developers.

Increasing cost

Commenting on the increase in project cost because of the lockdown, an executive at another large developer, said, “All these supply disruptions and delay in construction activities are going to add at least 5-20% to the project cost. This increase in project cost is not a case that can be proven; there is no documentation for claiming it under force majeure.”

With the project cost estimations going up, the developers are also suggesting the government give the stranded developers low-cost exit options. The bank guarantees are stuck for solar projects, and developers are contemplating saving the Long-term open access cost if they choose not to develop the projects.

Developers also opined that, if the government allowed more time to complete the projects, they would have better negotiation time on the supply chain, laborers, finance, and equipment.

An executive from a company offering operations and maintenance services said, “Developers are worried about a lot of issues that they need to tackle. Currently, it is the overall disruptions due to COVID-19 and later the monsoons. Following this, they need to worry about Approved Lists of Models and Manufacturers’ (ALMM) and basic customs duty. Once these hurdles are crossed, developers and installers need to figure out access to funding to complete the projects, not to mention the workforce problems and the tension in the China border.”

These are many hurdles that have been put in front of developers, and some of them are entirely avoidable.

Path Ahead

While the industry grapples with coming to terms with the ensuing COVID-19 crisis and its impact on the renewable sector, India announced 14 GW of solar tenders. Despite the pandemic, about 3.5 GW of solar projects were auctioned in the first quarter (Q1) of 2020. The 14 GW of solar tenders announced by the government could lead to opportunities worth approximately ₹550 billion (~$7 billion).

That said, the disruption caused by the pandemic cannot be underestimated, and we should not be overzealous and overly optimistic in assuming that the solar industry will bounce back in no time. There should be enough cushion provided to the developers to operate in this unprecedented environment and safeguard the upcoming projects and, in turn, India’s solar dream for 2022.

According to Mercom’s Q1 2020 India Solar Market Update, COVID-19 disrupted the solar supply chain and India’s solar growth as solar installations fell to 1.1 GW, a 39% decline YoY. Mercom is forecasting a decline in solar installations in 2020 to 5 GW as project timelines are extended and moved to 2021.

“It is critical that the government adjust to the realities on the ground and be flexible with extensions so that solar projects can be executed successfully. There is no disputing the fact that coronavirus cases are still surging, and labor, supply chain, and the economy are nowhere close to normal,” said Raj Prabhu, CEO of Mercom Capital Group.