MNRE and SECI Address Manufacturing, DISCOM Payments, in the Indian Solar Industry
The MNRE Secretary Anand Kumar and SECI Chairman Jatindra Nath Swain shared their comments and plans for the solar sector
Mercom Communications India hosted a webinar on the key trends in the renewable energy market, with a focus on the Indian solar sector. It included findings from across the supply chain to understand how the solar industry in the country is tackling the global COVID-19 pandemic.
Anand Kumar, Secretary of the Ministry of New and Renewable Energy (MNRE), and Jatindra Nath Swain, Chairman and Managing Director of the Solar Energy Corporation of India (SECI), participated as the guest speakers for the session.
Anand Kumar stated that the MNRE has been in constant touch with industry stakeholders throughout the COVID-19 crisis and that thanks to its efforts, he doesn’t expect a slowdown in the renewable energy sector in the country. The ministry has been taking initiatives since before the coronavirus pandemic like announcing the letters of credit (LC) facility and providing loans to struggling distribution companies, he added.
Must Run, Moratorium, RTC Tenders
Following the nationwide lockdown, the MNRE clarified that renewable generators would continue to have a “must-run” status, helping them stay on their feet in these difficult times. They were also given a three-month moratorium on the payment of bills where late payment surcharges would not be imposed. Kumar added that talks were in place to extend this period to six months. The ministry has also launched innovative tenders like round the clock (RTC) power and peak-peak power tenders, with plans to launch dispatchable power tenders in the future. Kumar also noted that companies from Europe and Scandinavia are interested in setting up electrolyzer projects in India.
Kumar also said the MNRE has plans to promote domestic solar manufacturing capacity as a large portion of solar equipment is imported from China and abroad. He noted that ministry not only has plans to develop solar components like cells, modules, ingots, and wafers but to venture into manufacturing ancillary equipment like back sheets, inverters, transformers, etc. It also aims to set up renewable manufacturing and services hubs across the country, to export products and services.
Kumar also spoke about the ministry’s efforts to boost liquidity in the market. He said that the ministry has released funds towards rooftop subsidies, generation-based incentives (GBI), and viability gap funding (VGF), this year and that it intends to keep doing so regularly to help the renewable sector.
When asked if there are any special COVID impact funds set aside for the sector, he stated there were no such plans at the moment, but it was up to the Ministry of Finance (MoF) to decide which sectors need help.
SECI’s Jatindra Nath Swain said that the corporation has also done its part to help the industry amid the global pandemic. He stated that the SECI reduced earnest money deposits (EMDs) and performance bank guarantees (PBGs) to make their projects more investor-friendly in these tough times. The SECI has also been very timely with payments as far as their power purchase agreements (PPAs) are concerned.
He also said that SECI has come up with a formula to address future “change in law” incidents in their PPAs more efficiently. It has also been dealing with cases of supply chain disruptions because of the pandemic on a case-to-case basis, he added.
Power Demand and Subsidies
The SECI has also been working on agricultural sector power demand issues. Power demand from the sector has been one of the biggest causes of distress to DISCOMs as demand is high, while returns are low because of subsidies. If the sector is solarized, costs could be halved, Swain noted.
Swain added that SECI has been trying to bring in its decarbonization efforts into the oil refining and fertilizer production sectors as well. He noted that hydrogen-based power would be a good fit in these efforts.
On the subject of reducing DISCOM risk, the SECI chairman said that they are currently considering implementing a “Contract for Difference” (CFD) model wherein developers will be paid the difference if the discovered tariffs fall below a previously agreed upon “strike price,” from a centrally maintained fund by the state DISCOMs.
Safeguard and Basic Customs Duty
When asked about the situation with basic customs duty (BCD) and safeguard duty (SGD), MNRE Secretary Anand Kumar said that the BCD will be used as a tool to protect imports and that it intends to “draw a balance between developers and manufacturers,” while promoting the development of both sides. The BCD will apply to all equipment in the renewable sector and not just on solar cells and modules according to the ministry’s proposal at the moment, he added.
He added that while SGD was a temporary measure to safeguard the solar industry, BCD would be a more permanent solution.
On the rooftop solar front, Kumar noted that this segment has been growing because rooftop systems are economically viable now, thanks to subsidies and incentives to DISCOMs. Households that pay more than ₹8,000 (~$104.78) a month in electricity bill would now be able to make up for installation costs in about five years, he added.
Further, the ministry has also told states to deploy net metering and gross metering systems as the model for operationalizing rooftop solar, Kumar stated, adding that the ministry is trying to make rooftop mandatory for all government buildings.
On the topic of project commissioning extensions because of the lockdown, Kumar said that there are already two extensions for the industry – one that is the lockdown plus 30 days, which is applicable for all projects across the board. Companies need not apply for this. The other was announced to address the supply chain disruption before the lockdown, and this would be dealt on a case-by-case basis based on the application and evidence provided.
Kumar also spoke about the ministry’s willingness to promote open access and captive projects, but DISCOMs are opposing this move as they are concerned about high-end consumers moving away, he added. He said that the SECI is working on alleviating the burden on DISCOMs due to agricultural demand and that the ministry would work on initiatives to promote the growth of open access and captive power projects.
Timeline of Events
Priyadarshini Sanjay, Managing Director at Mercom India, presented some key findings from the Indian Solar Market in 2019, based on Mercom’s research. The Indian solar market added about 7.3 GW of solar capacity in 2019, down around 12% from the previous year. Solar installations in the country stood at 36.5 GW as of March 2020, she noted.
She explained that several issues holding back the growth of the industry during the year, including the elections, economic slowdown, liquidity issues, tariff caps, lack of financing, payment delays, curtailment, and PPA renegotiations by Andhra Pradesh.
Priya also spoke about the impact of Coronavirus on the industry and walked webinar participants through the global developments during the period, including relief measures announced by the Indian government. A detailed view of the timeline can be seen below:
Raj Prabhu, Mercom Capital Group’s CEO, walked webinar participants through some of the immediate impacts of the pandemic on global markets. He noted that most major global markets are either partially or fully shut down, and the industry has to get used to the new normal until a vaccine is developed for the disease.
He added that solar project deployments could decline anywhere between 15% and 25% globally, noting that the residential rooftop, commercial, and industrial sectors have been hit hard. Power demand is expected to remain low throughout the year because of this, he noted.
Prabhu stated that because of lower solar installations, component prices are also expected to decline. He also pointed out that the disruption in the global supply chains could lead to new trends in localizing the supply chain because countries have been dependent on exports for so long, and complete industries have been shut down because of this reliance.
Prabhu also stated that RE100 targets adopted by corporations and cities around the world would continue to gather momentum, addressing the climate crisis. Companies across industries have been investing in solar assets, including oil companies. He explained that the industry is poised to grow in 2021 as it recovers from the coronavirus crisis.
The Indian solar industry can expect to deal with supply chain disruptions and delays for as long as the pandemic continues. DISCOM payment delays can be expected to continue as well, as they continue to curtail power on account of the cash crunch situation, which has not been worsened by the pandemic. The domestic rooftop segment has also been hit hard.
Talking about the Indian solar industry’s most pressing concerns, Prabhu stated listed some of the immediate concerns that need fixing.
Need of the Hour
Speaking about Mercom’s outlook for the Indian solar market, Prabhu showed the COVID-19 hotspots in India as well as overlapping solar projects under construction. He brought up about three possible scenarios once the lockdown is lifted which can be viewed in the webinar recording.
In conclusion, Prabhu showcased some key statistics about the growth of the Indian renewable sector over the years, noting that the share of solar capacity in the generation mix increased from 7.9% in 2018 to 9.6% in 2019. He explained that renewables are continuing to eat away at the share of fossil fuels in the country, and it shouldn’t be much longer before they contribute to 50% or more of India’s power.
Click here to view the webinar.
Nithin Thomas is a staff reporter at Mercom India. Previously with Reuters News, he has covered oil, metals and agricultural commodity markets across global markets. He has also covered refinery and pipeline explosions, oil and gas leaks, Atlantic region hurricane developments, and other natural disasters. Nithin holds a Masters Degree in Applied Economics from Christ University, Bangalore and a Bachelor’s Degree in Commerce from Loyola College, Chennai. More articles from Nithin.