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© BRIDGE TO INDIA, 2016Illustration by tiffinbox
INDIA SOLAR
HANDBOOK2016
Including our firstINDIA SOLARCEO SURVEY
Premium sponsor
Harnessing the power of the sun Harnessing the power of the sun
new size.indd 1 14-04-2016 12:25:20
5© BRIDGE TO INDIA, 2016
Disclaimer© 2016 BRIDGE TO INDIA Energy Pvt. Ltd.All rights reserved April 2016, New Delhi
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About BRIDGE TO INDIA BRIDGE TO INDIA is the leading consulting and knowledge services provider in the Indian cleantech market. Our multi-functional experience expertise combined with comprehensive in-house research capability enables us to develop insightful and highly sought-after industry analyses. Our overarching goal is to provide customised cleantech solutions and enable innovative business models in India.
We work actively with all leading stakeholders including project developers and investors, energy customers, equipment suppliers, regulators, policy makers and development institutions. We have also helped a number of international top-tier cleantech companies in growing their business footprint in India by providing them with strategic advice, business planning, risk assessment and JV partner selection services.
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Introduction
Indian solar market in full bloom but financing poses a key challenge
India is all set to become the fourth largest solar market globally in 2016 behind only China, USA and Japan with 5.4 GW of expected capacity addition in the year. The tailwinds are exceptionally strong with rapidly falling costs and greater environmental agenda in the post COP21 world.
The Indian solar market appears in full bloom right now with key policy changes being introduced and 25 GW of projects under different stages of development. 35 new tenders with a cumulative capacity of 15.5 GW have been announced in the last year. An additional 5 GW of new tenders are awaiting release in the coming months. There is burgeoning investment interest both from Indian and international developers in the sector. This frenetic pace of activity is a big step-up in contrast to historic solar capacity addition of approximately 1 GW per annum for three straight years until 2014. But does the sector have sufficient financial capacity to deliver all these projects?
The most buzzing topic for the sector right now is the intense competition with tariffs coming down sharply to M4.34-5.00/ unit ($0.07-0.08) levels. But with many developers struggling to raise capital and banks seemingly reluctant to lend to projects at such tariffs, progress in 2017 and 2018 is not likely to be as fast as expected. In contrast to Ministry of New and Renewable Energy (MNRE) target of 12 GW of utility scale solar projects for FY 2016-17, BRIDGE TO INDIA estimates that actual capacity addition will be only about 5-6 GW in FY 2016-17.
Other key theme in our view is the likely growth trajectory for the sector over the 3-5 year horizon. The central government has taken early lead through National Thermal Power Corporation (NTPC) and Solar Energy Corporation of India (SECI) in releasing project tenders of more than 9 GW as of April, 2016. The southern states have also shown huge interest in solar power to overcome their growing power deficit. But with power demand showing slow growth and grid stability issues growing more important over time particularly in areas of high renewable penetration, we expect a slowdown in the sector after 2017 and 2018.
On the policy front, the Solar Parks Policy and UDAY scheme have been hailed largely as a successes but the broader sector policy reform through amendments in the Electricity Act 2003 is still awaiting parliamentary approval. Going forward, ensuring grid robustness and investment/lending appetite at aggressive tariff levels will be the two main challenges. Policy interventions to address these challenges together with demand growth measures will be key to sustainable growth of the sector.
One major disappointment continues to be the rooftop solar market where the 40 GW target for 2022 seems like a very remote prospect. This market needs more focused policy support to ensure effective net-metering implementation and attraction of financial investors. Overall, the growth prospects for the India solar market are very bright providing an immense opportunity for investors, developers and equipment suppliers. But a dose of caution is needed as the market will remain very price sensitive and with its share of challenges.
35 new tenders with a cumulative
capacity of 15.5 GW have been announced
in the last year
Ensuring grid robustness and investment/lending
appetite at aggressive tariff levels will be the
two main challenges
8© BRIDGE TO INDIA, 2016
International perspective
Global overview: Asian countries emerge as solar leaders
Globally, new solar capacity addition grew to 50 GW in 2015, y-o-y growth of 25%. Asian countries led by China and Japan dominated the global solar landscape, representing about 59% of the global PV market in 2015. India added more than 2 GW capacity in 2015 to reach a cumulative capacity of 5.6 GW by the end of the year. This allowed India to rise to the eighth position for total installed capacity repetition as of December 31, 2015.
Solar market in the Americas also continued to grow with the USA, Canada and Chile leading the pace but Europe, which had previously led the way for the solar industry globally, has seen growth stall in recent times because of the pull back of the FiTs.
Figure 1: Cumulative installed solar capacity as of December 31, 2015 (GW)1
In 2016, about 65 GW of solar capacity is expected to be added globally. Asian countries including China, Japan and India are expected to be in the top five countries. China is expected to continue leading the global PV market while USA is set to overtake Japan as the second largest solar market, exceeding the much-anticipated 10-GW mark.
India is expected to be at the fourth position leaving behind the major European solar markets (UK, Germany and France) with expected new capacity addition of 5.6 GW in 2016.
----------1 Source: IEA PVPS, Snapshot 2015 of Global PV markets; India nos. estimated by BRIDGE TO INDIA
9© BRIDGE TO INDIA, 2016
Figure 2: India to add >5 GW of solar capacity in 20162
----------2 Source: GTM Research, BRIDGE TO INDIA
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Andaman &Nicobar 5
OP
West Bengal 7
OP
Assam 10
WIP
Tripura 5
OP
Madhya PradeshOP
780767
WIP
Chhattisgarh
103
OP
Uttar Pradesh
122
OP
595
WIP
Jharkhand 18
OP
1,200
WIP
Delhi 5OP
Rajasthan
700
WIP
1,291
OP
Uttarakhand
200
WIP5
OP
Gujarat48
1,105
WIPOP
Maharashtra
340
403
OP WIP
Kerala13
OP
Andhra Pradesh
571
OP
2,687
WIP
TelanganaOP
2,263
433
WIP
Haryana
200
WIP
24
OP
Odisha
78
OP
Tamil Nadu
530
OP WIP
1,191
Punjab
636
367
OP WIP
Bihar 5
OP
125
WIP
Daman & Diu5
OP
Karnataka
2,254
OP WIP
105
Utility scale solar
Installed capacity
Figure 3: India has installed 6.6 GW of utility scale solar as of March 31, 2016
Discom RatingCalculated based on profit/ loss of DISCOM as % of state GDP
Source: BRIDGE TO INDIA research
11© BRIDGE TO INDIA, 2016
Solar parks
MNRE has approved 33 solar parks in 21 states with 19.9 GW capacity.
Figure 4: Solar parks plan
3,251 MW, Bhadla, Jaisalmer, Jodhpur
2,000 MW, Tumkur
2,750 MW, Rewa, Shajapur,Morena
4,000 MW, Anantpuramu, Kurnool, Kadapa, Anantpur
500 MW, Mehboobnagar
50 MW, Kashipur
600 MW, Jalaun, Allahabad, Mirzapur & Kanpur
1,000 MW, Spiti Valley
Madhya Pradesh
1,500 MW, Beed, DhuleMaharashtra
700 MW, BanaskanthaGujarat
Karnataka
Rajasthan
Himachal PradeshUttar Pradesh
Uttarakhand
500 MWChhattisgarh
500 MW, BankuraWest Bengal
69 MW, Amguri, Sibsagar
Assam
100 MW, Lohit
Arunachal Pradesh
60 MW
Nagaland
1,000 MWOdisha
Andhra Pradesh
500 MW, RamanathapuramTamil Nadu
Telangana
100 MW, Samba
Jammu & Kashmir
500 MW, Hisar, Bhiwani, Mahendergarh
Haryana
200 MW, KasargodeKerala
20 MW, JaintiaMeghalaya
Source: SECI, BRIDGE TO INDIA research
12© BRIDGE TO INDIA, 2016
Types of policy based projects in India
Figure 5: India has multiple types of utility scale solar projects with several off-takers and processes
*Pipeline includes projects under construction, PPAs signed and open tenders
Source: BRIDGE TO INDIA analysis
13© BRIDGE TO INDIA, 2016
Project development landscape
As the Indian solar market grows and project sizes increase, international utilities and IPPs with strong balance sheets and lower cost of capital are likely to play a greater role. We have already witnessed this trend growing over the last one year.
Figure 6: Role of international developers and utilities has been increasing in the Indian solar market
Commissioned projects (>10 MW) as of March 31, 2016
Projects under development (>10 MW) as of March 31, 2016
Source: BRIDGE TO INDIA analysis
14© BRIDGE TO INDIA, 2016
Figure 7: Pipeline of top 10 private project developers in India, MW
Source: BRIDGE TO INDIA analysis
15© BRIDGE TO INDIA, 2014
Recent auctions
Figure 8: Solar tariffs have fallen by almost 33% in India in last two years
16© BRIDGE TO INDIA, 2016
Market projections
Figure 9: BRIDGE TO INDIA expects 37 GW of cumulative utility scale capacity addition in India until 2020
Figure 10: Capacity breakup by project category, by 2020 (%)
Source: BRIDGE TO INDIA projections
17© BRIDGE TO INDIA, 2016
Rooftop solar
Installed capacity
Figure 11: India has installed 740 MW of rooftop solar capacity as of March 31, 2016
Jharkhand
10.5
West Bengal
12
MadhyaPradesh
16
Punjab
55
Chhattisgarh
30
Uttar Pradesh
43.4
Delhi
32
Rajasthan
44.4
Uttarakhand
12
Gujarat
62.6
North eaststates
20.3
30
Others
Karnataka
47
Kerala
19
Maharashtra
62.3
AndhraPradesh
36
Telangana
37
Haryana
35
Chandigarh
13 Jammu &Kashmir
9.1
Odisha
12
Tamil Nadu
85.4
Bihar
16
18© BRIDGE TO INDIA, 2016
Policy landscape
The Indian government is offering several tax and financial incentives to support the rooftop solar market• Capital subsidy: 30% subsidy for residential and institutional consumers
(M50 billion)• Accelerated depreciation: 80% depreciation• Tax holiday: 10 year tax holiday (MAT payable)• Low cost funding: $1.5 billion funding from World Bank, ADB and KFW
Table 1: Overview of state net metering guidelines
State Policy scope Individual system size limit
Grid penetration % of distribution transformer capacity
Excess electricity sale price
Eligibility
Andhra Pradesh Upto 1 MWp 100% of annual consumption
Not mentioned
APPC All consumers
Assam 1kWp to 1MWp
40% of contracted load
Not mentioned
APPC All consumers
Bihar (Draft) Upto 1 MWp 90% of annual consumption
15% Not mentioned Not mentioned
Chhattisgarh 50 kWp to1 MWp
49% of annual net generation
Not mentioned
50% of regulated solar tariff
Not mentioned
Delhi >1 kWP 100% of contracted load
20% APPC All consumers
Goa and UTs 1 kWp to 500 kWp
Not mentioned 30% As per regulated solar tariff
All consumers
Gujarat Not Mentioned 50% of contracted load
Not mentioned
APPC/ 85% of APPC for REC projects
All consumers
Haryana 1kWp to 1 MWp
90% of annual consumption
15% All consumers
Himachal Pradesh
1 kW to 5 MW
80% of contracted load
30% M5.00/ unit All consumers
Karnataka Upto 1 MWp Not mentioned 80% M9.56/ kWh (without subsidy), M7.20/ kWh (with 30% subsidy)*
All consumers
19© BRIDGE TO INDIA, 2016
State Policy scope Individual system size limit
Grid penetration % of distribution transformer capacity
Excess electricity sale price
Eligibility
Kerala 1kWp to 1MWp Not mentioned 50% APPC All consumer categories, up to 11kV
Madhya Pradesh Up to permissible individual rated capacity of 112 kW at LT
Not mentioned 15% APPC All consumers
Maharasthra Upto 1 MWp 100% of contracted load
40% APPC All consumers
Meghalaya Upto 1 MWp <90% of annual consumption
15% No payment All consumers
Odisha Not Mentioned <90% of annual consumption
30% No payment All consumers
Punjab 1kWp to 1MWp <80% of contracted load
30% As per retail supply tariff of the consumer category
All consumers
Rajasthan 1 kWp upto 1MWp
<80% of contracted load
30% As per regulated solar tariff
All consumers
Tamil Nadu Not mentioned <90% of annual consumption
30% No payment All consumers
Uttar Pradesh >1 kWp 100% of contracted load
15% M0.50/ kWh All consumers
Uttarakhand Upto 500kWp Not mentioned Not mentioned
M9.20/kWh (with subsidy)
All consumers
West Bengal >5 kWp <90% of annual consumption
Not mentioned
APPC Only for institutional consumers
Telangana Not Mentioned Not mentioned Not mentioned
APPC All consumers
NoteAPPC - Average pooled purchase cost* No new PPAs signed under this rate now Source: BRIDGE TO INDIA research
20© BRIDGE TO INDIA, 2016
Market projections
Economic fundamentals for adoption of rooftop solar in India are improving rapidly. In 2016, the market is expected to add a capacity similar to the entire capacity added in India till date. The market is expected to grow at compounded annual growth rate of 58% per annum.
Figure 12: 6.8 GW of new rooftop solar capacity addition is expected in India between 2016 and 2020
Source: BRIDGE TO INDIA projections
INDIA SOLAR CEO SURVEY
Survey sponsor
23© BRIDGE TO INDIA, 2016
Our first pulse check of the state of the Indian solar marketIt is a great pleasure to announce the results of our first Solar CEO survey.
The purpose of this survey, coming at a critical time in the evolution of India's solar sector, was to seek honest, critical opinion of senior corporate leaders and get their perception of the opportunities and challenges facing the industry. Are we on the right track? Where might we be falling short and what does the government need to do differently? How do different parts of the sector – government policy projects, rooftop and open access – compare?
The survey has got excellent response from both Indian and multinational companies across the sector value chain:
Project developers EPC contractors Equipment manufacturers
Aditya Birla Enerparc Energy Delta Power
First Solar Jakson Engineers DuPont
Fortum India Juwi India Renewable EMMVEE Photovoltaic
Hero Future Energies L&T First Solar
Jakson Engineers Mahindra Susten Ganges Internationale
Mahindra Susten Moser Baer Solar Hitachi Hi-Rel Power
Mytrah Energy Sterling and Wilson Jakson Engineers
Rattan India Solar SunSource Energy SMA
Sky Power Ujaas Energy SNS Corporation
SunEdison Vikram Solar Vikram Solar
Rays Experts Moser Baer Solar
Refex Energy
While some findings seem obvious, there are many insightful results and some clear warning signs for the government. Key findings are summarized below:
1. The industry is very buoyant about sector growth prospects but the 100 GW target still seems too ambitious with key challenges expected to be grid stability and financing.
2. There is genuine concern about bankability of SECI as an offtaker. Unless SECI gets capitalized adequately, it is seen merely as an intermediate layer between the developer and ultimate offtaker ie DISCOM.
3. The rooftop sector needs much stronger push as the consensus estimate for total rooftop capacity addition by 2022 is only 10-11 GW, significantly below the government’s 40 GW target. Key challenges here are ineffective net metering policy framework and lack of more attractive debt financing solutions.
4. The industry is generally positive about the prospects of domestic manufacturing and India is expected to have an annual cell-module manufacturing capacity of 5 GW by 2022.
We propose to conduct further relevant surveys in the near future and welcome all feedback.
Notes: 1. Some company names are shown
more than once in this table depending on their business activity.
2. For multinational companies, the survey has been completed by the respective head of Indian solar business.
24© BRIDGE TO INDIA, 2016
Market growth and challenges
Solar capacity addition by 2022
Rooftop solar capacity addition by 2022
Open access solar capacity addition by 2022
Capacity addition in the rooftop and open access markets is expected to be <10 GW and < 5 GW respectively by majority of participants, again substantially below government targets. This should be an alarm call particularly for the government and all policy makers. Most of government focus so far has been on large policy driven, ground based projects whereas the biggest benefit of solar power lies in distributed generation and market driven solutions.
As per the survey participants, India is expected to add a total of 57 GW solar capacity by 2022, substantially below the government target of 100 GW.
25© BRIDGE TO INDIA, 2016
Business growth by 2020
Biggest challenge for 100 GW by 2022
Inputs for achieving 100 GW target
There is huge optimism in the sector. The participants believe that their individual solar businesses will grow by an average of 3-5x by 2022 with about 37% of participants believing that their business will grow by more than 10x in this period.
We asked the participants to select the biggest challenge for India to achieve the 100 GW target as well as to share their view on availability of key inputs for the sector. The three top challenges identified are grid integration, lack of FiTs and poor operating environment (ie general day-to-day difficulty in doing business).
In terms of availability of key inputs that go into solar project development, the industry is most concerned about transmission connectivity/ grid failure, debt financing and INR depreciation risk. Land availability concerns seem to have relatively come down perhaps because of proactive government moves on solar park development.
26© BRIDGE TO INDIA, 2016
Central government rating
Rating of central government initiatives
Bankability of SECI as an offtaker
Are you optimistic that the UDAY scheme will make DISCOMs bankable?
74% of the survey participants give the central government a rating of ‘Good/Very Good’ on overall policy framework. But the government does not do so well on specific initiatives including solar park development, transmission capacity, debt financing and support for domestic manufacturing.
We also sought participants’ view on SECI’s bankability as an offtaker and only 50% of them believe that SECI is an acceptable offtake risk. This response seems consistent with actual experience on-the-ground with payment delays being experienced by developers in previous SECI projects.
54% of the participants are optimistic about the UDAY scheme, a signature reform policy of the current government. But there is also a fair degree of skepticism with 46% of participants either indifferent or pessimistic. Given the result of previous moves to restructure DISCOM finances, these results are not surprising but show that the scheme needs strong monitoring and proactive enforcement.
27© BRIDGE TO INDIA, 2016
State government ratings
We asked the participants to rank eight key states on overall ease of doing business and their attractiveness for developing solar projects.
Ease of doing business
Ranked list of states in order of attractiveness for open access projects
Ease of doing business covers a wide category of issues including land acquisition and conversion, transparency and predictability of policy, approval process. The results are revealing as some of the leading states – Karnataka, Maharashtra and Tamil Nadu – come near the bottom of this table.
28© BRIDGE TO INDIA, 2016
Project development returns and quality of implementation
Expected project IRR (post tax) @ M5/kWh tariff
Overall solar project quality and expected power output over 25 years
With bid tariffs falling sharply, there has been concern in the industry on sustainability of these tariffs. 23% of participants believe that post-tax project IRR at current tariffs is less than 12% and another 42% believe the IRR to be in the 12-14% range, which is barely enough to cover risk adjusted cost of capital.
There has been some on-the-ground evidence of low tariffs forcing developers and contractors to compromise on component quality and project performance. The survey shows mixed opinion on project quality issues.
29© BRIDGE TO INDIA, 2016
The participants believe predominant challenges for the rooftop sector to be poor net metering policy framework and lack of more attractive debt financing solutions.
On prospects for success of BOOT/PPA model in the rooftop sector, the participants believe that the most important challenges are poor legal enforcement and bankability of private clients.
Rooftop solar
Ranked list of challenges for rooftop solar
Ranked list of challenges for BOOT/PPA model
Measures needed the most to boost open access market in India
The open access market is hamstrung by uncertainty of policy and poor enforcement of RPO. 82% of the participants feel that these challenges are holding this market back. Waiver of open access charges is not seen as a critical factor as the fundamental competitiveness of solar power has improved hugely and the industry needs certainty of policy/ charges rather than concessions.
30© BRIDGE TO INDIA, 2016
Domestic manufacturing
Potential for domestic manufacturing till 2022
Annual domestic manufacturing capacity by 2022
Will India see an integrated module manufacturing line(polysilicon extraction – wafer – cell – modules) by 2022?
The industry is largely positive about the potential of domestic manufacturing in India with consensus expectation for cell and module manufacturing capacity of 5-6 GW by 2022. However, 60% of the participants don’t expect India to have any integrated manufacturing line even by 2022. This is a setback to the government’s aspiration of promoting domestic manufacturing.
31© BRIDGE TO INDIA, 2016
Glossary of termsAD Accelerated Depreciation
ADB Asian Development Bank
APPC Average Pooled Purchase Cost
BOOT Build Own Operate Transfer
CEO Chief Executive Officer
CERC Central Electricity Regulatory Commission
CPSU Central Public Sector Utility
CSS Cross Subsidy Surcharge
DCR Domestic Content Requirement
DISCOM Distribution Companies
ED Electricity Duty
EPC Engineering, Procurement and Construction
FiT Feed-in Tariff
IRR Internal Rate of Return
MAT Minimum Alternate Tax
MNRE Ministry of New and Renewable Energy
NSM National Solar Mission
NHPC National Hydro Power Corporation
OA Open Access
PPA Power Purchase Agreement
PSU Public Sector Unit
PV Photovoltaic
REC Renewable Energy Certificate
RPO Renewable Purchase Obligation
RGO Renewable Generation Obligation
SECI Solar Energy Corporation of India
UDAY Ujwal DISCOM Assurance Yojana
VGF Viability Gap Funding
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