India was ranked fifth in the world in 2013 in terms of installed solar power capacity. In 2014, the government announced an enhanced target of 100 GW of solar power capacity by 2022 and since then the market has been growing at about 100 per cent per annum. At this pace, India is expected to be ranked third in the world in terms of installed solar capacity by end-2017. It is currently ranked fourth, after China, the US and Japan. Interestingly, growth in most other countries is either flattening or declining, and India is the only country that has maintained its growth momentum. The question is whether it can sustain this growth going forward. At the 10th Annual Conference on “Solar Power in India” organised by Renewable Watch, experts from across the solar value chain discussed the key trends in this space, the impact of recent policy and regulatory initiatives, emerging opportunities, and the risks and challenges involved. Excerpts…
Owing to strong government support and a favourable policy environment, the solar power market is optimistic about future growth. India’s power demand is still growing, which means it is using its solar capacity not just to replace conventional power but also to boost its power supply. The country has a transparent power procurement system, which is critical for attracting international developers, investors and lenders. Further, it is the only country that has a large-scale solar park development programme in place, wherein the government arranges the land and sets up the transmission infrastructure. The country also has a thriving lending market. As far as challenges are concerned, low tariffs are a key concern. The tariffs determined in certain tenders are not sustainable as they are based on aggressive assumptions, which may not come true. Second, the conceptual structures are still work in progress. Power purchase agreements and penalty regimes are not yet standardised. They do not drive the right risk balance between the public and the private sectors, and transmission companies are not a party to these agreements. These may not appear to be significant risks right now but they will become a key challenge going forward. Currently, renewables’ penetration is only 5 per cent and it is likely to go up to 16 per cent by 2021-22, assuming the country achieves 120 GW of installed renewable capacity against the target of 175 GW. Technical issues will force many transcos and discoms to back down some of these projects, thus impacting returns. Already, 20-35 per cent curtailment can be seen in states like Rajasthan and Tamil Nadu, and discoms, despite the Ujwal Discom Assurance Yojana, continue to be financially weak.
The growth in the solar segment is being led by the southern states – Telangana, Tamil Nadu, Andhra Pradesh and Karnataka – but the question is, can these states sustain this growth momentum? Perhaps not, because there is only a limited amount of solar power that they can absorb into the grid and they have started becoming power surplus. If this situation continues, it will be a major challenge for the growth momentum to continue. Already, there is a decline in the amount of capacity that has been tendered in the past four quarters. In fact, a steep tariff reduction is more a result of the decline in tendered capacity rather than a decline in equipment costs. Solar tariffs were stable in the second half of 2015 and first half of 2016 despite declining equipment costs as the amount of capacity tendered was high.
In the rooftop space, the country has achieved 1.25 GW of capacity, driven largely by the industrial and commercial segments, with a government push to install rooftop plants on government and institutional buildings.
While earlier the high cost of rooftop projects was the biggest deterrent to growth, the decline in equipment prices is now driving demand for these systems. Consumers can now achieve savings of 10-50 per cent in their electricity bills by adopting rooftop solutions. However, a high default risk and the poor creditworthiness of private customers have been key deterrents for equity players to invest in this space. Debt financing is also a big challenge due to imperfect contractual structures and small deal sizes.
Overall, although the sector has a positive long-term outlook, there may be certain short-term challenges due to increased competition and a steep decline in tariffs. According to BRIDGE TO INDIA’s projections, a small dip is expected in annual capacity additions in the utility-scale market, from 7.5 GW in 2017 to a little under 7 GW in 2018, whereas the rooftop market will continue to grow at 30-40 per cent per year in the coming years. n
Based on a presentation by Vinay Rustagi, Managing Director, BRIDGE TO INDIA