India has become the third largest solar power market in the world. High capacity tenders and additions have become the trend as the country progresses towards the 100 GW target by 2022. Over the past three years, solar power capacity has increased at a compound annual growth rate of over 100 per cent. In 2017-18, the solar segment recorded the highest capacity addition among all power generation sources, surpassing thermal capacity addition for the first time. The short gestation period and wide resource availability are the key advantages of solar power over other renewable and conventional sources of generation. Renewable Watch recently organised its Eleventh Annual Conference on Solar Power in India. The following section presents key highlights of the conference.
The growth has been supported by favourable government policies aimed at removing the bottlenecks in project development, transmission and project allocation, and reducing the cost of solar power projects. To this end, the procurement of projects and equipment has been made increasingly transparent. The government has set up solar parks on a plug-and-play basis to provide developers with ready transmission lines. Meanwhile, green energy corridors are being developed across the country to increase the transmission capacity in order to cater to future demand, created by 175 GW of renewable energy. The recent policy move of exempting solar power from interstate wheeling and transmission charges till 2022 has further increased the confidence of power producers even as some states have begun to levy these charges for intra-state transmission.
Meanwhile, tax incentives in the form of holidays have reduced the cost of developing these projects. Further, capital cost subsidies in the form of viability gap funding and central financial assistance have been introduced to plug the project finance gaps in the rooftop solar segment as well as solar projects for rural areas, etc. However, poor discom bankability continues to plague the segment. Another bottleneck that has often impeded the growth of the segment is the cumbersome process of obtaining approvals and permissions.
Over the past few months, the Indian solar segment has witnessed skewed growth, driven primarily by the southern states. Key among the high-growth states are Telangana, Andhra Pradesh, Karnataka and Tamil Nadu. However, the other high-growth states of Gujarat, Madhya Pradesh and Rajasthan have lagged in capacity addition. As per the solar project pipeline, Tamil Nadu is in the lead, followed by Andhra Pradesh. Meanwhile, tendering activity has been unpredictable over the past two years. The number of new tenders released every quarter has varied significantly, from as low as one tender in the second quarter of 2017 to 13 tenders in the first quarter of 2018. The capacity being tendered has also seen a similar trajectory. While the second quarter of 2015 saw around 5 GW of solar power capacity being tendered, less than 1 GW of capacity was tendered in the third quarter of 2016. The largest capacity of more than 5.5 GW was tendered in the first quarter of 2018. Solar power tariffs have seen a steep fall in the past year. While they remained stable during January-September 2016, the next 16 months saw a decline of 44 per cent in solar power tariffs, reaching levels as low as Rs 2.44 per unit.
The funds provided for project development in the solar power segment are dominated by private equity (PE) investors and large international developers. PE-backed developers account for 23 per cent of the total installed capacity, second only to Indian corporates with a share of 43 per cent. Independent power producers account for 21 per cent of the total installed capacity, while public sector units (PSUs) have a 7 per cent share. For the capacity in the pipeline, the share of corporate entities is likely to shrink to 29 per cent, while that of PSUs and IPPs will increase to 18 per cent and 27 per cent respectively.
Challenges and conclusion
The solar power segment faces critical challenges that need to be resolved in order to achieve streamlined growth. These include an inadequate and unstable grid, poor quality and construction of assets that are unable to withstand natural phenomen, low investment in research and development, and a myopic view of ancillary services and the structure of energy markets.
In a nutshell, the long-term growth predictions on the basis of commercial viability make India an attractive solar power market. However, a long-term vision and stability are required, along with an increased focus on innovation to address the new set of challenges arising with the increased renewable energy capacity. Given the current market trends, it is expected that the solar power segment will grow at an average of 9.5-10 GW per annum till 2021.
Based on a presentation by Vinay Rustagi, Managing Director, BRIDGE TO INDIA