Legacy issues continue to create hurdles for solar power developers. These include policy uncertainty, frequent regulatory changes, land acquisition issues, inadequate power evacuation infrastructure, and the imposition of basic customs duties and GST. In addition, the Ukraine war and supply chain restrictions from select Chinese cities have significantly increased the cost of fuel, metals, electronics, etc., posing major challenges for developers. The rising cost of solar modules and the quality issues of domestically produced modules are additional concerns. At Renewable Watch’s 15th annual conference on “Solar Power in India”, senior executives from leading power developers shared their concerns and discussed relevant solutions. Excerpts…
SunSource Energy has executed 150 MW of solar projects in the EPC and developer mode in the past 12 years. Another 200 MW of projects will be commissioned in the next three to four months. We have also entered the storage segment and are developing three storage projects along with the Solar Energy Corporation of India. Outside India, we are present in Thailand and the Philippines.
A key challenge is that the business development cycle is affected due to the volatility of tariffs. If there is a need to increase the tariff by 20 per cent, then customers say that they will wait a few months to see if tariffs fall again. This creates a huge risk of losing investors. Recently, the power demand increased tremendously and in general there is a reluctance to increase thermal capacity, which is not enough to meet the demand. Therefore, more renewable and round-the-clock power is needed, but cost competitiveness has to be addressed. Module prices have been a big backstop.
Developers are in a flux regarding the import dependence on China. For old projects, the modules have already been imported. Now, module prices are being quoted at an inflated price even by Indian manufacturers. Even after considering basic customs duties, these numbers seem to be on the higher side. We are also trying to source other components from Indian manufacturers.
The current trend in the market is the increasing cost of components such as metals and electronics, which has increased the tariff by at least Re 0.30- 0.40 per unit. This makes it unsustainable to build projects, so developers are also backing out. The kind of price volatility the solar segment has seen in the past year, it has not witnessed in the past decade. All the assumptions that the prices of different components will only go down have not been true lately. This uncertainty and price rise is expected to remain for the next six months.
The range of landed cost for the 75 MW solar farm that we are building in Uttar Pradesh is Rs 3.60-Rs 4.20 per kWh. The key challenge is that the open access charges have been increased by Re 0.20-Re 0.30 per kWh. So, if the open access regulatory regime is made more favourable for developers, this is the range by which the landed cost can reduce.
Going forward, Indian module manufacturers should not take undue advantage of these uncertain times by charging a higher price, but instead build trust with developers and assist in the development of quality projects. We also expect the Indian government to inspect the quality of modules by Indian manufacturers even though the Approved List of Models and Manufacturers (ALMM) of solar PV modules is in place. In addition, more wind-solar hybrid projects need to be developed in India.
In the eyes of developers, the solar industry has been a “happening” sector over the last decade with several developments and policy initiatives undertaken by the government. The share of renewable energy in the overall energy portfolio is going up vis-à-vis conventional sources of energy. The initial momentum in the solar sector created immense excitement among developers. However, today, the situation is not as desirable as one would have hoped. The sector faces various concerns. Tariffs have gone below Rs 2 per unit, creating an expectation in the market that everyone can buy power for a tariff below this rate. The tariffs quoted in the market are very low and do not seem to be workable.
Furthermore, all aspects of project development such as land acquisition, cost of projects and operations entail several challenges. Earlier, land acquisition was a much easier task, but clearances and local political interference are creating major hurdles in land acquisition now. There has also been a tremendous change in the cost of projects over the last two to three years, with the capital cost of projects rising. The safeguard duty introduced by the government has not shown any significant impact on project costs. Commodity prices, cable prices and steel prices have also gone up, while module prices have almost doubled in the last one year.
All items apart from modules are now being sourced from domestic sources. The biggest hindrance is the logistics costs of modules. The freight cost has risen tremendously and limitations in the supply chain continue to exist. Besides, these prices are not firm as they do not remain stable for more than five to seven days. Even under fixed contracts, the prices tend to be unstable. The market has also seen a price increase in diesel cost as a result of which the cost of transportation has increased. Predicting the tariff is another challenge as there is a lot of uncertainty in the market. One should not go aggressively on tariffs in these uncertain times. Among PPAs, discom PPAs may perform better as they provide a 25-year power offtake guarantee. However, the rating of discoms is also important. While higher tariffs are offered in the commercial and industrial (C&I) market, their PPA tenors are shorter at 10-15 years.
Going forward, it is crucial for the government to focus on the setting up of evacuation systems. The country possesses large portions of barren land, which can be utilised for this purpose. Moreover, a focus on creating an enabling ecosystem for the C&I market and granting of open access must be emphasised. Despite being under the Electricity Act, many discoms have not been given open access.
In terms of future prospects for investments, Avaada is looking at the diversification of its clean energy portfolio, module manufacturing, and production of green hydrogen and green ammonia. The latter goals align with the government’s plan of domestic manufacturing and the green hydrogen mission.
O2 Power is a relatively young company, having only been in the market for two and a half years. We currently have a total cumulative portfolio of over 1.8 GW, of which around 400 MW has already been delivered, and the remaining solar projects are under construction. The company develops greenfield renewable energy projects and also grows inorganically through acquisitions.
There are a few key barriers in the solar sector such as lack of clarity on critical matters like the issue of the Great Indian Bustard. Nobody is aware of what will happen after one to three months. Laying underground connections across Rajasthan and Gujarat appears to be a near-impossible task from a technical standpoint. As a result, the only choice is a transmission line. Many projects have been put on hold as a result of this uncertainty. They have either purchased the modules or completed much of their work, but they are unable to commission owing to a lack of clarity. The second challenge is the imposition of basic customs duties on modules that will make them highly expensive for the Indian market, if we are not ready for domestic manufacturing. We do not have the in-house capacity to provide modules to all the solar plants. We will have to import those modules, and doing so with such a high capital expenditure is very challenging.
Supply chain concerns have always been a key portion of the overall challenges in the sector. In procuring capital items like inverters and modules, starting from the factory to the project site, there are several supply chain management challenges.
Tariffs are expected to increase as both capital expenditure and operating expenditure items like insurance premium are also rising. Therefore, the cost of generating energy is going up every day. It can only be leveraged or compensated if we have hybrid plants nearby, such as wind, solar, or battery energy. If we have large plants in a similar single location, the costs are expected to come down and the tariffs can be levelled as well.
Furthermore, the industry anticipates clarity on policies from the government as well as a strong push towards making land acquisition a more efficient process. Future opportunities and investment plans would include hybrid projects. The uptake of plain vanilla solar projects may reduce going forward.
In terms of preference of states, Karnataka is performing well in terms of land acquisition, evacuation, regulatory perspective, open access and project development. Rajasthan, Gujarat, Madhya Pradesh and Tamil Nadu are also doing well.
Hero Future Energies is a 10-year-old company and operates in various renewable energy segments like utility-scale solar, wind and C&I solar. In terms of portfolio, we have roughly 1.5 GW of installed solar and wind capacity and 200 MW of C&I solar projects spread across India. We are currently also developing a unique solar fisheries project in Bangladesh with a capacity of 50 MW as well as a 100 MW wind power project in Vietnam. Our company was the first one to develop a solar-wind hybrid project in India, almost five years back.
This is a turbulent time for India’s solar power segment. Commodity prices of key materials like steel, aluminium and copper are highly volatile, and thus, projecting the cost is difficult. The cost of solar modules is also quite unpredictable at the moment, making project development quite challenging. Scarcity of land is another major challenge that will persist over the coming years especially as more and more hybrid auctions take place. Further, overdue payments from discoms continue to plague the developer community significantly.
Traditionally, we were dependent on Chinese suppliers for modules and inverters. Now, these Chinese products are being produced in India with all the right certifications, taking care of the inverter-related supply issues. Module supply, on the other hand, continues to be a challenge. With the ALMM coming into the picture and restricting the procurement of foreign components significantly, we are now dependent on domestic manufacturers for solar modules. While domestic manufacturing surely needs to be promoted, our experience says that product quality is an issue.
Basic customs duty and increase in commodity prices surely impact project costs and tariffs. We expect solar tariffs to increase to Rs 2.40-2.50 kWh per unit or even go beyond that. However, with the increase in investments in module capacities and solar projects, these costs will ultimately go down.
Regarding states, Karnataka continues to be a favourable state from a solar developer’s standpoint, especially from a power evacuation and regulatory viewpoint. Rajasthan, unfortunately, has taken a back seat for investments due to the Great Indian Bustard issue. Gujarat definitely has ample available land and high potential, but suffers from a few drawbacks especially in terms of its policies regarding ISTS projects. Madhya Pradesh and Tamil Nadu are also slowly becoming attractive destinations.
India has almost 400 GW of installed power capacity, of which 60 per cent is still thermal based. In energy generation terms, 80 per cent is still thermal power based. Renewable energy (including hydro) generation contributes to 20 per cent of the total energy mix. However, solar and wind energy are intermittent sources of power and it becomes important to integrate energy storage and increase hybridisation to ensure system efficiency. Hero Future Energies is exploring various emerging opportunities like specialised hybrids, round-the-clock power, energy storage and green hydrogen in both India and abroad.