India Solar Booming – 2016

We have been closely following the solar energy boom in India, with numerous grid sized tenders being floated by the government. The solar rooftop segment which had been lagging behind the ground mounted solar plans is also seeing a resurgence, with the government allocating almost $700 million to install 5 GW of rooftop solar using subsidies. India has already reached a capacity of 5000 MW of solar energy in January 2016. Based on the completion of the projects and tender awards, the government expects a doubling of capacity to 9000 MW over the next 3 months. This capacity will again double over the next 12 months with another 11 GW being installed.

Also read about Integrated Solar Storage Tenders in India.

This will easily make India as the 3^rd largest country in terms of solar energy capacity addition, after China and USA. Japan which is the current No.3 is expected to see a tapering to a decline in annual solar capacity addition, as the country faces a reduced feed in tariff regime, a general slowing down of the economy, restart of nuclear reactors and weakening interest from large Japanese solar companies which are closing plants. India has managed to complete an astounding 15 GW of solar tenders in the last 9 months, as all major government agencies and organizations have put out large tenders. NTPC, SECI and state government distribution companies have come out with large tenders. The bidding has been very aggressive, as a lot of capital around the world has been attracted to the fast growing solar sector in the country.

The biggest risk in my view is project delays, given the infrastructure and red tape systematic problems that exist in India. As per a BTI report, almost 50% of the tendered projects in the past have got delayed. There is another huge risk to the number. The risk is that if the Indian rupee depreciates or interest rates rise, then many of the projects might fail due to the aggressive bids made by most bidders. The IRRs are very thin at 8-12% and based on assumptions like fall in solar panel prices and weak interest rates. These projects could simply not be built, if the economics fail. It might be cheaper for the bidders to renege on their contract and pay the BG penalties, rather that losing more money by building the plant. The bidding of the ultra large thermal power plants in the past has failed miserably.

MNRE