Solar investments in India

Solar energy has become the dominant renewable energy source in India in terms of investments, with $5.6 billion being invested in 2015, which is almost half of the total RE investments made in India. RE investments increased by 22% in India overall as per Bloomberg, topping $10 billion in investments. Wind and Solar accounted for almost 90% of the total investments. Biomass and small hydro energy which used to dominate investments before 2010, have almost disappeared from investor’s horizons. Given Indian government’s targets for 2022, small hydro and biomass will continue to languish becoming a niche sector. Solar Energy will become even more dominant in years to come.

Read about State Owned PFCs investing in Green Power Plants in India.

2015 saw 2 GW of solar capacity being added and this will increase by 5x times to around 10 GW by 2017, if the recent large tenders by state and central agencies get executed in time. Solar energy is not only dominating the RE space, but is also becoming the dominant electricity source with most investments going into the solar energy industry. While wind energy has not done badly, the capacity increase in wind energy has stalled now compared solar energy, the investments still kept pace at more than $4 billion. It is hoped that wind energy capacity will increase, given that the government’s target implies a 5 GW annual run rate, which is roughly double what it is now. The government will also bring out a National Wind Energy Mission similar to solar energy, to promote investment in this RE technology.

Even globally investments are increasing in solar energy, as cost declines have made it competitive with not only gas and wind but also thermal power prices. This is not taking into account the carbon emitted by fossil fuel sources such as coal and gas. Solar prices have come down to the 5-6 cents/kWh level in most countries, making it truly competitive in the economic sense and posing a huge threat to other energy sources. Though oil prices have declined sharply, solar investments and RE investments have increased in 2015. This shows that solar energy is no longer a hostage to oil price movements, with governments providing solid support and favorable economics also supporting solar energy.

Overall global RE investment increased by 4% in 2015 to around $330 billion, as most countries increase RE mix in their overall energy procurement mix.

Indian Solar Tariffs on a declining spree

The Indian solar tariffs discovered during recent reverse auctions have defied belief, and led to many industry analysts and consultants question the viability of the solar power plants being built at tariffs below INR 5/kWh. It has been calculated that the ROE on solar plants being built will lead to single digit returns. This ROE can easily go into the negative territory, if any of the risks such as a sharp rupee depreciation or higher global equipment prices materialize. Many of the big utilities such as CLP have decided to stay away from such solar auctions, given the lack of economic viability.

However the recent AP bid in which SunEdison and Softbank had won at INR 4.63 a unit, shows that the competition in the solar market in India remains immense and companies are willing to go for high risks in winning these projects from the government. The drop has been sharp and sudden in the solar tariffs. People were wondering how Sky Power which had won bids for INR 5 a unit, would manage to build the solar plants. Now they are scratching their chins on how companies like Rising Sun, Fortum and Yarrow Infrastructure will get any returns after winning Rajasthan solar projects for 420 MW at just INR 4.34 /kWh (6 cents/kWh). Industry watchers are disturbed as such low tariffs might dissuade serious players from deploying capital in the Indian solar market.

Once the sentiment gets adverse, then it might take a long time for private investors to get in. Note the returns on solar projects are better in other markets in SE Asia and Europe. At INR 4.34/kWh and a capital cost of INR 5.5 -6 crores/MW, it seems almost impossible to make any viable returns. Even with a low cost of capital and low risks (as the power will be bought by NTPC), these bids seem to make little sense. The policy makers and ministers are obviously very happy, as these prices are making solar energy competitive with even thermal power electricity. Gas and wind power prices are now much higher than solar power prices at these tariffs. India’s target of 10,000 MW installed in 2017 looks viable, given the huge competition and low prices.

Read how the Indian government looks to lower Capital Costs for Solar Energy.

However, if most of these projects get stalled if there is a risk materialization, then all of these plans might go bust. Renewable Energy is a highly volatile market. SunEdison which is the world’s largest renewable energy developer found it the hard way, as the debt market for energy companies suddenly reversed leading to liquidity issues. India might also find itself in a pickle, if solar module prices shoot up or some other black swan event happens. It might make sense to bring some rationality back into the Indian solar tariffs, otherwise the whole industry might come under risk.

 “Solar tariffs in India have fallen to a new low after Finnish firm Fortum Finnsurya Energy won a 70-MW project with a bid of INR 4.34 (USD 0.064/EUR 0.059) per kWh, The Hindu Business Line reported on Tuesday.

The company is one of the winners in a tender by Indian power producer NTPC Ltd (BOM:532555) for the development of six projects of 70 MW each, or a total of 420 MW, for the Bhadla Phase II solar complex in the state of Rajasthan. Rising Sun Energy Pvt Ltd won two projects in the tender, offering INR 4.35 per kWh, Solairedirect also won two projects with the same price of INR 4.35 and Yarrow Infrastructure got one project with INR 4.36 per kWh, according to the article.”

The year is coming to an end and India’s solar energy industry has come a long way this year. From being a fringe sector, solar energy has become the centerpiece of not only India’s energy industry, but also the world’s energy industry. This is what we at greenworldivnestor had predicted way back in 2010, when we had started our blog saying that solar energy in India will revolutionize the world. This is being belatedly recognized by others as well. The Indian solar energy has seen a huge amount of traction with gigawatts of tenders being issued this year, by both state and central bodies. A number of policy changes have been made and new regulations are still in the offing. A new RE law and a rooftop solar policy law are in the works. We look back at the major changes that have taken place this year.

SOLAR PROJECTS UNDER NATIONAL SOLAR MISSION:

The Union Cabinet gave its approval for the implementation of he scheme for setting up of 15,000 MW of Grid-connected Solar PV Power projects under the National Solar Mission through NTPC/ NTPC Vidyut Vyapar Nigam Limited (NVVN) in three tranches namely, 3000 MW under Tranche-l under mechanism of Bundling with Unallocated Coal based Thermal Power and fixed levellised tariffs, 5,000 MW under Tranche-ll with some support from Government to be decided after getting some experience while implementing Tranche-l and balance 7,000 MW under Tranche-Ill without any financial support from the Government.

SOLAR PUMPS:

The government has implemented a scheme to install one lakh solar pumps for irrigation and drinking water through State Nodal Agencies and NABARD. MNRE provides 30% capital subsidy to farmers for installation of solar pumps for irrigation purpose through state nodal agencies. The state governments can give additional subsidy through own funds. The government presented 40% subsidy with mandatory loan to farmers for irrigation purpose through NABARD.

  OTHER SCHEMES LAUNCHED FOR ACHIEVING SOLAR ENERGY TARGETS:

Ø      Off-grid Rooftop:  It is proposed to set up 40 GW solar rooftop programmes where grid connectivity is already exist.  15% Government subsidy for non-commercial and non-industrial categories for using domestic solar panels would be provided.

Ø      Solar Parks: The Government  has approved on 10th December, 2014 a Scheme for setting up of 25 Solar Parks, each with the capacity of 500 MW and above and Ultra Mega Solar Power Projects to be developed in next 5 years in various States and will require Central Government financial support of Rs 4050 crore. These parks will be able to accommodate over 20,000 MW of solar power projects. As on date, 27 parks with capacity of about 18000 MW in 21 states have been sanctioned.

Ø      Setting up of over 300 MW of Grid-Connected Solar PV Power Projects by Defence establishments and Para Military Forces with viability gap funding. More than 150 MW projects have been sanctioned under the scheme.

Ø      Implementation of Scheme for setting up 1000 MW of Grid Connected Solar PV Power projects by CPSUs and GOI organization’s with Viability Gap Funding in three years period from 2015-16 to 2017-18. About 100 MW have been allocated to various CPSUs under the scheme.

Ø      Scheme for Development of Grid Connected Solar PV Power Plants on Canal Banks and Canal Tops: MNRE launched a Scheme   for Development of Grid Connected Solar PV Power Plants on Canal Banks and Canal Tops in the country dThe Solar PV Power Plants on Canal Banks and Canal Tops with 50 MW capacities under each category have been approved to 8 States (Gujarat, Andhra Pradesh, Karnataka, Kerala, Uttar Pradesh, Punjab, Uttarakhand and West Bengal).

Ø      New loan scheme to promote rooftop solar power projects announced by IREDA. The scheme will provide loans at interest rates between 9.9 and 10.75 percent to system aggregators and developers.

Ø      Surya Mitra Scheme launched for creating 50,000 trained personnel within a period of 5 years (2015-16 to 2019-20). The course content has been approved by the National Council of Vocational Training as per the National Skill, Qualification Framework. As on 30.9.2015, a total of 27 programmes involving Rs 17 crore have been sanctioned to SNAs by NISE.  In 2015-16, 70 programmes will be conducted against which 27 programmes have started.  As on 30.9.2015, about 360 Surya Mitras were trained under the schemer.

Ø      Inclusion of Renewable Energy Projects in Priority Sector Lending Norms of Commercial Banks: Reserve Bank of India vide its circular dated 23^rd April, 2015 on ‘Priority Sector Lending: Targets and Classification’ has issued revised guidelines for all scheduled commercial banks making significant inroads for renewable energy in the priority sector lending:

Ø    Inclusion of renewable energy in categories of priority sector, in addition to existing categories.

Ø    Bank loans up to a limit of Rs 15 crore to borrowers for purposes like solar based power generators, biomass based power generators, wind mills, micro-hydel plants and for non-conventional energy based public utilities viz. street lighting systems, and remote village electrification. For individual households, the loan limit will be Rs 10 lakh per borrower.

Ø    Investments in RE is on Automatic route. No RBI/FIPB approval required.

Ø    Automatic approval for up to 74% foreign equity participation in a JV. Liberalized foreign investment approval regime. 100% foreign investment as equity is permissible with the approval of Foreign Investment Promotion Board (FIPB). Various chambers of commerce and industry associations offer guidance on partners

Ø    PPAs have been standardized for projects under JNNSM.

Ø    Land procurement- Many states have provided deemed Non Agricultural status for land purchased for RE projects.

Ø    Clean Energy Fund: Coal Cess has been increased from Rs 100 to Rs 200/ton which will make available around Rs 12000 crore/year for supporting and incentivizing development of RE in the country.

Ø    Enforcement of Renewable Purchase Obligations has been strengthened by recent judgement of Supreme Court for captive power generators and Appellate Tribunal Judgement on fulfilment of RPO obligation by State regulators.

Ø    Net-metering schemes has been rolled out in majority of States which will help in meeting 40 GW rooftop grid connected solar projects.

Ø    Must Run Status for RE projects in most of the states

Ø    Fiscal incentives in the form of Accelerated Depreciation for wind and solar by Central Govt. and refund of stamp duty, refund on Value Added Tax (VAT) & Goods and Service tax (GST) by some State Govts.

POLICY AMENDMENTS UNDERWAY:

 Ø      Renewable Generation Obligation (Proposed): There is a policy proposal under consideration that all conventional power plants should have a minimum renewable generation obligation.

Ø      Amendment in Electricity Act, 2003 (proposed)

• Proposed inclusion of “specific mention of penal provisions for non-compliance of RPO including financial penalty and punishment”.
• Suggested amendment in the tariff policy to include a RPO trajectory reaching at minimum 15 % of the total electricity mix by March 2019 with solar RPO of Minimum 8% and support by states. It implies that there is a special category for solar RPO and other renewable energy sources have been clubbed in non-solar category.
• To allow generating / purchasing and bundling of renewable and allow pass through to such power plants where generation and transmission assets are fully depreciated.

Ø      Draft RE Act 2015: In addition to the existing provisions in the above act. there is a need for a Renewable energy act in India to facilitate increase in the use of renewable energy for all relevant applications including off-grid, heat and transport in an effective and coordinated manner,  which  is  well  integrated  with  the  energy  and  electricity  system,  and  to do  so  by developing a supportive ecosystem and laying down an institutional structure.

Low quality Chinese products to flood Indian markets

India has seen the sharpest expansion in its solar pipeline over the last one year, with almost 15 GW of solar tenders being floated by various government owned companies and state governments. With the PM’s vision of vaulting India’s capacity by 25x from 4 GW to 100 GW in seven years, all state organs are firing on fully cylinders. However, the competition for these reverse auction tenders has been intense leading to extremely low tariffs being bid. There are real concerns on how these projects can be built based on such low revenue streams. Many foreign investors such as Softbank, Trina Solar, Rosneft and others who had set up base in the country with high hopes, have yet to win a single MW in these tenders.

India’s 100 GW target would need around $125 billion in money with around $25 billion in equity. This equity capital is being scared away by the irrational bidding, with the recent NPTC tender seeing an all-time low of just Rs 4.63/kWh (7c/kWh). This is amongst the lowest tariffs in the world which does not make sense, given that Indian interest rates at 10-12% are more than twice the rate at which developed countries get funding. China tariffs are much higher despite being comparable in costs to India and with much lower interest rates.

“The government asked us to run and the industry sprinted. The sector has not learnt lessons from the thermal power sector and most solar power developers are bidding very aggressively. If their call goes wrong, it will have a far-reaching effect,” said Sunil Jain, chief executive officer at the renewable arm of Hero Group-Hero Future Energies. “This business has become like the ecommerce game – people are not playing on bottom line but are trying to build high valuation by adding large capacities so that they can exit later.”

Source – ET

These low priced projects will necessarily have to compromise on quality given the low bids. There are already reports that major Chinese panel makers are looking to ship their low efficiency panels to India. The Chinese government has recently tightened its regulations with regards to the technical specifications of solar equipment being used. Solar cells above a certain efficiency levels are only allowed, in order to weed out the weaker second tier companies. However, India has not improved its technical specs since the JNNSM tender in 2009. While the quality certificates from TUV and others are required, there are no efficiency requirements. Chinese solar panels have now found a good alternative to support their older cell lines, which make solar panels with lower efficiency. The Indian market is also now sufficiently large for Chinese companies to increase their utilization.

China makers whose PV modules may not be able to meet the government’s procurement requirement are looking to ship their products to India, which has set a target PV installation of 12GWp for 2016, according to industry sources.China-based state-run enterprises’ PV module procurement for 2016 requires minimum power generation of 260W for a PV module made of 60 crystalline silicon solar cells, increasing by 5W from 2015, the sources said. India is promoting PV power, but has no comprehensive rules in place to regulate PV power generation in the country. Therefore the technical requirements for PV modules will not be high in 2016, the sources indicated.

Source – DigiTimes

The Solar Revolution in India

Indian solar prices have made a new record low at just 7 cents/kWh. This happened after intense competition led to prices falling below the Rs 5/kWh threshold, after SunEdison managed to win all 500 MW of capacity in a tender put out by India’s largest utility NTPC. Recently Sky Power created immense buzz by bidding Rs 5.05/kWh in a recent state tender. At that time, analysts and other companies had found the bid to be absurdly low, saying it was almost impossible to make money at that price point. However, this low price has seen another 10% cut in just 3 months, with SunEdison managing to beat almost 27 competitors most of which had put in below Rs 5/kWh prices in the second round of bidding. The first round of bidding in the electronic auction saw prices of Rs 5.25-6/kWh and saw bidders like Trina and Softbank being aggressive. However, SunEdison won the second round with the lowest price amongst all bidders. Note SunEdison has been facing problems globally, as its aggressive renewable energy expansion has come under attack from investors concerned about its debt issues. This win will give some relief to SunEdison investors to see that the company is not retrenching from one of the world’s largest solar markets.

Read advantages of Solar Power & disadvantages of coal generated power.

Solar prices are now competing with new coal power plants being set up in India, where recently prices have been discovered in the same range. Thermal power plants face huge issues in getting coal as well as getting environmental clearances these days. This raises the costs for these plants even though domestic coal prices are quite low. Solar power prices are going to put immense pressure going forward, as their costs continue to decline by 5-10% each year. It is only a matter of time before the delta between solar and coal prices become so big, that no more coal power plants are built again. The coal age is coming to an end extremely fast. It was only around 250 years ago that the Industrial Revolution started with the advent of steam engines powered by coal. Now it is coming to an end with the start of the Solar Revolution.