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 BanksReserve Bank of India vide its circular dated 23rd 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.

rajasthan solar

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

Abengoa declines over debt issues

The Spanish power giant Abengoa faces imminent bankruptcy proceedings, after another Spanish company failed to inject equity into the debt laden Abengoa. Note unlike SunEdison, Abengoa’s demise has been slow and painful with the company’s debt load increasing and its revenues not keeping up with the increasing interest payments. GeStamp was supposed to buy an equity stake in the company, infusing crucial cash into Abengoa’s balance sheet. Abengoa is one the largest RE companies in the world with interest in biofuels, solar thermal, solar PV as well as conventional power plants throughout the world. It has more than 24000 employees with power plants located in India as well. However, this Spanish company now seems to be in the death throes with more than $20 billion in overall debt. With massive risk aversion towards energy debt with the oil and gas price crash, it looks unlikely that the company can recover. However, there are still 4 months that the company can come up with a deal with creditors.

Like SunEdison, Abengoa had listed a RE yieldco Abengoa yieldco in USA earlier. Like the rest of this investment class Abengoa Yield also saw its stock price cratering, creating a further accounting loss of more than $200 million for its parent. This also hurt the company. The company’s stock price saw a fall of more than 50% after GeStamp said that it would not infuse money into the company. The company’s bond which were already trading at a significant discount saw a further hit.

Like SunEdison, Abengoa is both a major developer and contractor of solar power plants in the world. The company was the leading international contractor in transmission and distribution for the eighth consecutive year and the top international contractor for solar energy for the fourth consecutive year in 2014.

abengoa

The USA government will also see some significant losses as it was a guarantor of Abengoa’s Palen solar thermal project that got built 5 years ago, when USA gave $25 billion in loan guarantees to numerous renewable energy projects throughout USA.

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.

Low Solar Tariffs a challenge for Indian producers

The massive competition in the Indian solar power sector has led to extremely low tariffs being bid during recent solar auctions. The Rs.5/kWh rate has made it extremely tough for the large mainstream utilities to bid, given that these companies do not have solar energy as their focus area. The solar developers have bid extremely aggressively as they look to grow their business and build a portfolio. They are also looking to cut costs by sourcing cheap funds as well as looking to economies of scale in order to lower costs. The bigger utilities and IPPs such as CLP India, with their normal hurdle rates are finding it impossible to get a foothold in the solar energy markets. With solar energy becoming competitive with coal based tariffs in India, it has become important for every power producer to add solar energy into their portfolio. These companies are finding it hard to change and lower their return profiles.

India_solar-310x224-300x216

Solar energy will become the main source of energy in the coming years and even the Indian government has said that 40% of its total capacity by 2030 should come from renewable energy. This means that a large portion of the capacity that will be added in the coming years will come from solar energy. Gas based electricity production capacity will not be added, given domestic gas production is not increasing and many gas plants are stranded. Nuclear energy capacity has also lost steam, with too many issues related to nuclear power plant constraint such as getting land, finding fuel and massive protests by local people (NIMBY). Hydro power plants too face huge time issues leading to huge cost escalations. Environmental issues are also plaguing the large hydro power plants with related issues of rehabilitation of large groups of people. Solar energy is the only major viable source of energy that can be constructed quickly without major issues cropping up.

I think that the issues facing the solar energy sector are temporary in nature and will not last long. Once the exuberance (in some ways irrational) goes away, the serious players will remain and the power tariffs will reflect the costs and the risks. The Indian infra sector is peculiar in the fact that irrational bidding is seen in almost every sector be it roads, power, mining etc. Most of the times they lead to a complete sector standstill, when the developers are not able to build the projects economically and then look to the government for bailouts. While I don’t think there will be a major issue in the current round of solar bids in AP, Telangana and other places, there might be some minor issues with some of the projects. Given the short time in which these projects are built, the chances of things going wrong are lower than the long gestation projects such as roads, thermal power plants etc.

Solar energy in India is the only major game in town for the electricity sector. The growth has become vertical, with tenders being floated left and right by central and stage agencies. Major groups have entered the sector seeing the strong growth, leading to high competition and low margins. The bidding has become intense in the recent solar tenders, leading many to question the financial viability and whether the projects will come to fruition at all. The major weapon in this war of building the biggest portfolio and outgunning the others to bid low is the cost of capital. Many developers based in India lack the capital and balance sheet strength to bid low, as the interest rate is the major determinant in deciding the IRR and the bid prices.

The major winners in the recent tenders have been solar developers which are backed by Private equity and pension funds. Sky Power, Renew Power, Mytrah, Azure power etc. have won large projects in tenders by bidding low prices. These firms are backed by big PE and pension funds such as Goldman Sachs, Morgan Stanley etc. As the Indian solar power sector matures many of the non-serious players will be weeded away. The survivors and winners will be the companies which have a large pipeline that they can use to get low priced solar components and those with a large pool of equity and debt capital at low costs.

Aditya Birla Nuvo has become the latest firm to partner with a large Middle East firm Abraaj to develop a renewable energy platform to bid for large RE projects. Note this will be a marriage of equals as AB group is one of the largest conglomerates with multi-billion dollar revenues. Some of the others such as ACME capital have suffered as the local Indian partner was not in a situation to bring enough equity capital to match that of the foreign partner – EDF. The Indian solar sector is going to grow exponentially and will require massive amounts of capital – $100 billon over the next 7 years. Pension funds and PE funds will be required along with bank debt, bonds etc. to meet these targets. The winners of this massive growth cycle will be players who make their way intelligently, instead of just bidding irrationally to grow.