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INDIASOLAR

COMPASSJuly 2014

Executive summary

Quarterly update on the Indian solar market

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1 Executive summaryThe Indian solar market seems to have miraculously transformed in the last month. There is a palpable sense of optimism all around. This is driven by the election results that brought Narendra Modi’s BJP into power and gave him a very strong mandate for reform. Companies and investors appear to be ready to commit funds. Previously stalled projects and business plans re-emerge. Various politicians have made very ambitious and encouraging comments on the future role of solar power in India’s energy supply.

At the moment, of course, this is just “in the air” - not on the ground. But after a tough year in the industry, it is good to see the conversations picking up again. After all, the case for solar in India is so compelling that what is needed, is little more than a market left to itself. A non-interfering, non-bumbling government already goes a long way. And well, if the new government takes the right, active measures in the next months. All the better for it.

This is the time of new (and revived) ideas, the haze before the policy landscape settles again. These are some of the positive noises made by the government. Electrification for all through renewables (mostly solar) is to be achieved in five years. The National Solar Mission (NSM) might be expanded substantially. The RPO mechanism might finally be strengthened. Accelerated depreciation tax benefits might be extended to households who go solar. India wants to take its cue from China with respect to renewables (supposedly meaning lots of them). And the broken electricity market might get fixed along the lines of the successful Gujarat model. Other ideas are more problematic. The government wants to get two large, state-owned oil companies to form solar joint ventures. We wonder if a large, state-owned oil company has either the interest or the skillset to make solar a success in India. It definitely contradicts Modi’s dictum of “more governance, less government”, which we like.

The first real challenge for the new government in the solar market is to resolve the anti-dumping duty (ADD) impasse. It is an ill-timed and ill-conceived project of the past Congress–led government, that surfaced to everyone’s surprise just a week after the elections and now has the potential to torpedo the market. We believe that it is an unsuitable measure to support domestic manufacturing and that it has a devastating impact on the expansion of solar, hurting thousands of solar entrepreneurs across the country while making solar power a more distant dream for millions of on and off-grid consumers1. If policy makers feel that manufacturing of solar cells and modules is critically important for the country, they need to develop a long-term strategy instead of following a knee-jerk reaction. Developing strong, predictable, sustained domestic demand for solar should be at the core of such a strategy.

Unfortunately, the announcement of the recommendations by the Ministry of Commerce in favor of duties has, even before they may (or may not) be imposed, already brought project development to a halt. According to our market projections, had the ADD discussion never resurfaced, solar would have grown by 1.6 GW in the next year. However, now that many projects are delayed by the unclear situation, BRIDGE TO INDIA estimates that, even the

----------1 Refer to our blog: bit.ly/1nA2ALH

There is a palpable sense of optimism all

around in the Indian solar sector. This is driven by

the election results that brought Narendra Modi’s

BJP into power and gave him a very strong

mandate for reform.

The first real challenge for the new government in the solar market is to

resolve the anti-dumping duty impasse.

4© BRIDGE TO INDIA, 2014

duties are not enforced, the projected installation capacity in the next year will still fall by almost 40% to 1 GW. If the duties are enforced, we expect a dramatic dip in installations by two-thirds to 0.5 GW.

This would be exactly the opposite direction of where the new government wants to go. It wants to expand, not contract, the market, perhaps embedding new measures into a reworked, more ambitious National Solar Mission (NSM). This is something that the previous government was already working on. In early 2014, the Prime Minister’s Office had asked, if the target of the solar mission could be increased to 100 GW by 20272.

More ambitious solar targets would be in sync with global solar market developments. The US aims to bring the cost of distributed solar power down to $0.06/kWh (M3.5/kWh) in the next six years under its SunShot program3. China wants to increase its installed capacity to 70 GW in the next four years4. Germany is beginning its transition towards storage-based solutions.

Let us end with this surprising but important piece of news: Some of the leading MNRE channel partners (EPCs), including SunEdison, who should benefit from the solar rooftop subsidy program, have asked the MNRE to scrap it5. Why? Because a badly functioning program does much more harm than good. Also, in large parts of the market, subsidies are not needed. Already five years ago, Mr. K Subramania, then head of Tata BP solar and a pioneer of the Indian off-grid market told us the same thing: Their existence complicates and slows down projects and misaligns incentives. Again: “more governance, less government”.

----------2 BRIDGE TO INDIA discussions with MNRE officials3 Office of Energy Efficiency and Renewable Energy, US, 1.usa.gov/1ozdmSO4 National Development and Reform Commission, China, bit.ly/1nLV6Ci5 Business Line, “Solar industry wants government to scrap ‘only-on-paper’ subsidies”, bit.ly/1lS91Ha

If the duties are enforced, we expect a dramatic dip

in installations by two-thirds to 0.5 GW in the

next four quarters.

In early 2014, the Prime Minister’s

Office had asked, if the target of the

solar mission could be increased to 100 GW

by 2027.

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