INDIA SOLAR HANDBOOK 2017 - Bridge to · PDF fileBRIDGE TO INDIA shall not be liable for any...

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INDIA SOLAR

HANDBOOK2017

Including theINDIA SOLARCEO SURVEY

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Anxious times for the Indian solar marketBy many accounts, the Indian solar market is on a roll. New capacity addition for 2017 is expected to touch 8.8 GW, a rise of 76% over 2016 and making India the third biggest solar market worldwide. About 12.4 GW of projects have completed auctions and are in execution stages right now. 7 developers have built up project portfolios exceeding 1 GW mark.

But all is not as it seems. The pace of new tender announcements and completed auctions has slowed down significantly in the last year (-68% and -59% respectively). Southern states have frontloaded capacity buildout – Karnataka (installed plus tendered capacity of 69% as against March 2022 target); Andhra Pradesh (74%) and Telangana (70%) – and are bound to slow down. Amongst other large states, Maharashtra and Gujarat, like many others, have surplus power availability and remain unenthusiastic to new solar power.

The Rewa and Kadappa tender results have jolted the policy makers, DISCOMs, project developers and investors. Greenfield solar power at prices of M 3.00-3.50 (approximately ¢ 5)/ kWh is very attractive and should create strong demand pull in the medium-to-long term. But it is also leading to buyer’s remorse for projects already built and under development. In particular, states that have completed auctions with prices of M 4.00-5.50/kWh in the last 6-12 months (Jharkhand, Andhra Pradesh, Haryana) are refusing to sign PPA’s, which is creating uncertainty in the market.

The slow down provides much needed breathing room to developers and investors, who need to consolidate, focus on capital raising and execution on-the-ground. The pace of fund raising transactions – IPO’s, bond offerings and M&A’s – has picked up and is bound to accelerate in the coming years.

Longer term, if prices continue to fall at the same rate, solar plus storage will be a genuine alternative to thermal base load sources in the next 3-4 years. The carbon-free world is approaching fast and the Indian government should commit fully to exploiting its potential to transform the shape of our economy.

I hope that you enjoy reading this report and will be grateful for your feedback.

Vinay RustagiManaging Director


International market reviewTotal global solar PV installed capacity surpassed 300 GW by the end of 2016. 77 GW was added in 2016, a year-on-year growth rate of 34%. China led with 34.5 GW, followed by the USA (14.5 GW), Japan (10.2 GW) and India (5 GW) in fourth place.

In 2017, about 79 GW capacity is expected to be added globally, registering marginal growth over 2016. The stagnation is mainly due to policy pullbacks across major markets including China, Japan, the USA and most parts of Europe. Meanwhile, India is expected to continue its rapid growth. With 8.8 GW of projected capacity addition (growth of 76% over 2016), it is set to become the third largest PV market in 2017, overtaking Japan.

Figure 1: Capacity addition in leading international markets

Source: BRIDGE TO INDIA, GTM research

Other key trends shaping the global solar industry include:• Asia continues to dominate the solar industry while Europe continues to

fall in rankings. • Auctions are gaining universal acceptance - number of countries using

auctions to allocate solar capacity has increased from 14 in 2014 to 22 in 2016.

• Solar module prices continue to fall faster than most experts had anticipated. Prices in India fell to 32 ¢/Wp in Q1 2017 (– 29% over last year). Such a rapid fall has made solar PV the cheapest new source of power in most countries and provided demand boost in emerging economies.

• Developed countries are slowly shifting towards utility scale projects whereas in emerging markets, governments are trying to encourage more rooftop solar growth.

In India, rooftop solar has maintained a 10-12% share of overall solar capacity. This is much lower than other key markets such as US, Germany, China, Spain and Australia.


Figure 2: Share of utility scale solar vis-à-vis rooftop solar

Source: BRIDGE TO INDIA research


Indian utility scale solar market

Capacity addition

As of March 31, 2017, India had installed 12.2 GW of utility scale solar PV capacity.

Figure 3: Commissioned capacity as of March 31, 2017


Figure 4: Capacity addition in leading states



Tamil Nadu, Andhra Pradesh and Telangana have emerged as the fastest growing states. In 2017, nearly 60% of total new capacity addition is expected to come in three southern states of Telangana, Andhra Pradesh and Karnataka.

But there has been a significant slowdown in the pace of new tender announcements mainly due to weak power demand growth in the country.

Figure 5: Tenders announced vs auctions completed


Projections

BRIDGE TO INDIA expects 44 GW of cumulative utility scale capacity addition in India until 2021. We expect slowdown in 2018 because of lull in recent tender activity but demand is expected to pick up again from 2019 onwards.

Figure 6: Utility scale solar capacity projections, GW

Source: BRIDGE TO INDIA estimates


Types of policy based projects in India

Figure 7: Type of policy based projects in India

NotesEPC – Engineering, Procurement and ConstructionVGF – Viability Gap Funding, a capital subsidy provided by the Government of IndiaPPP – Public Private PartnershipRPO – Renewable Purchase Obligation


Project development landscape

As the Indian solar market grows and project sizes increase, international developers and private equity funded IPPs are playing a greater role.

Figure 8: Commissioned capacity as of March 31, 2017 (12,163 MW)


Figure 9: Capacity under development as of March 31, 2017 (12,381 MW)



Policy update

Renewable purchase obligation (RPO)

In line with the 8% solar RPO target for the country for March 2022, MNRE has allocated individual targets for states to set, but actual performance varies highly across states and enforcement is poor.

Figure 10: Installed plus pipeline capacity vs RPO target for 2021-22

Source: Ministry of New and Renewable Energy, BRIDGE TO INDIA research

Financial incentives

The Government of India has been offering several financial incentives to promote the solar sector. But as cost of solar power is coming down, these benefits are being slowly phased out.

Viability gap funding (VGF): Solar Energy Corporation of India (SECI) has allocated 4,835 MW of project capacity under the VGF route, whereby a capital subsidy is provided to project developers bidding for projects at a pre-determined tariff. As of March 31, 2017, another 785 MW of tenders under SECI VGF scheme are under process.

Accelerated depreciation: All solar projects have been historically eligible to avail depreciation of 80% of asset value but this rate has been reduced to 40% from April 2017 onwards.

Ten-year corporate tax holiday: A 10-year income tax holiday has been offered to solar projects so far, but this benefit has been withdrawn from April 2017 onwards.


UDAY scheme

27 states and union territories have joined the Government of India’s UDAY scheme for financial and operational reform of DISCOMs. Approximately M 2,043 billion ($ 30 billion) worth of bonds have been issued, equivalent to nearly 50% of total outstanding debt as of March, 2016.

Figure 11: Progress on UDAY scheme

Source: UDAY website, Power Finance Corporation, Ministry of Power report on “State Distribution Utilities- Fifth Annual Integrated Rating”

NotesAT&C - Aggregate Technical and Commercial Losses* There is no debt restructuring component for these states.


Development of solar parks

The Government of India has sanctioned development of 40,000 MW of solar park infrastructure by the year 2020 with a financial support of M 81 billion (US $ 1.2 billion). Solar projects with a total capacity of 8,900 MW have already been allocated in 8 solar parks.

Figure 12: Implementation status of solar parks in top 10 states


BTI India Solar Price Indices

As a result of supply side surplus, both module and inverter prices have been coming down faster than expected as shown in the charts below.

Figure 13: BTI India Solar Module Price Index


Figure 14: BTI India Solar Inverter Price Index


Figure 15: BTI India Solar EPC Price Index



Rooftop solar

Installation trends

India’s total installed rooftop solar capacity is estimated at 1,247 MW as of December 31, 2016.

Capital Expenditure (CAPEX) route accounts for nearly 84% of total installed capacity but the Operating Expenditure (OPEX) model has been gaining ground in the last couple of years.

Figure 16: Rooftop solar annual capacity addition


Projections

11.9 GW of new rooftop solar capacity addition is expected in India between 2017 and 2021.

Figure 17: Rooftop solar capacity addition projections

Source: BRIDGE TO INDIA estimates


Policy update

Net metering: 29 states and 7 union terrotories have notified grid connectivity regulations with proviison for net/gross metering but on-the-ground implemenation remains patchy.

Subsidy for residential, institutional and government consumers: Ministry of New and Renewable Energy has sanctioned M 50 billion ($ 750 million) funding for 30% capital subsidy for rooftop solar for residential and institutional consumer segments. In addition, up to 30% subsidy is also available for government projects.

Boost in government demand: Government is expected to become a major demand source for rooftop solar in the coming years. All building facilities under different central government departments are being urged to adopt rooftop solar and a potential of 6 GW capacity has been identified so far. SECI has already announced 500 MW of tenders for such buildings.

Concessional debt financing: The Government of India, with assistance from multilateral financial institutions such as Asian Development Bank, The World Bank and New Development Bank, has earmarked US $ 1,470 million of concessional credit lines for the rooftop solar market.

Building bye-laws: The Government of India has recommended mandatory rooftop solar installations for buildings exceeding specified size and/or power consumption threholds under the model Building Bye Laws. Fours states and union terrotories - Uttar Pradesh, Haryana, Chandigarh and Chhattisgarh - have adopted these regulations so far.

BTI India rooftop solar EPC price index

Figure 18: BTI India price index



Module manufacturing

Current status

India’s total module manufacturing capacity is estimated at 5,286 MW. However, most of this capacity is obsolete, sub-scale and uncompetitive. Total domestic production in 2016 is estimated at only about 1,330 MW. Adani is the biggest module manufacturer with a capacity of 1,200 MW, followed by Waaree, Vikram and Emmvee with capacities of 500 MW each.

Import/export status

About 88% of all module requirement in India is met through imports (84% from China). Imports have risen in line with growth in capacity addition but exports have seen a significant downward trend.

Figure 19: Solar module import trends

Solar module export trends

Source: Ministry of Commerce

Manufacturing incentives

The Government of India, together with state governments, is offering several incentives for manufacturing modules in India – including capital subsidy, operating cost subsidy and export incentives – under different policies. But a sector specific manufacturing policy, which has been believed to be in consideration for over a year now, has not been finalized yet.

INDIA SOLAR CEO SURVEY

Lead sponsor

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India Solar CEO Survey 2017

Our CEO survey has again got excellent response from both Indian and multinational companies across the sector value chain.

Project developers EPC contractors Equipment manufacturers

Acme Cleantech B-electric Dupont

Aditya Birla Group Enerparc Energy Delta Power

Emmvee 8minutes Emmvee

First Solar Emmvee First Solar

Hero Future Energies Fourth Partner Ganges International

IBC Solar Harsha Abakus GCL Systems

Jakson Engineers IBC Solar Hanwha Qcells

RattanIndia Solar Jakson Engineers Hitachi Hirel

ReNew Power Juwi India Huawei

Waaree Energies Oriano Indosolar

SunSource Energy Risen Energy

Sterling & Wilson Su-kam

Su-kam Trina

Ujaas Vikram Solar

Vikram Solar Waaree Energies

Waaree Energies

Notes:1. Some company names are shown more than once in this table depending on range of their

business activities.2. For multinational companies, the survey has been completed by the respective head of Indian solar

business.

Key findings are summarized below1. The industry is more optimistic about growth prospects but more

circumspect about their individual business outlook. We interpret this as an outcome of uncertainty from falling prices and squeezed profitability across the value chain.

2. There is significantly more optimism about rooftop market with consensus expectation of 13.4 GW to be added by March 2022 (as against 10 GW last time) although there appears huge concern about poor implementation of net metering policies.

3. Grid integration issues and poor DISCOM finances remain the most important concerns for the industry (69%).

4. Our question on project quality and expected power output from solar plants has yielded a more sober response – 62% participants expecting ‘Fair’ or ‘Below Fair’ options as against 48% last time. A clear majority (55%) also feel that there is poor quality equipment being dumped in India in response to prices coming down so sharply.


Market growth and challengesSolar capacity addition by March 2022

Rooftop solar capacity addition by March 2022

Open access solar capacity addition by March 2022

The industry is more optimistic than last year and expects India to add a total of 60 GW solar capacity by 2022 (+5% over last year) but still considerably below the government target of 100 GW.

We see the same positive trend for rooftop solar capacity addition. Average of all the responses indicates estimated rooftop capacity of +14 GW by 2022. Rapidly falling costs and government efforts to boost demand in the public sector have improved growth prospects in this market.

Sentiment for open access solar capacity remains unchanged over last year. Average response indicates estimated open access based capacity of 6 GW by the end of March, 2022.


Business growth by March 2022

Challenges in the utility scale solar market

Biggest concern in the sector

Fear of poor quality equipment being dumped in India

According to the survey, the biggest concern for the sector is grid integration of growing renewable capacity followed by poor financial condition of DISCOMs, notwithstanding the progress made on UDAY reform package.

52% of the respondents feel that this a very high risk. 39% of the respondents have indicated that this is a real but manageable risk and only 3 respondents (10%) feel that there is no such risk. This response should be an alarm call for the government and policy makers.

Contrary to greater optimism for the overall sector, the industry is more restrained about growth prospects of their individual solar businesses. Bulk of the respondents (48%) expect a growth of between 3-5x by 2022 (equivalent to a CAGR of 32%).


In view of general fears about low tariffs having an adverse impact on project quality and performance, we asked respondents to share their view on this subject. The survey shows a big shift over last year – only 36% feel that project quality will exceed expectations as against 52% last year.

Overall assessment of solar project quality and expected power output over 25 years

Challenges in the rooftop solar market

Challenges in the growth of BOOT/ PPA model for rooftop solar

We gave three choices to respondents and asked them to choose the most important challenge in growth of rooftop solar market. 45% of respondents have selected net metering implementation as the most important challenge.

We gave four choices to respondents and asked them to choose the most important challenge in growth of BOOT/ PPA model for rooftop solar market. 47% of respondents have selected poor contract enforcement as the most important challenge, followed closely by poor bankability of private clients.


Challenges in the open access solar market

State government ratings

Ease of doing business for solar projects

Attractiveness for rooftop solar projects

We asked the industry to rate the top 10 states on attractiveness of their rooftop solar market. Gujarat, Karnataka and Telangana are the top three states although there is very little difference between the states.

We gave five choices to respondents and asked them to choose the most important challenge in growth of open access solar market. 25% of respondents have selected poor enforcement of RPO’s as the most important challenge, followed closely by uncertain policy.

We asked the industry to rate the top 10 states on ease of doing business in the sector. Madhya Pradesh, Andhra Pradesh and Gujarat are the top three states while Uttar Pradesh, Maharashtra and Tamil Nadu have come at the bottom.


An overwhelming majority feel that domestic manufacturing should be supported and incentivized. Popular support is for incentives such as assured demand, capital cost and interest cost subsidies. In contrast, there is no support for anti-dumping duties.

Attractiveness for open access solar projects

Domestic manufacturing

Should domestic manufacturing be actively supported and incentivised by the government

How should domestic manufacturing be incentivised?

We asked the industry to rate the top 7 states on attractiveness of their open access solar market. Karnataka, Andhra Pradesh and Telangana are the top three states.


Glossary of termsAT&C Aggregate technical and commercial losses

BOOT Build Own Operate Transfer

CEO Chief Executive Officer

DISCOMs Distribution Companies

EPC Engineering, Procurement and Construction

IPPs Independent Power Producers

IPO Initial Public Offering

IRR Internal Rate of Return

M&A Mergers and Acquisitions

MNRE Ministry of New and Renewable Energy

NSM National Solar Mission

NTPC National Thermal Power Corporation

PPA Power Purchase Agreement

PSU Public Sector Unit

PV Photovoltaic

RPO Renewable Purchase Obligation

SECI Solar Energy Corporation of India

UDAY Ujwal DISCOM Assurance Yojana

VGF Viability Gap Funding


YOU SEE A ROOF WE SEE A POWER PLANT

Install solar modules system on your roof to generate clean and affordable energy. This long term energy solution is a smart investment decision with attractive returns as levelised cost of energy is below Rs. 5 per unit. To know more, call our experts today.

Vikram Solar is a globally recognised solar energy solution provider, it specialises in high efficiency PV modules and comprehensive EPC & Rooftop solar solutions. With international presence across 5 continents, we are an active contributor in shaping the solar revolution.

dtL tvP raloS markiV Kolkata 700 107, India

[email protected] www.vikramsolar.comTOLL FREE 1800 212 8200

About BRIDGE TO INDIA BRIDGE TO INDIA is the leading consulting and knowledge services provider in the Indian cleantech market. Our multi-functional experience expertise combined with comprehensive in-house research capability enables us to develop insightful and highly sought-after industry analyses. Our overarching goal is to provide customised cleantech solutions and enable innovative business models in India.

We work actively with all leading stakeholders including project developers and investors, energy customers, equipment suppliers, regulators, policy makers and development institutions. We have helped a number of international top-tier cleantech companies in growing their business footprint in India by providing them with strategic advice, business planning, risk assessment and JV partner selection services.

Our services

YOU SEE A ROOF WE SEE A POWER PLANT

Install solar modules system on your roof to generate clean and affordable energy. This long term energy solution is a smart investment decision with attractive returns as levelised cost of energy is below Rs. 5 per unit. To know more, call our experts today.

Vikram Solar is a globally recognised solar energy solution provider, it specialises in high efficiency PV modules and comprehensive EPC & Rooftop solar solutions. With international presence across 5 continents, we are an active contributor in shaping the solar revolution.

dtL tvP raloS markiV Kolkata 700 107, India

[email protected] www.vikramsolar.comTOLL FREE 1800 212 8200

© BRIDGE TO INDIA, 2017

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