INDIA SOLAR HANDBOOK 2016 - Homepage - … 31, 2015 (GW)1 In 2016, about 65 GW of solar capacity is...

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INDIA SOLAR

HANDBOOK2016

Including our firstINDIA SOLARCEO SURVEY

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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 also 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.

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Introduction

Indian solar market in full bloom but financing poses a key challenge

India is all set to become the fourth largest solar market globally in 2016 behind only China, USA and Japan with 5.4 GW of expected capacity addition in the year. The tailwinds are exceptionally strong with rapidly falling costs and greater environmental agenda in the post COP21 world.

The Indian solar market appears in full bloom right now with key policy changes being introduced and 25 GW of projects under different stages of development. 35 new tenders with a cumulative capacity of 15.5 GW have been announced in the last year. An additional 5 GW of new tenders are awaiting release in the coming months. There is burgeoning investment interest both from Indian and international developers in the sector. This frenetic pace of activity is a big step-up in contrast to historic solar capacity addition of approximately 1 GW per annum for three straight years until 2014. But does the sector have sufficient financial capacity to deliver all these projects?

The most buzzing topic for the sector right now is the intense competition with tariffs coming down sharply to M4.34-5.00/ unit ($0.07-0.08) levels. But with many developers struggling to raise capital and banks seemingly reluctant to lend to projects at such tariffs, progress in 2017 and 2018 is not likely to be as fast as expected. In contrast to Ministry of New and Renewable Energy (MNRE) target of 12 GW of utility scale solar projects for FY 2016-17, BRIDGE TO INDIA estimates that actual capacity addition will be only about 5-6 GW in FY 2016-17.

Other key theme in our view is the likely growth trajectory for the sector over the 3-5 year horizon. The central government has taken early lead through National Thermal Power Corporation (NTPC) and Solar Energy Corporation of India (SECI) in releasing project tenders of more than 9 GW as of April, 2016. The southern states have also shown huge interest in solar power to overcome their growing power deficit. But with power demand showing slow growth and grid stability issues growing more important over time particularly in areas of high renewable penetration, we expect a slowdown in the sector after 2017 and 2018.

On the policy front, the Solar Parks Policy and UDAY scheme have been hailed largely as a successes but the broader sector policy reform through amendments in the Electricity Act 2003 is still awaiting parliamentary approval. Going forward, ensuring grid robustness and investment/lending appetite at aggressive tariff levels will be the two main challenges. Policy interventions to address these challenges together with demand growth measures will be key to sustainable growth of the sector.

One major disappointment continues to be the rooftop solar market where the 40 GW target for 2022 seems like a very remote prospect. This market needs more focused policy support to ensure effective net-metering implementation and attraction of financial investors. Overall, the growth prospects for the India solar market are very bright providing an immense opportunity for investors, developers and equipment suppliers. But a dose of caution is needed as the market will remain very price sensitive and with its share of challenges.

35 new tenders with a cumulative

capacity of 15.5 GW have been announced

in the last year

Ensuring grid robustness and investment/lending

appetite at aggressive tariff levels will be the

two main challenges


International perspective

Global overview: Asian countries emerge as solar leaders

Globally, new solar capacity addition grew to 50 GW in 2015, y-o-y growth of 25%. Asian countries led by China and Japan dominated the global solar landscape, representing about 59% of the global PV market in 2015. India added more than 2 GW capacity in 2015 to reach a cumulative capacity of 5.6 GW by the end of the year. This allowed India to rise to the eighth position for total installed capacity repetition as of December 31, 2015.

Solar market in the Americas also continued to grow with the USA, Canada and Chile leading the pace but Europe, which had previously led the way for the solar industry globally, has seen growth stall in recent times because of the pull back of the FiTs.

Figure 1: Cumulative installed solar capacity as of December 31, 2015 (GW)1

In 2016, about 65 GW of solar capacity is expected to be added globally. Asian countries including China, Japan and India are expected to be in the top five countries. China is expected to continue leading the global PV market while USA is set to overtake Japan as the second largest solar market, exceeding the much-anticipated 10-GW mark.

India is expected to be at the fourth position leaving behind the major European solar markets (UK, Germany and France) with expected new capacity addition of 5.6 GW in 2016.

----------1 Source: IEA PVPS, Snapshot 2015 of Global PV markets; India nos. estimated by BRIDGE TO INDIA


Figure 2: India to add >5 GW of solar capacity in 20162

----------2 Source: GTM Research, BRIDGE TO INDIA


Andaman &Nicobar 5

OP

West Bengal 7

OP

Assam 10

WIP

Tripura 5

OP

Madhya PradeshOP

780767

WIP

Chhattisgarh

103

OP

Uttar Pradesh

122

OP

595

WIP

Jharkhand 18

OP

1,200

WIP

Delhi 5OP

Rajasthan

700

WIP

1,291

OP

Uttarakhand

200

WIP5

OP

Gujarat48

1,105

WIPOP

Maharashtra

340

403

OP WIP

Kerala13

OP

Andhra Pradesh

571

OP

2,687

WIP

TelanganaOP

2,263

433

WIP

Haryana

200

WIP

24

OP

Odisha

78

OP

Tamil Nadu

530

OP WIP

1,191

Punjab

636

367

OP WIP

Bihar 5

OP

125

WIP

Daman & Diu5

OP

Karnataka

2,254

OP WIP

105

Utility scale solar

Installed capacity

Figure 3: India has installed 6.6 GW of utility scale solar as of March 31, 2016

Discom RatingCalculated based on profit/ loss of DISCOM as % of state GDP

Source: BRIDGE TO INDIA research


Andaman &Nicobar 5

OP

West Bengal 7

OP

Assam 10

WIP

Tripura 5

OP

Madhya PradeshOP

780767

WIP

Chhattisgarh

103

OP

Uttar Pradesh

122

OP

595

WIP

Jharkhand 18

OP

1,200

WIP

Delhi 5OP

Rajasthan

700

WIP

1,291

OP

Uttarakhand

200

WIP5

OP

Gujarat48

1,105

WIPOP

Maharashtra

340

403

OP WIP

Kerala13

OP

Andhra Pradesh

571

OP

2,687

WIP

TelanganaOP

2,263

433

WIP

Haryana

200

WIP

24

OP

Odisha

78

OP

Tamil Nadu

530

OP WIP

1,191

Punjab

636

367

OP WIP

Bihar 5

OP

125

WIP

Daman & Diu5

OP

Karnataka

2,254

OP WIP

105


Solar parks

MNRE has approved 33 solar parks in 21 states with 19.9 GW capacity.

Figure 4: Solar parks plan

3,251 MW, Bhadla, Jaisalmer, Jodhpur

2,000 MW, Tumkur

2,750 MW, Rewa, Shajapur,Morena

4,000 MW, Anantpuramu, Kurnool, Kadapa, Anantpur

500 MW, Mehboobnagar

50 MW, Kashipur

600 MW, Jalaun, Allahabad, Mirzapur & Kanpur

1,000 MW, Spiti Valley

Madhya Pradesh

1,500 MW, Beed, DhuleMaharashtra

700 MW, BanaskanthaGujarat

Karnataka

Rajasthan

Himachal PradeshUttar Pradesh

Uttarakhand

500 MWChhattisgarh

500 MW, BankuraWest Bengal

69 MW, Amguri, Sibsagar

Assam

100 MW, Lohit

Arunachal Pradesh

60 MW

Nagaland

1,000 MWOdisha

Andhra Pradesh

500 MW, RamanathapuramTamil Nadu

Telangana

100 MW, Samba

Jammu & Kashmir

500 MW, Hisar, Bhiwani, Mahendergarh

Haryana

200 MW, KasargodeKerala

20 MW, JaintiaMeghalaya

Source: SECI, BRIDGE TO INDIA research


Types of policy based projects in India

Figure 5: India has multiple types of utility scale solar projects with several off-takers and processes

*Pipeline includes projects under construction, PPAs signed and open tenders

Source: BRIDGE TO INDIA analysis


Project development landscape

As the Indian solar market grows and project sizes increase, international utilities and IPPs with strong balance sheets and lower cost of capital are likely to play a greater role. We have already witnessed this trend growing over the last one year.

Figure 6: Role of international developers and utilities has been increasing in the Indian solar market

Commissioned projects (>10 MW) as of March 31, 2016

Projects under development (>10 MW) as of March 31, 2016



Figure 7: Pipeline of top 10 private project developers in India, MW



Recent auctions

Figure 8: Solar tariffs have fallen by almost 33% in India in last two years


Market projections

Figure 9: BRIDGE TO INDIA expects 37 GW of cumulative utility scale capacity addition in India until 2020

Figure 10: Capacity breakup by project category, by 2020 (%)

Source: BRIDGE TO INDIA projections


Rooftop solar

Installed capacity

Figure 11: India has installed 740 MW of rooftop solar capacity as of March 31, 2016

Jharkhand

10.5

West Bengal

12

MadhyaPradesh

16

Punjab

55

Chhattisgarh

30

Uttar Pradesh

43.4

Delhi

32

Rajasthan

44.4

Uttarakhand

12

Gujarat

62.6

North eaststates

20.3

30

Others

Karnataka

47

Kerala

19

Maharashtra

62.3

AndhraPradesh

36

Telangana

37

Haryana

35

Chandigarh

13 Jammu &Kashmir

9.1

Odisha

12

Tamil Nadu

85.4

Bihar

16


Policy landscape

The Indian government is offering several tax and financial incentives to support the rooftop solar market• Capital subsidy: 30% subsidy for residential and institutional consumers

(M50 billion)• Accelerated depreciation: 80% depreciation• Tax holiday: 10 year tax holiday (MAT payable)• Low cost funding: $1.5 billion funding from World Bank, ADB and KFW

Table 1: Overview of state net metering guidelines

State Policy scope Individual system size limit

Grid penetration % of distribution transformer capacity

Excess electricity sale price

Eligibility

Andhra Pradesh Upto 1 MWp 100% of annual consumption

Not mentioned

APPC All consumers

Assam 1kWp to 1MWp

40% of contracted load

Not mentioned

APPC All consumers

Bihar (Draft) Upto 1 MWp 90% of annual consumption

15% Not mentioned Not mentioned

Chhattisgarh 50 kWp to1 MWp

49% of annual net generation

Not mentioned

50% of regulated solar tariff

Not mentioned

Delhi >1 kWP 100% of contracted load

20% APPC All consumers

Goa and UTs 1 kWp to 500 kWp

Not mentioned 30% As per regulated solar tariff

All consumers

Gujarat Not Mentioned 50% of contracted load

Not mentioned

APPC/ 85% of APPC for REC projects

All consumers

Haryana 1kWp to 1 MWp

90% of annual consumption

15% All consumers

Himachal Pradesh

1 kW to 5 MW

80% of contracted load

30% M5.00/ unit All consumers

Karnataka Upto 1 MWp Not mentioned 80% M9.56/ kWh (without subsidy), M7.20/ kWh (with 30% subsidy)*

All consumers


State Policy scope Individual system size limit

Grid penetration % of distribution transformer capacity

Excess electricity sale price

Eligibility

Kerala 1kWp to 1MWp Not mentioned 50% APPC All consumer categories, up to 11kV

Madhya Pradesh Up to permissible individual rated capacity of 112 kW at LT

Not mentioned 15% APPC All consumers

Maharasthra Upto 1 MWp 100% of contracted load

40% APPC All consumers

Meghalaya Upto 1 MWp <90% of annual consumption

15% No payment All consumers

Odisha Not Mentioned <90% of annual consumption


Punjab 1kWp to 1MWp <80% of contracted load

30% As per retail supply tariff of the consumer category

All consumers

Rajasthan 1 kWp upto 1MWp

<80% of contracted load

30% As per regulated solar tariff

All consumers

Tamil Nadu Not mentioned <90% of annual consumption


Uttar Pradesh >1 kWp 100% of contracted load

15% M0.50/ kWh All consumers

Uttarakhand Upto 500kWp Not mentioned Not mentioned

M9.20/kWh (with subsidy)

All consumers

West Bengal >5 kWp <90% of annual consumption

Not mentioned

APPC Only for institutional consumers

Telangana Not Mentioned Not mentioned Not mentioned

APPC All consumers

NoteAPPC - Average pooled purchase cost* No new PPAs signed under this rate now Source: BRIDGE TO INDIA research


Market projections

Economic fundamentals for adoption of rooftop solar in India are improving rapidly. In 2016, the market is expected to add a capacity similar to the entire capacity added in India till date. The market is expected to grow at compounded annual growth rate of 58% per annum.

Figure 12: 6.8 GW of new rooftop solar capacity addition is expected in India between 2016 and 2020

Source: BRIDGE TO INDIA projections

INDIA SOLAR CEO SURVEY

Survey sponsor


Our first pulse check of the state of the Indian solar marketIt is a great pleasure to announce the results of our first Solar CEO survey.

The purpose of this survey, coming at a critical time in the evolution of India's solar sector, was to seek honest, critical opinion of senior corporate leaders and get their perception of the opportunities and challenges facing the industry. Are we on the right track? Where might we be falling short and what does the government need to do differently? How do different parts of the sector – government policy projects, rooftop and open access – compare?

The survey has got excellent response from both Indian and multinational companies across the sector value chain:

Project developers EPC contractors Equipment manufacturers

Aditya Birla Enerparc Energy Delta Power

First Solar Jakson Engineers DuPont

Fortum India Juwi India Renewable EMMVEE Photovoltaic

Hero Future Energies L&T First Solar

Jakson Engineers Mahindra Susten Ganges Internationale

Mahindra Susten Moser Baer Solar Hitachi Hi-Rel Power

Mytrah Energy Sterling and Wilson Jakson Engineers

Rattan India Solar SunSource Energy SMA

Sky Power Ujaas Energy SNS Corporation

SunEdison Vikram Solar Vikram Solar

Rays Experts Moser Baer Solar

Refex Energy

While some findings seem obvious, there are many insightful results and some clear warning signs for the government. Key findings are summarized below:

1. The industry is very buoyant about sector growth prospects but the 100 GW target still seems too ambitious with key challenges expected to be grid stability and financing.

2. There is genuine concern about bankability of SECI as an offtaker. Unless SECI gets capitalized adequately, it is seen merely as an intermediate layer between the developer and ultimate offtaker ie DISCOM.

3. The rooftop sector needs much stronger push as the consensus estimate for total rooftop capacity addition by 2022 is only 10-11 GW, significantly below the government’s 40 GW target. Key challenges here are ineffective net metering policy framework and lack of more attractive debt financing solutions.

4. The industry is generally positive about the prospects of domestic manufacturing and India is expected to have an annual cell-module manufacturing capacity of 5 GW by 2022.

We propose to conduct further relevant surveys in the near future and welcome all feedback.

Notes: 1. Some company names are shown

more than once in this table depending on their business activity.

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


Market growth and challenges

Solar capacity addition by 2022

Rooftop solar capacity addition by 2022

Open access solar capacity addition by 2022

Capacity addition in the rooftop and open access markets is expected to be <10 GW and < 5 GW respectively by majority of participants, again substantially below government targets. This should be an alarm call particularly for the government and all policy makers. Most of government focus so far has been on large policy driven, ground based projects whereas the biggest benefit of solar power lies in distributed generation and market driven solutions.

As per the survey participants, India is expected to add a total of 57 GW solar capacity by 2022, substantially below the government target of 100 GW.


Business growth by 2020

Biggest challenge for 100 GW by 2022

Inputs for achieving 100 GW target

There is huge optimism in the sector. The participants believe that their individual solar businesses will grow by an average of 3-5x by 2022 with about 37% of participants believing that their business will grow by more than 10x in this period.

We asked the participants to select the biggest challenge for India to achieve the 100 GW target as well as to share their view on availability of key inputs for the sector. The three top challenges identified are grid integration, lack of FiTs and poor operating environment (ie general day-to-day difficulty in doing business).

In terms of availability of key inputs that go into solar project development, the industry is most concerned about transmission connectivity/ grid failure, debt financing and INR depreciation risk. Land availability concerns seem to have relatively come down perhaps because of proactive government moves on solar park development.


Central government rating

Rating of central government initiatives

Bankability of SECI as an offtaker

Are you optimistic that the UDAY scheme will make DISCOMs bankable?

74% of the survey participants give the central government a rating of ‘Good/Very Good’ on overall policy framework. But the government does not do so well on specific initiatives including solar park development, transmission capacity, debt financing and support for domestic manufacturing.

We also sought participants’ view on SECI’s bankability as an offtaker and only 50% of them believe that SECI is an acceptable offtake risk. This response seems consistent with actual experience on-the-ground with payment delays being experienced by developers in previous SECI projects.

54% of the participants are optimistic about the UDAY scheme, a signature reform policy of the current government. But there is also a fair degree of skepticism with 46% of participants either indifferent or pessimistic. Given the result of previous moves to restructure DISCOM finances, these results are not surprising but show that the scheme needs strong monitoring and proactive enforcement.


State government ratings

We asked the participants to rank eight key states on overall ease of doing business and their attractiveness for developing solar projects.

Ease of doing business

Ranked list of states in order of attractiveness for open access projects

Ease of doing business covers a wide category of issues including land acquisition and conversion, transparency and predictability of policy, approval process. The results are revealing as some of the leading states – Karnataka, Maharashtra and Tamil Nadu – come near the bottom of this table.


Project development returns and quality of implementation

Expected project IRR (post tax) @ M5/kWh tariff

Overall solar project quality and expected power output over 25 years

With bid tariffs falling sharply, there has been concern in the industry on sustainability of these tariffs. 23% of participants believe that post-tax project IRR at current tariffs is less than 12% and another 42% believe the IRR to be in the 12-14% range, which is barely enough to cover risk adjusted cost of capital.

There has been some on-the-ground evidence of low tariffs forcing developers and contractors to compromise on component quality and project performance. The survey shows mixed opinion on project quality issues.


The participants believe predominant challenges for the rooftop sector to be poor net metering policy framework and lack of more attractive debt financing solutions.

On prospects for success of BOOT/PPA model in the rooftop sector, the participants believe that the most important challenges are poor legal enforcement and bankability of private clients.

Rooftop solar

Ranked list of challenges for rooftop solar

Ranked list of challenges for BOOT/PPA model

Measures needed the most to boost open access market in India

The open access market is hamstrung by uncertainty of policy and poor enforcement of RPO. 82% of the participants feel that these challenges are holding this market back. Waiver of open access charges is not seen as a critical factor as the fundamental competitiveness of solar power has improved hugely and the industry needs certainty of policy/ charges rather than concessions.


Domestic manufacturing

Potential for domestic manufacturing till 2022

Annual domestic manufacturing capacity by 2022

Will India see an integrated module manufacturing line(polysilicon extraction – wafer – cell – modules) by 2022?

The industry is largely positive about the potential of domestic manufacturing in India with consensus expectation for cell and module manufacturing capacity of 5-6 GW by 2022. However, 60% of the participants don’t expect India to have any integrated manufacturing line even by 2022. This is a setback to the government’s aspiration of promoting domestic manufacturing.


Glossary of termsAD Accelerated Depreciation

ADB Asian Development Bank

APPC Average Pooled Purchase Cost

BOOT Build Own Operate Transfer

CEO Chief Executive Officer

CERC Central Electricity Regulatory Commission

CPSU Central Public Sector Utility

CSS Cross Subsidy Surcharge

DCR Domestic Content Requirement

DISCOM Distribution Companies

ED Electricity Duty

EPC Engineering, Procurement and Construction

FiT Feed-in Tariff

IRR Internal Rate of Return

MAT Minimum Alternate Tax

MNRE Ministry of New and Renewable Energy

NSM National Solar Mission

NHPC National Hydro Power Corporation

OA Open Access

PPA Power Purchase Agreement

PSU Public Sector Unit

PV Photovoltaic

REC Renewable Energy Certificate

RPO Renewable Purchase Obligation

RGO Renewable Generation Obligation

SECI Solar Energy Corporation of India

UDAY Ujwal DISCOM Assurance Yojana

VGF Viability Gap Funding

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Thursday, April 21, 2016 1:33:59 PM

© BRIDGE TO INDIA, 2016

C 8/5, DLF Phase 1, Gurgaon 122 001,

Haryana, INDIA

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INDIA SOLAR HANDBOOK 2016 - Homepage - … 31, 2015 (GW)1 In 2016, about 65 GW of solar capacity is...

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