2015 was the first year in which the announcement of the
100GW target by 2022 started having an impact. While this announcement was made
in 2014, the target was only formally passed by the cabinet in June last
year. As a first step towards achieving this target, close to 7GW of
state and central policy projects were allocated just in 2015. Of this 7GW, a
capacity of 1.2GW was allocated under National Solar Mission (NSM), while 5.9GW
was allocated by states such as Telangana and Tamil Nadu who tendered 2GW each.
In terms of annual
installations, the solar market in India almost doubled to 2GW in 2015 as
compared to 0.8GW in 2014. In 2015, the southern states of Tamil Nadu,
Telangana and Andhra Pradesh emerged as the fastest growing sub-markets,
removing the western states of Gujarat and Rajasthan from their mantle.
Another important trend
emerging is the sub INR 5/kWh tariffs, which is the new normal for solar in
2015. In the first two rounds of NSM phase II bids in Nov-Dec 2015, projects
were won at INR 4.63/kWh. It will be interesting to see how tariffs will evolve
in 2016 and whether project developers can get sufficient returns with levels
between INR 4.60-5.00/kWh.
A similar pace of
activity is also expected in 2016, however, there are hurdles that will rise
with increasing solar capacities in India.
Some of the key issues
are:
Incompetent
grid and transmission infrastructure
In 2016, it is expected
that another 4.8GW of new capacity will be added. However, Indian grids and
transmission infrastructure is incompetent to absorb such bulk solar
capacities. Furthermore, 80% of this new capacity will be added by southern
states (Tamil Nadu, Andhra Pradesh, Telangana and Karnataka) where grid
curtailment is already very high, reaching up to 15% in select locations.
It is also important to
note that in other developed countries like Germany, which meets almost 7.5% of
its power from solar in a year, there is a robust grid infrastructure and its
gas based generation assets help in balancing the grid. India, on the other
hand, does not have a robust grid and also has a very limited ability to
balance it with other continuous sources of power generation. Clearly India’s
ambitious solar plan would require upgrades of transmission networks at a
massive scale.
Project
delays
Another important
concern is the rising number of project delays in the solar sector. Out of a
total 1,485MW of capacity allotted under state tenders from October 2011 till
September 2014 (whose expected commissioning time is by December 2015), nearly
50% (680 MW) has been delayed or partially lost for various reasons. Out of
this 680MW, it is expected that almost 10% of the projects are completely
stalled. Clearly 50% is a big number and if this trend continues then the
government will surely fall short of its targets.
Project
financing
Banks in India are not
actively supporting solar PV projects, and the interest rates charged by them
are also very high because they already have a high exposure to power sector
debt, which is underperforming. So it is still not clear how these winning bids
at INR 4.63/kWh will be financed. If it will be mainly from private investors
then what about the IRR expectation from such projects? It will be interesting
to see how tariffs will evolve and whether project developers can get
sufficient returns with levels between INR 4.60-5.00/kWh.
OriginalPost: Jyoti Gulia