Nov 13,2012

Indian solar installations stalled in Q3 2012, however around 1.1 GW of projects are due to be added in the next six months. Meanwhile, the market is eagerly awaiting the Phase II policy announcement, which is expected sometime towards the end of this year. Already draft tariffs have been released.


There was not a lot of movement in terms of solar installations in India in Q3 2012. However, about 1.1 GW of projects are due to be installed in the next six months, including around 275 MW of photovoltaic projects in Gujarat with a December 31 deadline, and 340 MW of photovoltaic projects under the Jawaharlal Nehru National Solar Mission (JNNSM), due by March 2013.


A further 27.5 MW of CSP projects, which were part of the JNNSM Migration scheme, are due to be completed by February 2013, along with 470 MW of JNNSM Batch II CSP projects, which are due by next May.


As of November 1, cumulative solar capacity stood at 1.045 GW.


Phase II policy announcement


The market is eagerly awaiting the Phase II policy announcement, which is expected sometime towards the end of this year, according to the Ministry of New and Renewable Energy (MNRE).


A recently released draft tariff determination for 2013 to 2014 by the Central Electricity Regulatory Commission (CERC) gave a general sense of where tariffs are headed in the next phase. CERC’s draft indicated a starting bid of Rs. 8.75/kWh (~US$0.16, €0.13) for photovoltaic projects (Batch II projects were Rs.15.39/kWh).


It is important to note, however, that starting bids are just a starting point, whereas actual bids have ended up almost 30 to 50% lower in the past. Using Batch II bids as an indicator, it is predicted that Phase II bids will end up in the ~$0.10 to $0.12/kWh range – some of the lowest in the world.


The Indian tariff drops are driven mainly by aggressive bidding (although record low panel prices help). Mercom Capital Group anticipates that it will be difficult for India to sustain such a rapid drop in prices, without the market fundamentals in place and without compromising on quality.


For example, to get to its current level of tariffs, it took Germany – the most successful solar market in the world – over 30 GW of cumulative installations, all the benefits of economies of scale, and a mature supply chain.


Should India implement a domestic content policy in Phase II – something that has been discussed at length – it will make it all the more difficult to execute projects successfully at these low tariff levels.


The CERC draft tariff determination is based on total project capital cost of about $1.6 million (Rs.8 Crore) for a one MW photovoltaic project. Another important assumption is a 13% borrowing cost based on a 70:30 debt-to-equity ratio.


At the recently concluded Renewable Energy Conference in New Delhi, project developers seemed very interested in the REC (Renewable Energy Credit) scheme, because of the challenges of low tariffs and domestic content requirements under the JNNSM program.


However, a note of caution: even though there is a floor price on RECs that is more attractive than some of the bids we are seeing for JNNSM, the price visibility is only for a few years, making a 25 year project much riskier. The other factor is that the REC mechanism is heavily dependent on RPO enforcement.


Recent news suggests RPO goals for 2012 will be missed by about 30%, and even though MNRE officials are talking about stricter enforcement and fines, it is still unclear if that will work. In India, it will be one arm of the government fining the other – will that be effective?


Most state utilities are heavily in debt and depend on central government subsidies to survive. There will have to be some tough choices made and a solid foundation laid in terms of raising tariffs for consumers to reflect current costs and getting the utilities back in the black for some of these policies to be effective.


Watch out for the December edition of pv magazine, which will feature the full article, including updates on the various state policies.


Raj Prabhu is managing partner of Mercom Capital Group, llc, a clean energy communications and consulting firm with offices in the U.S. and India. Mercom consults with its clients on market entry, strategy, policy, due-diligence and joint-ventures. For more information, visit: http://www.mercomcapital.com. To get a copy of Mercom’s market intelligence reports, visit: http://mercomcapital.com/market_intelligence.php