Bridge to India has released its October edition of the India Solar Compass. The report finds that between July and September there has been a drastic drop in PV capacity addition compared to prior quarters. The key question is how viability gap funding (VGF) will impact the market under phase two of the National Solar Mission or NSM.
The first two quarters saw an addition of 401.74 MW and 340.62 MW, respectively. These numbers are relatively bigger than the 67.25 MW added in the third quarter, as the 8th edition of the India Solar Compass reports.
Bridge to India sees a lull occurring now, from the point the market took off with approximately 1.1 GW of PV projects towards the end of 2010, between the Gujarat Solar Policy and the NSM. In December 2011, only 350 MW were allocated by NSM and during the first two quarters of 2012 another 310 MW between the states of Madhya Pradesh, Odisha and Karnataka.
Even though the attraction towards India's Renewable Energy Certificate (REC) mechanism has become strong, Bridge to India highlights that bottlenecks still exist. Implementation of Renewable Purchase Obligations (RPOs) to create demand for RECs and regulations surrounding the use of the Open Access mechanism for the captive use of power are still not sturdy enough. Currently a project based on the REC mechanism is not very viable.
Bridge to India states that the guidelines for phase two of the NSM will only be announced at the end of the year. The Ministry of New and Renewable Energy (MNRE) is considering the possibility of introducing Viability Gap Funding (VGF) to incentivize solar in phase two and at the same time retain DCR (Domestic Content Regulations).
Viability Gap Funding
The MNRE is looking towards Generation Based Incentive (GBI) and VGF as options to incentivize projects under the NSM. The GBI mechanism has been implemented for allocations under the Rooftop PV & Small Solar Power Generation Programme (RPSSGP) with 98.05 MW capacity. However the report quotes MNRE Director, Ashvini Kumar as saying that "the GBI mechanism has not come out as a viable option for projects under phase two of the NSM".
The GBI requires monthly disbursements and payment security to all projects for the entirety of a PPA which runs for 25 years normally. The NSM aims to avoid such long-term arrangements. It aims to have a more market driven process. The VGF on the other hand has not been used for solar projects in India yet. This key question on VGF's viability is focused on in the report.
Indian manufacturers have been lobbying for DCR for modules used in future NSM projects and have called for antidumping duties to be levied on imported modules. Accusations have been flying in the sector, not just in India but internationally.
The report states, however, that it is "unlikely that an antidumping duty will be implemented as Indian manufacturers are already supported by measures like the DCR". Moreover, Bridge to India does not believe that a DCR and antidumping duties will aid in the development of a dynamic domestic manufacturing industry. A long term strategy for incentivizing domestically manufactured modules is needed instead. This will then lead the way to the Indian solar sector succeeding without government support.
First Solar has been rather successful in the Indian market, supplying at least 132 MW of projects under batch two of phase one of the NSM. Being a thin film manufacturer, the company has benefitted from the DCR on crystalline cells and modules in India. NexPower, Solar Frontier and MiaSolé have also seen relative success in India as suppliers. However if the DCR were to expand to thin film, these companies may lose out in the future.
Downward integration and niche markets
Indian manufacturers continue to struggle in the light of the falling module prices. Bridge to India calls it "the current adapt-or-perish market scenario" that the manufacturers in India have to deal with. They have choices: downward integration to project development and/or EPC tie-up with international module suppliers for contract manufacturing and/or shift in focus to capture opportunities in niche markets in India.
Surana Ventures is the only Indian manufacturer, according to the report, to announce an increase in manufacturing capacity to 30 MW in the last quarter. This is, nevertheless, by no means the scale of solar PV giants like Yingli or First Solar which have GW-scale plants.
The NSM has set itself as the only substantial market driver for the coming year. Bridge to India expects the next four quarters to see lower capacity additions at around 665 MW. This is significantly lower than the last four-quarter addition of 983 MW. CSP capacity of 470 MW is expected to be commissioned by May next year, but most projects are also forecasted to see delays.
There are limited new development opportunities for project developers as the report says. The options are to wait for those under batch one of phase two of the NSM or await new project models around the REC mechanism. Players who are not involved in the NSM projects scope will face difficult times.
More information and in-depth analysis can be found in the report.
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