Will India join the 'Gigawatt Club' this year?11. May 2012 | Applications & Installations, Global PV markets, Industry & Suppliers, Markets & Trends | By: Raj Prabhu
After over two years of policy deliberations and growing pains, India is finally seeing solar installations in meaningful numbers: cumulative photovoltaic capacity stands at 964 megawatts (MW), 745 MW of which have been commissioned in 2012. But it is not all sunshine, with financing proving to be one of the country’s biggest challenges. Quality issues are also surfacing.
India’s solar market is primarily driven by the national government’s Jawaharlal Nehru National Solar Mission (JNNSM), which has a goal to install 20 gigawatts GW) of solar by 2022, in addition to other state policies. The state of Gujarat has already installed 655 MW of its 968.5 MW goal. And, at the time of this update, cumulative photovoltaic installations stood at 964 MW.
However, there are still problems. Most states are emulating the JNNSM bidding – or reverse auction – model driving down solar tariff rates to some of the lowest worldwide. The Indian State of Orissa recently recorded a record low bid of Rupees 7.00 ($0.14) per kilowatt hour for its program. While most bidders are actually "betting" that the cost of panels will keep dropping at a significant pace to make a project viable (if it is built at the latest possible date), the low rates are contributing to financing challenges.
Under JNNSM, 48 MW were installed under the Migration Scheme with six MW considered to be canceled. 125 MW have been installed to date under Phase I, Batch I. However, there are 140 MW worth of power purchase agreements signed, meaning 15 MW have yet to be completed. The delayed projects are a result of funding, infrastructure and implementation issues. We are starting to see a common theme, whereby extensions are granted, in order for projects to get installed on time.
Gujarat state announced the completion of 655 MW of photovoltaic projects after about three months of delays and granted extensions, making up the majority of solar installations in India. There are still approximately 314 MW of delayed projects in the state expected to be commissioned at some point this year. These projects will receive reduced tariffs.
Other photovoltaic installations include: 67.5 MW from JNNSM - Rooftop PV & Small Solar Power Generation Program (RPSSGP) projects; 14 MW from the Ministry of New and Renewable Energy (MNRE) demonstration program; 40 MW from Rajasthan’s state policy; and 15 MW from other programs.
Bidding and financing
The bidding system is leading to other challenges, the biggest being financing. India’s reverse auction, together with inexperienced project developers, has resulted in some of the lowest solar tariffs in the world.
In fact, some of the latest winning bids in the states of Karnataka and Orissa came in lower than the proposed tariff cuts by Italy and Germany. It took Germany, the most successful solar market in the world, almost 25,000 MW of cumulative installations, all the benefits of economies of scale, mature supply chain and expertise to get to the current level of tariff.
Aggressive bidding has made funding even more challenging as margins become thin or non-existent. Not to mention borrowing costs in India, which can be double its Western counterparts at about 13 to 15 percent, compared to six to eight percent in Europe and the United States. With low tariff rates, much higher borrowing costs, and a severely depreciating Indian Rupee, currency hedging can be risky and expensive, creating a triple threat for developers.
Under these conditions of severe price pressure, inexperienced developers may start taking short cuts in an attempt to find the cheapest way to execute their projects, raising the question of quality and longevity. Will these projects be of a quality that will last for the next 25 years?
The State Bank of India also recently announced that it has limited resources to lend to solar developers, due to the fact that lending to other power sources, such as coal projects, has pushed it close to its 15 percent lending cap to the power industry. It is not the only one – all Indian state banks have the same limitations. Unless renewable energy is separated from traditional power sources such as coal, this will be a recurring problem.
Larger companies that try to get in the solar game can leverage their balance sheets to have a better chance at financing terms. However, even they have found it challenging to raise non-recourse loans, because banks see new technology, inexperience, execution, etc. as risks that are not aligned with rewards, as aggressive bidding is leading to low or no margins.
According to Mercom Capital Group’s 2011 Annual Solar Funding Report, the main lenders are coming from export banks, government banks and state banks like the U.S. Export-Import Bank, Export-Import Bank of India, KfW Group of Germany, State Bank of India (SBI), Asian Development Bank (ADB), International Finance Corporation (IFC), Overseas Private Investment Corp. (OPIC), PNC Bank, State Bank of Patiala, State Bank of Travancore and others.
Raj Prabhu is managing partner for 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
Watch our for the June edition of pv magazine, which will include a more detailed analysis of the Indian solar market.
Edited by Becky Stuart.
Keep your finger firmly on the photovoltaic pulse: sign up for our daily newsletter
- 2965 views
- 3331 views
- 2696 views
- 2727 views
- 2508 views
Want to publish your press releases for free? Simply log in or register, enter the information you want to appear and we'll publish it for you!