Fog receding: the Indian solar picture becomes clearer

17. October 2013 By:  Jasmeet Khurana

Jasmeet Khurana, head of market intelligence at Bridge to India, outlines how India's National Solar Mission has slowly overcome its roadblocks and begun making a real impact on the nation's solar landscape.

Jasmeet Khurana

The year 2013 in India began with a lot of fanfare as new project allocations for over 3 GW were announced across the National Solar Mission (NSM) and the state policies of Tamil Nadu, Andhra Pradesh, Uttar Pradesh, Punjab, Rajasthan and Karnataka.

As the months went by, each of these allocations started hitting one roadblock after the other and for a while it seemed like only a very small fraction of these allocations would actually be built. There was too much policy instability: The NSM was delayed due to India’s high fiscal deficit, Tamil Nadu received a subdued response due to an ill-managed allocation process, most developers who had shown interest in the Andhra Pradesh allocations opted out as the state changed the process mid-way and in Karnataka, developers challenged the allocation process on technical grounds.

All these events took a toll on investor confidence and the signing of Power Purchase Agreements (PPAs) is still dragging on. A large number of these projects should have been under construction as of now. However, due to the delays, there will be very little capacity added until and the end of this year and throughout the first half of 2014.

However, the market seems to have taken a turn for the better now as processes are sped up, new allocations are announced and PPAs are signed.

National Solar Mission
On 4th September 2013, the Ministry of New and Renewable Energy (MNRE) has released its revised draft guidelines for a capacity of 750 MW of solar PV under batch one of phase two of the NSM. The Request for Selection (RfS) document, which marks the beginning of the bidding process, is to be available on the 15th October 2013. The Solar Energy Corporation of India (SECI) will carry out the allocation process, provide viability gap funding (VGF) and sign the power purchase agreements (PPA). SECI will then sell the solar power on to state distribution companies.

The ambiguity surrounding the Domestic Content Requirement (DCR) has also been cleared. Out of the 750 MW, 375 MW will have a DCR. At the time of bidding, the developers can either opt for a ‘DCR’ or an ‘open’ track or for both categories. However, separate bids have to be made for DCR and non-DCR projects. It is expected that the tariffs for projects with DCR will be slightly higher. Indian cell manufacturers such as IndoSolar, Webel and Jupiter as well as international suppliers with contract manufacturing in India (such as ReneSola) will likely benefit from this.

The minimum project capacity has been fixed at 10 MW and the maximum at 50 MW. A single company can submit an application for a maximum of three projects at different locations, with a maximum aggregate capacity of 100 MW.

The last date for the submission of interest (along with the relevant guarantees) is 29th November 2013. The developers are expected to attain financial closure within 210 days from the date of signing of the PPA and the project has to be commissioned within 13 months. A waiting list of up to 100 MW will be maintained by SECI up until the deadline for financial closure, at which point SECI may allocate new projects, if any of the previously allocated projects fail to achieve financial closure. The PPAs for these allocations are to be signed around 27thFebruary 2014. This means that these projects are to be commissioned around March 2015 after 13 months.

Andhra Pradesh
Less than planned for, but at least a start: As per the Andhra Pradesh Transmission Corporation (APTRANSCO), 60 MW of PPAs have been signed in the state until now and around 80 MW more are expected to be signed soon. The tariff will be INR 6.49/kWh (EUR 0.08/kWh; USD 0.10/kWh). The state of AP was initially looking to allocate a capacity of 1,000 MW. However, following a mid-way revision of tariffs, several developers withdrew their interest. Subsequently, the target was lowered to 350 MW. Now, due to additional issues such as the split-off of the new state of Telangana and the depreciation of the Indian Rupee, only a total capacity of 140 MW will likely sign PPAs under the current process.

Recognizing the large shortfall with respect to the earlier goal, the state has now offered PPAs to any further project developer who wishes to set up a project at the same tariff of INR 6.49/kWh (EUR 0.08/kWh; USD 0.10/kWh). The deadline was 22nd September 2013. Around 5 developers are known to have expressed interest. According to APTRANSCO, these applications amount to an additional capacity of as much as 500 MW. The new project sizes are typically around 100 MW, which could make them viable at the given tariff. Issues, such as land acquisition and grid evacuation capability will likely reduce the final capacity for which actual PPAs will be signed.

To address concerns of developers regarding the division of the state, APTRANSCO has incorporated a clause in the PPAs that states that in case a particular power distribution company is restructured, its successor will fulfill the obligations of the PPA.

BRIDGE TO INDIA expects that Andhra Pradesh will extend the deadline of 2nd September 2013 again to allow more developers to evaluate the risks and tariff conditions.

Tamil Nadu
Initially, Tamil Nadu aimed for 1,000 MW. However, the allocation process was not implemented well and the state received a subdued interest for just 493 MW. It later invited an open interest from any developer that was willing to sign a PPA at a pre-determined tariff of INR 6.48/KWh (EUR 0.08/kWh; USD 0.10/kWh) (with 5% annual escalation for 10 years) and more developers have decided to participate.

Letters of Interest (LOIs) have now been issued to developers with a cumulative capacity of 690 MW and the PPA signing process has begun.

Concerns regarding the bankability of the PPA still remain as the Tamil Nadu Electricity Regulatory Authority (TEDA), which is the competent authority to sanction all tariffs in the state, has not yet sanctioned the tariff being offered under the state policy. BRIDGE TO INDIA thinks that a significant number of developers will opt out if they feel that, given bankability concerns, achieving financial closure will be difficult for them. A small number of projects have already signed the PPAs. The last date for signing the PPAs in the state is 31st October 2013.

Other state policies
The allocations for 130 MW in Karnataka still seem to be stuck in a logjam. However, PPAs have been signed in Rajasthan for a capacity of 75 MW and projects are under currently under development. In addition, the state is expected to allocate 50 projects of 1 MW each in the next few months. Uttar Pradesh and Punjab have also allocated projects. PPAs for 130 MW and 250 MW, respectively, are to be signed soon.

Outlook
A policy backed capacity of around 450 MW, for which the PPAs have already been signed, is currently under development across Andhra Pradesh, Karnataka, Madhya Pradesh and Rajasthan. PPAs for an additional capacity of around 1,200 MW are to be signed by the end of this year across Andhra Pradesh, Tamil Nadu, Punjab and Uttar Pradesh. Allocations for an additional 750 MW under the NSM can be expected in the first quarter of 2014.

This means that in the first quarter of 2014, policy backed projects with a cumulative capacity of 2,400 MW could be under development. Of this, a capacity of around 200 MW will likely be commissioned in the first quarter of 2014 itself. This will include the ongoing projects in Madhya Pradesh, Karnataka and Rajasthan. A policy backed capacity of around 1.2 GW in Andhra Pradesh, Tamil Nadu, Uttar Pradesh, Rajasthan and Punjab could be commissioned towards the end of 2014. The commissioning of the remaining 1,000 MW is likely to spill over into 2015.

Procurements for most of these projects will take place in the second and third quarter of 2014. The beginning of 2014 will be an opportune time for Indian and international companies looking at the Indian market to begin their sales efforts.

Apart from these policy-based projects, a significant number of projects for the third-party sale of power along with projects based on the REC mechanism are expected be commissioned across India.

About the author
Mr. Jasmeet Khurana heads the Market Intelligence team at BRIDGE TO INDIA. He is responsible for the research, publication and consulting projects undertaken by the company. Jasmeet is from an engineering background and has obtained a certification in photovoltaics from the Stanford University. Prior to joining BRIDGE TO INDIA, Jasmeet was the Managing Director at Headway Solar, a solar consulting firm.

Contact details
Jasmeet.khurana@bridgetoidia.com

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