India on course to install 4 GW of solar this year, says Mercom Capital

The ‘hibernation period’ of India’s solar sector is coming to an end, believes Mercom Capital CEO and co-founder Raj Prabhu, who has forecast the market to exceed 4 GW of solar PV installations in 2016.

The stirring of this sleeping solar giant will deliver a significant boost to global installations this year and next, with India forecast to double its 2016 capacity additions further in 2017, reaching more than 8.1 GW of new solar installations.

In 2015, solar grew by 142% following three years of relatively flat growth, the Mercom Capital report found. Last year’s solar PV installations hit 2,133 MW, up from 883 in 2014 and 1,004 in 2013. This year, Mercom is forecasting 4,054 MW of new solar additions.

Currently, India has just over 10 GW of solar projects under development, and cumulative capacity stands at 5,632 MW, the bulk of it solar PV, with solar thermal making up the numbers. Over the coming few months, a further 8.4 GW of new PV projects are expected to be auctioned off.

"There is cautious optimism in the solar industry as aggressive bidding remains a major concern throughout the sector," said Prabhu. India’s recent swathe of solar auctions delivered industry-beating lows of INR 4.34 per kWh ($0.064/kWh), which represents a 6% price decrease in just three months.

According to Prabhu, projects with tariffs of $0.0735/kWh are "extremely risky and difficult to finance" unless they are built at below a total cost of 5 Crores, which is $0.7 million.

The hope, however, is that most of these projects will be commissioned in 2017, by which time the industry will have engineered greater cost reduction in balance of systems (BOS) and further falling interest rates in order to deliver viability to the projects.

New budget brings cheer

In this year’s recently announced Indian budget, a suite of amendments should serve to boost the solar sector, not least accelerated depreciation from 80% to 40% at the beginning of fiscal year (FY) 2017. Further, an increase in the Clean Environment Cess tax – from INR 200 (approx. $3) per ton to INR 400 ($6) per ton will make solar projects more competitive against coal, which will now be more expensive to produce and consumer.

A downside of these efforts are likely to be higher energy bills for consumers, Prabhu adds, with much of the additional tax collected likely to be steered towards the Ministry of Water for its Ganga rejuvenation project.

Further reforms outlined in January include an amendment of the Renewable Power Obligation (RPO) policy, which now requires solar to provide 8% of electricity generation by March 2022 – a significant step towards the National Solar Mission’s goal of achieving 100 GW of solar capacity nationwide by that date.

A recent World Trade Organization (WTO) ruling against India’s domestic content requirement (DCR) for solar cells and modules will likely have minimal long-term impact on the industry, harming instead only those solar firms that have built their business model on the DCR in the short-term.

"Restricting the use of cheaper non-domestic components while expecting solar power at the lowest possible price has never made sense," said Prabhu.