Solar now India's fastest-growing new energy source, says Mercom

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India’s bold solar ambitions – to reach 100 GW of installed PV capacity by 2022 – may still seem a little far-fetched, but recent market analysis by Mercom Capital Group has revealed that the country is giving it its best shot at reaching those goals.

According to the latest Mercom India update, the country has so far installed 2.2 GW of new solar capacity this year to date, putting it on course to reach 5 GW for the calendar year and, in the process, making solar India’s fastest-growing new energy source.

Mercom also calculates that in May this year the country’s cumulative solar capacity surpassed 7.5 GW, while a further 22 GW is in the pipeline – around 13 GW of which is under construction, with the remaining 9 GW going through the Request for Proposal (RfP) process.

Projections for next year are even more bullish, with Mercom expecting India to install more than 9 GW of new PV capacity in 2017, reaching close to 20 GW of cumulative installations in the process. This acceleration is borne out by the figures – in the fiscal year 2015-16, solar represented 2.5% of India’s net installed capacity, which was a 1.4% increase in the space of one year, making it the country’ fastest-growing energy source.

Renewables in general account for 14% of India’s installed power capacity mix. Wind remains the dominant renewable source, but solar – at 17% of the country’s installed renewable capacity – is closing that gap rapidly.

"The Indian solar market is growing in size, but the question is: is it too much, too fast?" Asked Mercom Capital CEO Raj Prabhu. With infrastructure and systems unable to keep pace with auction announcements, and the market shifting rapidly from a 2 GW-a-year one to a 10 GW-a-year one, there is still much work to be done, Prabhu says.

The issue is low bidding levels through reverse auctions. Currently, 19 developers have bid for 2.9 GW of solar projects below Rs. 5 (approximately $0.0735/kWh), and of this total around 1-2 GW have signed power purchase agreements (PPAs). With India’s banking sector facing difficulties, some developers could find it tough to finance projects at this rate.

Prabhu adds, however, that the lowest tariff set at auction – $0.0638/kWh – appears to be an outlier, with all subsequent auctions coming in at $0.0685/kWh or above.

"There is no set rule which says tariffs below Rs.5 (~$0.0735) cannot be financed. Some banks are seriously looking at projects in the Rs.4.5-5 (~$0.0662-0.0735) tariff range, but financing depends on sound project economics, borrower credibility, a strong balance sheet and the developer’s ability to service debt," he said.