Indian industry heads talk solar finance at REI

India’s goal of reaching 100 GW of cumulative solar PV capacity by 2022 will only be realized if the market moves with the times and makes the necessary adaptations in response to a solar landscape that is increasingly low-cost, came the message from an insightful debate held on day one of the Renewable Energy India (REI) expo and conference.

A number of leading Indian solar figureheads participated in the debate, including the CEO of Premier Solar, Nitin Mamodia; Juwi India’s MD Rajeshwar Bhat; the CEO of Hero Future Energies Sunil Jain: Rays Power Infra MD Ketan Mehta, and Vinay Rustagi, the MD of Bridge to India.

A range of topics were discussed, including the issue of low bids at tender, access to capital and the role that foreign investors will have to play in order to bring continued growth and confidence to the Indian solar market.

Premier Solar CEO Nitin Mamodia took up the baton on low tariffs, arguing that the winning bid of INR 4.53 ($0.0649)/kWh seen recently in Rajasthan, while worryingly aggressive, was unlikely to be beaten in the near term at least. “There are two major factors driving these tariffs – capital costs, and the costs of capital,” Mamodia said. “Lower capital costs across PV modules and BOS are a major driving factor for reducing the tariffs we are now seeing, with developers bidding on the expectations that prices – particularly module prices – will fall another 10-20% by the time construction will begin.”

The CEO added that the arrival of 1,500 volt components as standard could lower costs by a further 2-3%. However, the cost of capital is set to stabilize over the next two to three years, he said, which means industry rates will be safe and developers will be unlikely to bet on lower bids than those seen recently.

Domestic banking support

Rays Power’s Ketan Mehta soon waded in, arguing that optimization – rather than further cost reduction – should become the Indian solar sector’s focus over the next few years.

“Tariffs of below INR 5/kWh wouldn’t have been possible 10 years ago, but the cost of financing has not fallen as drastically as panels or other input costs (such as trackers), during that time,” Mehta said. “Every financer now asks: how comfortable are you with a tariff of INR 4.35? Which means that quality is of the essence. If the life of the plant is 20-25 years, that gives the bank financing confidence for that period, which helps to reduce the tariff. So quality is key. When costed out to 18-20 years, ample financing is available.”

Mehta stated that almost all leading banks in India are now happy to fund solar projects, indicating just how far the sector has come in the space of a decade. “However,” he said, “the Indian banking sector does need foreign capital. There are structural things that will limit the cost of financing – the fluctuation in foreign exchange rates of the rupee against the dollar, for example.”

There is potential in raising debt in USD, Mehta said, because the Indian market already offers a good package in terms of quality and demand, while it is expected that a decrease in hedging costs will soon follow as more economic and policy stability emerges.

Can domestic demand alone sustain the market?

As calculated by Mercom Capital, nine out of the ten largest developers in the Indian solar market are Indian. The only non-Indian present, in terms of project pipeline, is the now-bankrupt SunEdison. So while business is booming in the short term, can domestic demand alone sustain this growth?

Sunil Jain of Hero Future Energies is skeptical. “Foreign investors want the same return on investment (ROI) as they get in other markets,” he said. “But Indian developers have a lower risk appetite than the typical international investor, who generally has more avenues to realize their gains. Indian investors don’t yet have this choice; the upsides are not there.”

Hence, Jain believes that more than 70% of equity will have to continue to come from outside in order to help India reach the summit of its ambitions. “The good thing, though,” Jain added, “is that it will come because Indian bank capital alone is not enough.”

According to Gitesh Kedia, the executive director of Corporate Finance Infrastructure Banking in India, the onus must now be on the government to continue to attract various avenues of foreign capital. “Capital is always limited, and it becomes about how best you can churn it,” he said. “In the last few years we have seen enough policy push to develop these things, and as churn happens it will evolve. While domestically those figures are not enough on their own, with enough churn it will act as a fuel to attract more foreign capital.”

Innovation and curtailment

As a cost- rather than quality-conscious market, India’s solar sector has been able to surge in growth and lower costs continuously since the adoption of bold installation goals. But soon, many of the experts agreed, focus has to shift towards embracing higher efficiencies, new technologies and a more concerted attempt to increase India’s demand for electricity.

India’s grid used to be bedeviled by a lack, rather than an excess, of power. The government’s drive to alter that landscape has been wildly successful to the point where power demand lags far behind generation capacity. And that is a problem for solar, Jain says. “Manufacturing plants are running at 60% capacity, because demand for power has not kept pace with generation additions. It is going to take years for this balance to even itself out. And at the moment, Discoms able to pick and choose their energy will be happy to buy the power offered at INR 3 or INR 4/kWh… and that, at the moment, is not solar power."

Rays Power’s Ketan agreed that priority on the grid must be given to the cheapest power, but added that logically solar should soon be assuming the role of “cheapest”. “Wind and coal are not a priority,” he said, “solar is. We are already seeing artificial shortfalls in power rates. The three-four year push to generate more solar power was a good policy, but what after 5-10 years? With low power demand now, what is lost is lost. This grid curtailment has to be taken up as a priority for the industry as well as the government.”

Juwi India MD Rajeshwar Bhat also spoke of how 1,500 V components are set to “dominate” installations in 2017, and raised the interesting point of how incremental module efficiency improvements are solving land space issues.

“As modules become 350 watts and upwards, it is lowering the average footprint of a MW installed capacity to around 2-3 acres, which is good in terms of tackling land space issues,” he said. This is just one way that the Indian solar sector should look more at how technology improvements can tackle the issues of the day.

“We are now seeing sites being developed in parts of India with scarce or poor water supply,” said Bhat. “And so from a technical perspective that puts pressure on reduced-water maintenance, which is something being tackled by a range of producers.”