While solar installation activity picked up the pace in 2021, the growth could have been stronger if not for the challenges the industry faced during the year.

India added 2,835 MW of solar capacity in the third quarter (Q3) of 2021, increasing by 14% compared to 2,488 MW in Q2 2021, according to Q3 2021 India Solar Market Update. In 9M 2021, India added 7.4 GW of solar capacity, increasing by 335% compared to 1.73 GW installed in 9 M 2020.

The solar industry has had to contend with the increase in raw material prices, freight charges, and module prices in 2021. Despite these challenges, the solar industry made significant progress and is poised for a promising 2022.

The end of safeguard duty and the release of the ALMM list

The end of the safeguard duty era on July 29 marked a significant shift in how business was being done in solar space. With the Basic Customs Duty (BCD) scheduled to kick in from April 2022, domestic manufacturers are hopeful that some sort of tariff barriers will help them compete with cheaper Chinese imports.

Another development that had a significant impact on the ongoing projects was the decision by the Ministry of New and Renewable Energy (MNRE) to make it mandatory for developers to procure modules only from the list of module manufacturers enlisted under ALMM for tenders issued after April 10, 2021. On March 10 this year, the Ministry released the first list of module manufacturers.

While there is a perception in the industry that the absence of Chinese manufacturers on the list will encourage domestic manufacturing, a section of the industry feels that local module makers are not well-equipped to meet the growing demand.

During the year, the Directorate General of Trade Remedies (DGTR) initiated an anti-dumping probe on solar cells imported from China, Vietnam, and Thailand. However, the developers are pushing for a stay on the probe.

Net metering for loads up to 500 kW spurred the rooftop market

A development with wide-reaching implications for the rooftop solar segment was the decision of the Ministry of Power to allow net metering for rooftop solar systems for loads up to 500 kW or up to the sanctioned load, whichever is lower.

Net metering for rooftop solar systems was capped at 1 MW until the government proposed drastically cutting it to 10 kW in December 2020. Several stakeholders believed the government’s proposal would destroy the rooftop solar market. After severe opposition and representation by the industry, the government relented, considering net metering for capacity up to 500 kW.

“This order approving net metering for solar systems up to 500 kW removes the uncertainty that was hanging over the market and allows the rooftop market to get moving again,” noted Prabhu.

Holding DISCOMs accountable

To deal with the erratic ways of the distribution companies (DISCOMs) in terms of unpaid amounts to developers, the Ministry of Power issued new regulations regarding the late payment surcharge applicable for power purchase agreements (PPAs) and transmission service agreements in which the tariffs have been determined through competitive bidding.

As per the new regulations, a DISCOM with a late payment surcharge outstanding against a bill after the expiry of seven months from the due date will be debarred from procuring power from a power exchange or will not be granted short-term open access until such bill is paid. The move is seen by many as providing some respite to the renewable developers.

The High court of Andhra Pradesh directed the state’s DISCOMs to clear the dues of solar and wind power developers up to June 2021 by December 29.

In Budget 2021, a revamped reforms-based result-linked power distribution sector program with an outlay of ₹3.05 trillion (~$41.92 billion) over five years was announced. The plan is to assist DISCOMs in infrastructure creation, including prepaid smart meters, feeder separation, upgrading systems, and financial improvements. Recognizing that the success of any energy or clean energy program would entirely depend on the financial health of the DISCOMs, the government is investing heavily in reviving the distribution companies.

The signing of PSAs by SECI

The Solar Energy Corporation of India (SECI) signed power sale agreements (PSA) with multiple DISCOMs. Among them, a significant one was the signing of PSAs for the manufacturing-linked solar projects, which were auctioned (12 GW) at a high tariff of ₹2.92 (~$0.040)/kWh). Since DISCOMs were unwilling to buy power at such high tariffs, SECI negotiated with the developers and reduced the tariff to ₹2.54 (~$0.034)/kWh. The PSAs will be signed at ₹2.61 (~$0.035)/kWh – tariff of ₹2.54 (~$0.034)/kWh plus a trading margin of ₹0.07 (~$0.0009)/kWh for 3 GW of projects. For the remaining 9 GW, the tariff is ₹2.49 (~$0.034)/kWh, including SECI’s trading margin. These projects will be commissioned in batches between September 2024 and 2026.

SECI will also be developing projects in the future and will be treated as a procurer and not a nodal agency for solar and wind hybrid projects.

PLI program – a boost for the domestic manufacturing segment

To provide the much-needed momentum to the domestic manufacturing sector, the Union Cabinet approved the Ministry of New & Renewable Energy’s (MNRE) proposal for the implementation of the Production Linked Incentive (PLI) program for the ‘National Program on High-Efficiency Solar PV (Photovoltaic) Modules’ to achieve gigawatt-scale manufacturing with an outlay of ₹45 billion (~$605 million).

The funding allocation for the PLI program is also expected to be raised to ₹240 billion (~$3.22 billion) from ₹45 billion (~$605.4 million).

The Indian Renewable Energy Development Agency (IREDA) announced the list of successful bidders for setting up manufacturing capacities for a minimum of 10 GW of vertically-integrated high-efficiency solar modules under the PLI program. A PLI of ₹44.50 billion (~$598 million) for a total capacity of 10,483 MW was awarded.

“Manufacturing capacity ramp-up continues at a brisk pace as domestic producers look to take advantage of the 40% basic customs duty scheduled to be imposed from April 2022,” said Raj Prabhu, CEO of Mercom Capital Group.

Solar projects in Rajasthan stranded as the Great Indian Bustard debate continues

The Supreme Court Order that power lines in Rajasthan be shifted underground to save the Great Indian Bustard, an endangered species, is bound to delay solar projects scheduled for commissioning in the second half of 2022. Developers have let the MNRE take the case forward with the apex court, hoping that the order is reviewed. Currently, the solar projects in Rajasthan are stranded.

All eyes are now on the Supreme Court and the government. Together with the project developers, they have to find a way forward that does justice to both the birds and India’s quest to become a clean energy champion.

Some more good and bad news

The Appellate Tribunal for Electricity (APTEL) ruled that renewable energy curtailment for reasons other than grid security should be compensated at tariffs contracted in the PPA in the future. This is a landmark judgment for developers facing huge losses due to curtailment and sends a strong message to utilities and load despatch centers responsible for curtailment.

The Ministry of Power extended the inter-state transmission system (ISTS) charges waiver on solar and wind energy projects commissioned up to June 30, 2025. The waiver applies to ISTS charges only and not losses, and the order comes into effect immediately. The waiver is also applicable to pumped hydro storage projects and battery energy storage systems commissioned by June 30, 2025.

The Goods and Service Tax (GST) Council’s recommendation to raise GST on solar components from 5% to 12% added to the price rise challenges the developers relentlessly faced during the year. Currently, 70% of the gross value of the contract was considered for the supply of goods, attracting a 5% rate – which will now be 12%. This tax increase is likely to increase the project cost by 5%.

“Despite supply challenges, the Indian solar market is headed towards one of the best years on record, and a complete turnaround from 2020, which was one of the worst years for solar due to COVID-19,” said Raj Prabhu, CEO of Mercom Capital Group. “We expect a strong 2022 despite the high price of components and uncertainties surrounding the Great Indian Bustard related transmission issue in Rajasthan,” concluded Prabhu.