Delayed PPA Signing and Subsidy Reimbursement

As the Indian sector continues to grow there are challenges everywhere but PPA renegotiation and delayed PPA signing, delay in reimbursement of subsidies are particularly troubling.

Here is an excerpt from a conversation with Karunesh Chaturvedi, Vikram Solar.

What do you think about India’s target of 100 GW solar by 2022 and the growth story so far?

In the past three years the growth has been good, as a nation we are averaging over 4 GW a year. But, I still think 100 GW by 2022 is an ambitious target. At the current pace of auction and installation we can get near to the target, but few things need to change if 100 GW is to be achieved by 2022.

What are the issues ailing the sector as of now? What needs to change?

Confusion regarding GST rates, PPA renegotiation, delay in reimbursement of subsidy and tenders being scuttled. These aspects are troubling the sector and need to change.

PPA renegotiation is not appreciated. When developers quote a tariff, it means they have made calculations and have taken loans at particular rates keeping in mind risks attached. When a state forces to renegotiate the rates, it is a huge loss. Maybe certain risks have mitigated now, but the rates at which those projects have been financed doesn’t change, it remains the same; creating issues for developers.

Many tenders do not see the light of the day. Even after selecting the L1 bidders and conducting financial bids, state agencies take months to notify about PPA signing. By the time lower rates are discovered or there are certain changes in the market and then those tenders are scuttled. In Odisha, Vikram Solar was the lowest bidder for an auction, its been months since we heard from them. This practice needs to change.

Subsidy reimbursement must be much speedier. We ourselves are facing this problem. We completed a project for the Airports Authority of India (AAI) around two years back. To date, the AAI hasn’t received the subsidy amount from government agency and we have been kept waiting. Subsidy in such cases amounts to 30 percent of project cost, if 30 percent is locked for an uncertain period how are we supposed to make timely profits.

The GST rates are very confusing. The 5 percent slab is for modules, now a module is not the only thing that comprises a solar generation system. The tax applicable on other components is not clear. Even now, as an EPC contractor we aren’t on how to bill clients as there are various rates.

What do you think is affecting Indian manufacturers?

At present, we are affected by a lack of DCR projects. DCR category tenders were pushing domestic manufacturing by providing a set market. We cannot directly compete with our Chinese counterparts on cost.

A lack of a policy focused only on solar manufacturing is also holding us back. There’s MSIPS, but it is vague. We need something specifically for solar manufacturing sector. It can be subsidy, it can be reward. In some countries there are reward programs for best manufacturers, if the same is implemented in India, it will bring in healthy competition; module prices will go down as better facilities will be developed to manufacture high-quality modules at lower costs.

Comments on low tariffs?

In the current scenario, I don’t think ₹2.44/kWh is viable. Major part of project cost is module procurement. If module cost is low and there’s an indication that it might be lower at the time of actual procurement, these tariffs are viable.

But, as of now, the assumption that module cost will be around 25-26 cents is wrong. The current trend is 36-37 cents and this will only go up as demand in other major markets is increasing. At present, even at 37 cents modules aren’t easily available.

By the time, when these developers start procuring, if anti-dumping duty is levied then what? The module prices are only going north.

What do you think about the anti-dumping investigation? Will levy of anti-dumping duty help Indian manufacturers?

How long the investigation takes, and when government chooses to levy anti-dumping duty is another matter. To ensure that anti-dumping helps Indian manufacturers it must be levied cleverly.

The raw materials required to manufacture modules and cells; polysilicon and wafers are sourced from China. The final cost of module is controlled from China as cost of polysilicon and wafers controls the price of cells and modules.

The government should implement anti-dumping in such a way that the percentage of duty levied on modules is much more than that levied on cells. This is necessary. When we import cells to convert it to modules we use up 15 cents on an average to convert it to modules. Now, if same duty is levied for both, why will developers buy Indian modules, as even then ours will cost more than Chinese ones.

When modules attract higher duty, the price of imported ones will either be higher than Indian made ones or at par with them, as we will get cells at a cheaper rate and then we can price our modules at a lower cost.

Another good impact of anti-dumping can be creation of jobs. When module costs will be higher these suppliers will start setting up base in India to increase profit margins and our own manufacturing base will be boosted. Anti-dumping can be a gamechanger for Make in India initiative.

While we are on anti-dumping, would you clarify whether you have experienced Chinese module suppliers reneging on supply contracts, these days?

We are into both EPC and manufacturing, we haven’t experienced any such infringement of contracts.

The industry agrees that declining module prices pushed solar tariffs down. What are some other factors according to you that helped the decline of solar tariffs?

Risk mitigation is equally responsible for tariff decline. Now, as the sector is maturing we have deemed generation status, PPAs, dispute resolution mechanisms, solar parks, infrastructure, and assured off-takers. Earlier these were not present, a developer had to run around separate offices for everything. Now it is easier. Easy financing, better integrated infrastructure at project locations, payment guarantees. These have also led to the decline in solar tariffs.

What are your export markets?

We are exporting to Europe, U.S., Japan, Middle East. In the future, we want to supply to member countries of the International Solar Alliance.

What is your strategy to stay ahead of the competition?

We believe in qualitatively edging ahead of the competition. Everyone recognizes quality products and projects. We are investing in developing technologically advanced modules and manufacturing capabilities.