Distribution Companies Must Honor Power Purchase Agreements: Mercom Webinar

Mercom India hosted a webinar to discuss the key takeaways from the Indian Solar market in 2020 and the outlook for 2021.

N.L. Sharma, Chairman and Managing Director of SJVN, was the guest speaker. Raj Prabhu, Chief Executive Officer of Mercom Capital Group, presented the key findings of Mercom’s Annual and Q4 2020 India Solar Market Update. The session was hosted by Priya Sanjay, Managing Director at Mercom India.

The panelists discussed the performance of the Indian Solar market in 2020 and presented their views on what to expect going forward.

Sharma said that SJVN plans to develop 5 GW of renewable energy by 2023-24, 12 GW by 2030, and 25 GW by 2040. It had already started expanding in the renewable energy sector, especially solar and wind, to meet its shareholders’ expectations. To achieve its target, SJVN would also acquire solar and wind projects that match its technical and financial criteria.


Dwelling on the challenges before the solar sector, Sharma said, “The tariff came down drastically due to strong competition in the market. So, developers need to find a way to reduce solar projects’ development costs to provide solar energy at low tariffs. Distribution companies must honor the power purchase agreements; otherwise, it would be a significant challenge for the sector.”

Last month, the Gujarat Electricity Regulatory Commission allowed Gujarat Urja Vikas Nigam to cancel the 700 MW solar auction in the state’s Dholera Solar Park and retender it (Phase IX) in an attempt to discover a lower tariff for the projects.

Priya Sanjay and Raj Prabhu shed light on the performance of the Indian Solar Market in 2020. They spoke about total installations and key policy highlights and analyzed the trends shaping the market, and gave a forecast for the coming two years.

Solar Installations in 2020

The market was badly hit due to the COVID-19 pandemic, with India added a mere 3.2 GW of solar capacity, the lowest since 2015. In the second and third quarters, business activity ground to a near halt due to the lockdown. However, the market came back on its feet slowly as installations increased in the fourth quarter, with more additions expected in the first quarter of 2021.

The rooftop solar installation declined by 34% in 2020 compared to 2019. However, rooftop installations in the second half of 2020 increased, especially in the fourth quarter as business activity resumed after the lockdown. Rooftop installations were expected to grow in the first quarter of 2021.

Raj Prabhu said that 2020 was a big miss for the Indian Solar Market, especially considering it had set a target to install 100 GW capacity by 2022. In contrast, despite the pandemic, all major solar markets like China, Germany, and the United States witnessed growth in solar installations.

Policy highlights

The industry is waiting for amendments to the Electricity Act. The ministry had drafted the new electricity rules to streamline and strengthen the sector. In the proposed amendments, the government had sought to penalize distribution companies and other entities that do not meet their Renewable Purchase Obligation (RPO) targets in time.

The government has announced a slew of incentives to promote the renewable industry. In its latest budget, the government set aside ₹45 billion (~$617 million) as part of its Production-Linked Incentive Plan to support domestic solar module manufacturers.

Earlier in May 2020, the government also announced a ₹900 billion (~$12.03 billion) liquidity injection program for distribution companies as a part of its stimulus package to help the Indian economy recover from the COVID-19 crisis.

Talking about policies for the rooftop segment, Priya said, “The Ministry of Power’s new regulation about no net metering for rooftop solar systems over 10 kW was one of the most talked issues. The industry believes that this regulation could be disastrous for the sector, especially the commercial and industrial rooftop solar segment.”

Prabhu said, “Distribution companies have to adopt renewable energy as the future and need to change; otherwise, once energy storage comes into the market, distribution companies would not exist in their current form. They could end up becoming just a backup source of power and provider of grid infrastructure.”

Solar market outlook for 2021

Despite slow growth in 2020, India remains an attractive market due to its robust solar pipeline.

Priya said that the future looks bright as the country currently had over 47 GW of large-scale projects under development, and another 24.5 GW of projects were tendered and pending auctions at the end of 2020.

2021, according to Prabhu, would be a big year for the solar industry, with installations likely to surpass 10 GW due to a strong pipeline.