There has been a flurry of activity in the Indian solar sector in the fourth quarter, as 350 MW of Phase 1 Batch II photovoltaic (PV) projects were announced under the Jawaharlal Nehru National Solar Mission (JNNSM). In addition, the industry anxiously waits to see how many projects were successfully completed as Gujarat projects were due for completion at the end of December 2011, and JNNSM Phase 1 Batch II projects were due for completion on January 10, 2012.
JNNSM Phase 1 Batch II
350 MW of PV projects were announced in December under JNNSM Phase 1 Batch II. Under the program, the government proposed to buy solar power at 15.39 rupees ($0.30/kwh). Companies then submitted discounted bids in a reverse auction, continuing with the trend from the Batch 1 auction. Once again, the bids were extremely low. According to NTPC Vidyut Vyapar Nigam Limited (NVVN), the average bid came to Rs.8.8/kwh ($0.18) and the lowest bid was Rs.7.49/kwh ($0.16). To give you a contrast on how low these bids are, the feed-in-tariff in Germany, which is currently the most successful solar market in the world, was 21 euro cents ($0.27) in the last quarter of 2011. The new tariff that started January 1 is 18 euro cents ($0.23) after a scheduled tariff reduction. Germany is expected to have cumulatively installed about 25,000 MW by the end of 2011, whereas India is estimated to have installed around 350 MW in 2011.
With extremely low Phase 1 Batch II bids, the question again is: will these projects get funded? We hear the justification for low bids is that panel prices have fallen 40-50 percent. One thing nobody disputes is that the margins on these projects will be extremely low to non-existent. Current financial market conditions in India are also not favorable, with borrowing costs in the 13-15 percent range versus 7-9 percent in Europe and the United States. The rupee has depreciated 15-17 percent against the dollar in the last year, making dollar-denominated loans unattractive. Companies that can use their balance sheets have a better chance, but even these companies have found it challenging to raise non-recourse loans because banks see that the risks (new technology, inexperience, execution, etc.) are not aligned with the rewards (aggressive bidding leading to low or no margins).
Most investors that participated in Indian large-scale solar projects were export banks, government banks or state-owned banks. For India’s solar industry to truly thrive there needs to be more robust participation from private financial institutions.
According Mercom Capital Group’s 2011 Annual Solar Funding and M&A Report, solar projects in India raised over $1 billion in project funding in 2011. The top lenders were Export-Import Bank of the United States (the top investor) funding seven different large-scale solar projects in India, followed by Export-Import Bank of India with three transactions, KfW Group of Germany with two transactions and State Bank of India with two transactions. Other investors included the Asian Development Bank (ADB), Canara Bank, International Finance Corporation (IFC), Infrastructure Development Finance Co., Larsen and Toubro Infrastructure Finance Co., Overseas Private Investment Corp., PNC Bank, PTC India Financial Services, State Bank of Patiala, and State Bank of Travancore.
What about the project deadlines?
JNNSM’s Phase 1 Batch I projects (150 MW) were due to be complete and grid-connected on January 10, and according to the NVVN officials, about 40-50 percent will be completed on time, with the rest of the projects delayed until February.
Gujarat has signed power purchase agreements (PPA) for 968 MW and most of those projects were not completed by the December 31 deadline.
The solar industry is waiting to see if extensions are offered and with what conditions.
Updates on various state policies
JNNSM: Though individual bids were not announced for Phase I, officials confirmed the average bid was Rs.8.80 ($0.18), and the lowest bid was Rs.7.49 ($0.16). Officials estimate that 40-60 percent of the Phase I projects should be commissioned, and the rest would be delayed until February.
Jharkhand is expected to announce its renewable energy policy at the end of March, with a solar target of 500 MW by 2017 and 2,000 MW by 2022. A bidding rate is expected to be decided once the policy is implemented.
Kerala: A solar policy is expected in February, but targets are not yet known. Smaller projects, around 1 MW, could be the focus of the policy.
Punjab expects to announce a solar policy in February, with projects announced, but targets are not yet known.
Maharashtra: There is a solar energy policy under development, but the timeline is unknown.
Rajasthan started accepting bids to build 200 MW of solar, split evenly between PV and solar thermal. PV contract sizes will be 5 MW and 10 MW each, while solar thermal contracts will be 50 MW. Companies can bid for both technologies, and will have no restriction on importing equipment. Bids were due January 30, after which a shortlist will be created. Winning bids are expected to be announced in mid-April.
West Bengal: Officials are preparing a renewable energy policy that could include up to 500 MW of solar by 2020, for PV bids only. However, it might take up to three months for the policy to come into force. The only project commissioned today is a 2MW plant in Asansol.
Gujarat: Contrary to reports, the energy department and regulatory commission are still deciding whether to extend the deadline to commission solar projects, which were due by December 31, 2011. When we last spoke with Gujarat officials, 111.4 MW were commissioned of the 968.5MW.
Madhya Pradesh: Within two months, Madhya Pradesh could announce a solar goal of 200 MW by 2013, with a tariff of Rs.7.50 (~$0.16).
Uttar Pradesh: While a draft solar policy was submitted to the state cabinet, action might be delayed past April due to February elections.
Chhattisgarh: State officials could publish a solar goal by the end of February for a 1,000 MW by 2017.
Orissa: Nine megawatts of solar rooftop projects are under development in Orissa, of which 3 MW has been commissioned. Officials said they would accept bids to generate 25 MW of solar PV power, in 5 MW increments until January 30.
Karnataka: After canceling 18 solar projects in October, state agency officials expected new bidding for 80 MW to begin in the second week of January. An additional 250 MW will open for bids in February.
Tamil Nadu: Government officials expect to announce a solar policy in a month or two.
About Mercom Capital Group
Mercom Capital Group is a clean energy communications and consulting firm with offices in the U.S. and India. Mercom consults its clients on market entry, strategy, policy, due-diligence and joint-ventures. For more information, visit: http://www.mercomcapital.com. To get a copy of Mercom’s market intelligence reports, visit: http://mercomcapital.com/market_intelligence.php.