For a Jawaharlal Nehru National Solar Mission Fact Sheet: Click Here

India installed 980 MW of solar in 2012, slightly lower than our forecast of 1,090 MW. This was largely due to delays in Gujarat to commission 144.5 MW of PV projects; most states missed their renewable portfolio obligations (RPO) goals as enforcement is almost non-existent. Cumulative installations to date in India now stand at over 1.2 GW. In addition, there are 340 MW of PV projects due to be connected to the grid in March 2013 under the Jawaharlal Nehru National Solar Mission (JNNSM) Phase I, Batch 2 policy. We are forecasting India to install another 1.3 to 1.4 GW in 2013.

Indian solar appeared to have some momentum until it initiated an anti-dumping investigation against China, Malaysia, Taiwan, and the U.S. relating to the importation of solar cells. The investigation is based on alleged dumping of solar modules by these countries into India. The complaint was filed by solar manufacturers in India with the goal to protect domestic manufacturers that are struggling along with most PV manufacturers around the globe. For a solar market still in its infancy, starting a trade war could become a costly distraction when the focus should be to encourage new technologies, competition and free markets. The U.S. just announced that it has requested World Trade Organization (WTO) dispute settlement consultations with the government of India concerning domestic content requirements in India’s national solar program. The U.S. states that India’s program appears to discriminate against U.S. solar equipment manufacturers by requiring developers to use Indian-manufactured solar cells and modules by offering subsidies to developers that use domestic equipment instead of imports.

The trade dispute is sure to add unwanted uncertainty to the young Indian market where financing is already a challenge as it is, and would make investors further skittish. It is surprising that a country with approximately 300-400 million people without power, about 9 percent power deficit, and about 10 percent peak power shortage, has decided to go this route instead of an “all of the above policy” to meet the power requirement goals. It was only a few months ago that India faced one of the largest blackouts ever when 600 million people went without power for several days due in large part to insufficient power generation.

What to expect in Phase II?

The Ministry of New and Renewable Energy (MNRE) recently proposed a draft Phase II policy and opened it up for comments. Phase II would have a target of achieving 3,000-9,000 MW of solar power through various batches as previously seen in Phase I.

The Phase II policy intends to take an aggressive approach to domestic manufacturing and “domestic content requirements”. Some of the policy proposals include: cells and modules produced in India to be used for all PV projects, price preference for domestic manufactured cells and modules, percentage of domestic content (~50 percent) for both PV and thermal technologies, percentage of cells manufactured in India, some batches with 100 percent domestic content requirement, and 50 percent of supply costs (excluding land, taxes, erection, financing, soft costs) for thermal technologies material to be manufactured in India.

The other new proposal is the Viability Gap Funding (VGF) which may end up being applied to most of the projects. Under VGF, developers will sign a Power Purchase Agreement (PPA) for 25 years to sell power at a fixed tariff, likely in the Rs.5.5-6/kWh (~$0.10-0.11/kWh range) to the utilities. The developers are supposed to determine their capital costs to set up the project, raise the necessary debt and equity, and bid for the VGF requirement to cover the gap in funding. A pretty risky approach considering how new solar is to India. According to MNRE, bids will be thoroughly inspected to discourage aggressive bidding and avoid sacrifice of project performance over the long term. MNRE has proposed a phased payout – 25 percent at the time of delivery of at least 50 percent of the major equipment at the site, which would be based on the cost of total procurement, 50 percent on successful commissioning of the full capacity of the plant, and the balance of 25 percent after one year of operation meeting the required generation. VGF could cover up to 40 percent of the project cost.

What remains to be seen, is how this will work out in the final policy. With borrowing costs in India in the 13-14 percent range and no technical requirement (anybody can bid) in India; banks consider most of these projects too risky to finance. The government now sees JNNSM as a public-private partnership. If the policy goes in this direction, solar in India will soon start to resemble other infrastructure/conventional energy projects that haven’t been so successful thus far.

Update on Various India State Policies

JNNSM – Phase I

Migration – PPAs for Migration projects were signed on October 15, 2010, for 84 MW (54 MW-PV, 30 MW-CSP). Among Migration projects, 48 MW have been commissioned out of 54 MW, and 6 MW were canceled as two project developers failed to execute. 27.5 MW out of 30 MW of CSP projects that were due to be commissioned by mid-February 2013 will be canceled; only a 2.5 MW CSP project was commissioned.

Batch 1 – PPAs for Batch 1 projects were signed on January 10, 2011, for 610 MW (140 MW-PV, 470 MW-CSP). PV projects were due to be installed by January 9, 2012. 130 MW have been commissioned (several were delayed for months and fined) and 10 MW have been canceled as two project developers failed to execute. 470 MW of CSP projects are due to be commissioned by May 2013. Extensions of 6-12 months have been requested for these projects due to execution difficulties. We confirmed with MNRE that there will definitely be a delay in these CSP projects being commissioned.

Batch 2 – Project developers for 340 MW of the 350 MW allocated have signed PPAs with one of the winning bidders failing to qualify. According to MNRE, 35 MW has already been commissioned and the rest are due to be commissioned by March 5, 2013. 

JNNSM – Phase II

Phase II policy announcements by MNRE were expected to be made by the end of 2012. The announcement was postponed until April 2013 but indications are that the announcement will be further delayed. The target for installations under Phase II is a wide range between 3000-9000 MW, which would include different models like VGF and bundling of power. It also looks like most of the projects might come under the newly proposed VGF scheme. 

Tamil Nadu

Tamil Nadu is proposing a goal of 3,000 MW of solar power by 2015 through utility-scale and rooftop projects. The state is also introducing a solar purchase obligation, (SPO) which will mandate a six percent SPO, requiring a total of 1,000 MW to be generated by 2015.

Tamil Nadu announced a 1,000 MW tender in December 2012 for solar projects of which the qualifying bids only amounted to 494 MW. There was a wide range of bids, with the highest bid at Rs.17.95 (~$0.34)/kWh and the lowest bid at Rs.5.97 (~$0.11)/kWh. Bidding for the remaining 506 MW of PV projects will be announced after current bids are approved and construction begins.

Gujarat

Out of the 968.5 MW announced under the Gujarat state policy in 2010, 824 MW have been commissioned as of 2012. Of the 144.5 MW pending, 60 MW of PV projects are under various stages of construction and the state is determining if there will be further penalties imposed for missing the December 2012 deadline. The other 84.5 MW of projects are facing the threat of being canceled. Gujarat has no policies coming up in the foreseeable future.

Gujarat was the only state that went with the feed-in-tariff route, which was much more lucrative compared to JNNSM and other state programs. Yet more than a year after the deadline, projects are still struggling to complete.

Orissa

The Orissa Renewable Energy Agency (OREDA) recently auctioned off a 25 MW PV project for Rs.7.28 ($0.15)/kWh. OREDA will soon call a tender to develop another 25 MW of PV projects. The state is scheduled to announce a new solar policy in the coming weeks.

Madhya Pradesh

The Madhya Pradesh Power Management Company, the holding company for all DISCOMs (government utilities) of Madhya Pradesh, has signed PPAs for 225 MW of PV projects with five project developers under a reverse auction mechanism, and another 50 MW with National Thermal Power Corporation (NTPC). The winning bids were between Rs.7.90 (~$0.14)/kWh and Rs.8.05 (~$0.14)/kWh. These projects will help the state meet its renewable purchase obligation of 255 MW by 2014 and there are no plans to announce any new projects or policies in the near future.

Andhra Pradesh

Andhra Pradesh announced bids for 1,160 MW of solar projects in December 2012. The project size is reported to be 5-10 MW each. The last date for submitted bids has been extended to February 15, 2013.

Chhattisgarh

Chhattisgarh recently announced a solar policy with the goal to develop 500-1,000 MW of PV projects by 2017. Projects amounting to 225 MW are pending PPAs, which are scheduled to be signed in a month.

West Bengal

Based on our recent conversation, West Bengal is only focusing on the rooftop and off-grid projects and they are not sure when they might have a policy framework developed around this.

Maharashtra

Maharashtra State Power Generation Company Limited (MahaGenco) currently has 150 MW of PV projects under construction due to be commissioned in March 2013. There are plans to announce another 100 MW of projects soon.

Bihar

Bihar introduced an RPO for 2013 for 50 MW of PV projects of which a PPA was signed for 3 MW. PPAs for the balance of 47 MW will be signed by the end of February.

About Mercom Capital Group

Mercom Capital Group, llc is a clean energy communications and consulting firm with offices in the U.S. and India. Mercom consults with 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.