There was not a lot of movement in terms of solar installations in India in Q3 2012. Cumulative solar installations stood at 1,045 MW as of November 1, 2012, but there are about 1.1 GW of solar projects that are due to be installed in the next six months, including approximately 275 MW of PV projects in Gujarat with a deadline of December 31, 2012 and 340 MW of PV projects under the Jawaharlal Nehru National Solar Mission (JNNSM), due by March 2013. Another 27.5 MW of CSP projects, which were part of the JNNSM Migration scheme, are due by February 2013 along with 470 MW of JNNSM Batch II CSP projects are due by May 2013.
The market is eagerly waiting for the Phase II policy announcement which is due sometime towards the end of the year according to the Ministry of New and Renewable Energy (MNRE).
A recently released draft tariff determination for 2013-14 by the Central Electricity Regulatory Commission (CERC) gave a general sense of where tariffs are headed in the next phase. CERC’s draft indicated a starting bid of Rs. 8.75 (~0.18)/kWh for PV projects (Batch II projects were Rs.15.39 (~0.31)/kWh).
The chart below gives a good idea of the evolution of tariffs under the JNNSM bidding program over the last three years, and based on that history we have made assumptions as to potential bid results in Phase II. A point to note here is that starting bids are just a starting point whereas actual bids have ended up almost 30-50 percent lower. Using Batch II bids as an indicator, we are looking at Phase II bids to end up in the ~$0.10-$0.12/kWh range, some of the lowest in the world. The Indian tariff drops are driven mainly by aggressive bidding (although record low panel prices help). We believe it will be difficult for India to sustain such a rapid drop in prices without the market fundamentals in place and without compromising on quality, a point we have made before and are making again. For example, to get to its current level of tariffs, it took Germany, the most successful solar market in the world, over 30,000 MW of cumulative installations, all the benefits of economies of scale, and a mature supply chain.
Should India implement a domestic content policy in Phase II, something that has been constantly discussed, it will make it all the more difficult to execute projects successfully at these low tariff levels.
The CERC draft tariff determination is based on total project capital cost of about $1.6 million (Rs.8 Crore) for a 1 MW PV project. Other important assumption is a 13 percent borrowing cost based on a 70:30 debt-to-equity ratio.
At the recently concluded Renewable Energy Conference in New Delhi, project developers seemed very interested in the REC scheme because of the challenges of low tariffs and domestic content requirements under the JNNSM program. A note of caution here is that even though there is a floor price on RECs which are more attractive than some of the bids we are seeing for JNNSM, the price visibility is only for a few years, making a 25 year project much riskier. The other factor is that the REC mechanism is heavily dependent on RPO enforcement. Recent news suggests RPO goals for 2012 will be missed by about 30 percent, even though MNRE officials are talking about stricter enforcement and fines, it is still unclear if that will work. In India it will be one arm of the government fining the other – will that be effective? Most state utilities are heavily in debt and depend on the central government subsidies to survive. There will have to be some tough choices made and a solid foundation laid in terms of raising tariffs for consumers to reflect current costs and getting the utilities back in the black for some of these policies to be effective.
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 are due to be commissioned by mid-February 2013.
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. It is not yet clear if these projects will be granted extensions or will be successfully completed.
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 all 340 MW PV projects have achieved financial closure. These projects are due to be commissioned in March 2013.
JNNSM – Phase II
Phase II policy announcements by MNRE are expected to be made by year end with a target of 3,000 MW of grid-connected solar projects and about 6,000 MW or more through solar-specific RPO schemes. MNRE is currently consulting with various industry groups for input before finalizing the policy. It looks like Phase II projects will also be broken down into batches. A special emphasis will also be placed of rooftop projects and to further streamline the process.
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 what it calls a “solar purchase obligation” (SPO) which will mandate a six percent SPO requiring a total of 1,000 MW to be generated by 2015.
A word of caution: Tamil Nadu is notorious when it comes to payments and has struggled to pay wind developers over the years. With such a poor credit history, it may be difficult to get projects financed under the Tamil Nadu state policy and will be deemed very risky without strong payment guarantees in place.
There is not much movement in Gujarat by way of installations; 690 MW of solar projects have been installed under the Gujarat state solar policy, with 279 MW delayed. These 279 MW projects will receive reduced 2012 tariffs, which are about 20 percent lower compared to 2011 tariff levels. There are no new plans or policy announcements expected anytime soon.
The Orissa Renewable Energy Agency (OREDA) auctioned off a 25 MW PV project for Rs 7.00 ($0.14)/kWh, the lowest recorded bid in India. OREDA has called a tender to develop another 25 MW of PV projects with a bid deadline of November 15, 2012.
The Madhya Pradesh Power Management Company, the holding company for all DISCOMs 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 RPO obligation of 255 MW by 2014.
Andhra Pradesh is planning to accept bids for 1,000 MW of solar projects in about one month’s time. The project size is reported to be 5-10 MW each. According to state officials, more details on this program should be coming out within the next few weeks from the time of writing this article.
Chhattisgarh recently announced a solar policy with the goal to develop 500-1,000 MW of PV projects by 2017. According to the state, projects can sell power to energy exchanges or other states directly.
The government of West Bengal is planning to call a tender between December and January for 40 MW of PV projects to fulfill its RPO obligations. The tender is scheduled to be finalized by March 2013.
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.