Q3 2017 INDIA SOLAR QUARTERLY MARKET UPDATE - 2.2 GW installed in Q3 2017
Indian solar installations totaled 2,247 MW in Q3 2017, up 300 MW from Q2 in which 1,947 MWs were installed according to the recently released India Solar Market Update by Mercom India Research. However, like in the preceding quarter, many project commissioning dates were delayed. Approximately 1 GW of large-scale projects with construction completed have not yet been officially commissioned due to grid connection and evacuation delays caused by government agencies, further contributing to the slower than expected installation figures seen in Q3.
In the third quarter, large-scale solar projects accounted for 1,982 MW and made up most of the installation total, while rooftop installations accounted for the remaining 265 MW. In the first three quarters of calendar year 2017, solar installations totaled 7.1 GW.
The pipeline of utility-scale projects is currently around 11.5 GW, and another 5.6 GW of tenders are pending auction.
Overall, the conditions in the Indian solar market became much more challenging during the third quarter due to various factors, such as a spike in Chinese module prices, the pending anti-dumping case, PPA renegotiations in some states, issues surrounding incomplete infrastructure and evacuation, and confusion about the Goods and Services Taxes (GST). These factors led to a slowdown in installations and tender and auction activity in the third quarter.
The biggest challenge now facing the sector is rising Chinese module prices. The Indian solar market has grown accustomed to seeing the price of Chinese panels consistently fall quarter-over-quarter (QoQ) and year-over-year (YoY). But for the first time in many years Chinese module ASPs increased in price by 14 percent in Q3 2017 compared to Q2 2017. This has been a huge concern for project developers and it is bringing new project development and procurement activity to a standstill. By comparison, Chinese module prices dropped by 14 percent during the same period last year. Unless this trend reverses quickly, we expect solar installation activity will dip in 2018, which is reflected in our forecast.
“Even though the Indian solar market is on pace for a record-breaking year, the momentum has definitely slowed,” said Raj Prabhu, CEO of Mercom Capital Group. “Just like the preceding quarter, we saw many project commissioning dates get delayed. In addition, there are approximately 1 GW of large-scale solar projects that are complete but unable to get connected to the grid. These factors are likely to lead to a weaker-than-projected Q4.”
Growth in the large-scale solar market in Q3 2017 was underpinned by more than 1 GW of combined project installations in Telangana and Karnataka, followed by more modest installation totals in Maharashtra, Uttar Pradesh, and Rajasthan. Telangana was the only state that installed more than 500 MW during the quarter. In all, eight states accounted for 96 percent of large‑scale installations during the quarter.
With approximately 612 MW of solar installations during the period, Telangana surpassed Andhra Pradesh to become the state with most solar installations with a cumulative total of ~2.5 GW. Telangana was closely followed by Andhra Pradesh and Rajasthan, which each have cumulative installed capacities slightly greater than 2 GW. These three states together represent approximately 43 percent of the country’s total installed large-scale solar capacity.
After solar tariffs fell below the ₹2.50 (~$0.0385)/kWh level in Q2 2017, tender and auction activity came to a grinding halt as distribution companies (DISCOMs) pushed developers to match those low tariffs no matter what state they were in. Though the central government has directed states to honor signed PPAs and not to try and renegotiate contracts, they cannot force DISCOMs to buy power at any price.
Even though the mystery surrounding the GST ended with the government announcing tax rates, there is still plenty of ambiguity concerning which tax rates will be applied to each component. In fact, the 5 percent rate set for solar modules is the only component rate that has any clarity. GST rates for other components vary from 18 percent to 28 percent, but neither solar companies nor government regulators can clearly say which components attract what rate. Consequently, it is difficult to model bid prices without knowing what the exact tax rate is, and that is another reason causing the slowdown in auction activity.
The fourth quarter of 2017 will be a crucial quarter for the solar sector in many ways considering the anti-dumping recommendations due to be released, the uncertain trajectory of module prices, and low power demand. If government regulators focus on the long-term picture and handle the current challenges diligently there is no reason why solar shouldn’t continue to be the most attractive market within the power industry for years to come.
The report forecasts that total solar installations in India will range from 9.5 GW to 10 GW in the full calendar year 2017 and approximately 7 GW in 2018.
“An extremely cost sensitive market like India will find it very tough to handle any aggressive imposition of tariffs. The developer community could adjust and model their bids accordingly, but we are concerned that state utilities who are already renegotiating PPAs so that they can procure solar power at the lowest possible prices will stop buying more solar if the tariff moves toward the ₹3.50 (~$0.054)/kWh level,” said Prabhu. The anti-dumping recommendation will most likely affect our future forecast, he added.
Even with these challenges, solar continues to be the leading new power generation in India. Compared to solar’s share of 31.9 percent in the first half of 2017, solar new installed capacity additions accounted for 39 percent of total power capacity additions at the end of the third quarter.
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