Mercom Capital Group, a global clean energy communications and research firm, today released its quarterly update on the Indian solar market.

Mercom forecasts more than 4 GW in total solar installations for the 2016 calendar year, nearly 100 percent year-over-year (YoY) growth from the 2015 total of 2,133 MW.

“The Indian solar sector is finally coming out of hibernation,” said Raj Prabhu, CEO and Co-Founder of Mercom Capital Group. “Solar installations in 2015 increased by 142 percent after three years of remaining flat, and we expect 2016 and 2017 to record strong growth.”

There are currently just over 10 GW of solar projects under development, with cumulative solar installations in the country totaling 5,632 MW and about 8.4 GW expected to be auctioned off over the next few months.

“There is cautious optimism in the solar industry as aggressive bidding remains a major concern throughout the sector,” said Prabhu. The latest auctions have hit new lows at Rs.4.34 ($0.064)/kWh, a drop of about six percent in the last three months. Projects with tariffs under Rs.5 (~$0.0735)/kWh, unless built at a cost of Rs.5 crores (~$0.7 million) or below, are considered extremely risky and difficult to finance by lenders and most developers. But most of these projects are, however, expected to be commissioned in 2017 and developers hope that in the time period between bidding and procurement, module and balance of system (BOS) costs will continue to drop along with interest rates to make these projects feasible.

The recently announced budget did not have much for the solar industry to cheer about. Accelerated depreciation will be reduced from 80 percent to 40 percent beginning in FY 2017. This reduction will mostly affect rooftop solar, some large-scale projects and the wind sector. The Clean Environment Cess [formerly known as the Clean Energy Cess (tax)] has been increased from Rs.200 (~$3)/ton to Rs.400 (~$6)/ton. This increase will make solar more competitive by increasing the cost of coal. But, increased costs are expected to be eventually passed on to consumers in the form of higher electricity bills. Furthermore, nearly half of this tax in the past has gone to the Ministry of Water Resources for the Ganga rejuvenation project and we cannot assume that the entire amount collected from the new coal tax will go towards renewable energy.

In January, the Union Cabinet approved amendments to the revised tariff policy. One of the most significant revisions is a Renewable Power Obligation (RPO) which would require that eight percent of electricity consumption be procured from solar energy by March 2022. This is an important step towards achieving the 100 GW goal, but the RPO will remain just a number without strict enforcement.

The World Trade Organization (WTO) has recently ruled against India’s domestic content policy for solar cells and modules which was originally filed in 2013. In the short term, this will affect manufacturers who are overly dependent on the Domestic Content Requirement (DCR) market. In the long term, the effect should be minimal as DCR projects are a small part of the projects auctioned; manufacturers now have clarity and can adjust their strategy accordingly in order to compete. The Indian government is expected to appeal the ruling.

“Restricting the use of cheaper non-domestic components while expecting solar power at the lowest possible price has never made sense,” said Prabhu.

For the complete report, visit: MercomIndiaMar2016Report