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Indian Solar Market Update – 1st Quarter 2012
By: Raj Prabhu, Managing Partner, Mercom Capital Group
After over two years of policy deliberations and growing pains, India is finally seeing solar installations in meaningful numbers. India’s solar market is primarily driven by the national government’s Jawaharlal Nehru National Solar Mission (JNNSM) with a goal to install 20 GW of solar power by 2022, in addition to other state policies. The state of Gujarat has already installed  655 MW of its  968.5 MW goal. At the time of this update, cumulative Indian PV installations stood at  964 MW of which  745 MW has been commissioned so far in 2012.
<a href="https://mercomindia.com/wp-content/uploads/2017/07/Utility-Scale-Solar-Projects-in-India.png"><img decoding="async" loading="lazy" class="aligncenter wp-image-6192 size-full" src="https://mercomindia.com/wp-content/uploads/2017/07/Utility-Scale-Solar-Projects-in-India.png" alt="" width="331" height="252" srcset="https://cms.mercomindia.com/wp-content/uploads/2017/07/Utility-Scale-Solar-Projects-in-India.png 331w, https://cms.mercomindia.com/wp-content/uploads/2017/07/Utility-Scale-Solar-Projects-in-India-300x228.png 300w" sizes="(max-width: 331px) 100vw, 331px" /></a>
But it is not all sunshine coming out of India. Most states are emulating the JNNSM bidding &#8211; or reverse auction &#8211; model driving down solar tariff rates to some of the lowest worldwide. The Indian State of Orissa recently recorded a record low bid of Rupees 7.00 ($0.14)/kWh for their program. While most bidders are actually ‘betting’ that the cost of panels will keep dropping at a significant pace to make a project viable (if it is built in the furthest date possible), the low rates are contributing to financing challenges.
Installations to date
Under JNNSM, 48 MW were installed under the Migration Scheme with 6 MW considered to be canceled. 125 MW have been installed to date under Phase I, Batch I. However, there are 140 MW worth of power purchase agreements (PPA) signed, meaning 15 MW have yet to be completed. The delayed projects are a result of funding, infrastructure and implementation issues. We are starting to see a common theme, whereby extensions are granted in order for projects to get installed on time.
Gujarat state announced completion of  655 MW of PV projects after about three months of delays and granted extensions, making up the majority of solar installations in India. There are still approximately  314 MW of delayed projects in the state expected to be commissioned at some point this year. These projects will receive reduced tariffs.
<a href="https://mercomindia.com/wp-content/uploads/2017/07/India-Solar-PV-Installations-MW-by-Location.jpg"><img decoding="async" loading="lazy" class="aligncenter wp-image-6195 size-full" src="https://mercomindia.com/wp-content/uploads/2017/07/India-Solar-PV-Installations-MW-by-Location.jpg" alt="" width="350" height="292" srcset="https://cms.mercomindia.com/wp-content/uploads/2017/07/India-Solar-PV-Installations-MW-by-Location.jpg 350w, https://cms.mercomindia.com/wp-content/uploads/2017/07/India-Solar-PV-Installations-MW-by-Location-300x250.jpg 300w" sizes="(max-width: 350px) 100vw, 350px" /></a>
Other PV installations include:  67.5 MW from JNNSM &#8211; Rooftop PV &amp; Small Solar  Power Generation Program (RPSSGP) projects, 14 MW from the Ministry of New  and Renewable Energy (MNRE) demonstration program, 40 MW from Rajasthan’s  state policy and 15 MW from other programs.
Bidding and Financing
The bidding system is leading to other challenges, the biggest being financing.  India’s reverse auction together with inexperienced project developers has resulted in some of the lowest solar tariffs in the world. In fact, some of the latest  winning bids in the states of Karnataka and Orissa came in lower than the  proposed tariff cuts by Italy and Germany. It took Germany, the most successful  solar market in the world, almost 25,000 MW of cumulative installations, all the  benefits of economies of scale, mature supply chain and expertise to get to the  current level of tariff.
Aggressive bidding has made funding even more challenging as margins become thin or non-existent. Not to mention, borrowing costs in India can be double its Western counterparts at about 13 to 15 percent compared to six to eight percent in Europe and the United States. With low tariff rates, much higher borrowing costs, and a severely depreciating Indian Rupee, currency hedging can be risky and expensive, creating a triple threat for developers. Under these conditions of severe price pressure, inexperienced developers may start taking short cuts in an attempt to find the cheapest way to execute their projects, raising the question of quality and longevity. Will these projects be of a quality that will last for the next 25 years?
The State Bank of India also recently announced that they have limited resources to lend to solar developers, due to the fact that lending to other power sources, such as coal projects, have pushed them close to their 15 percent lending cap to the power industry. They are not the only ones – all Indian state banks have the same limitations. Unless renewable energy is separated from traditional power sources such as coal, this will be a recurring problem.
Larger companies that try to get in the ‘solar game’ can leverage their balance sheets to have a better chance at financing terms. However, even these companies have found it challenging to raise non-recourse loans because banks see new technology, inexperience, execution, etc. as risks that are not aligned with rewards, as aggressive bidding is leading to low or no margins.
According to Mercom Capital Group’s 2011 Annual <a href="http://www.mercomcapital.com/cleanenergyreports.php">Solar Funding Report</a>, the main lenders are coming from export banks, government banks and state banks like the U.S. Export-Import Bank, Export-Import Bank of India, KfW Group of Germany, State Bank of India (SBI), Asian Development Bank (ADB), International Finance Corporation (IFC), Overseas Private Investment Corp. (OPIC), PNC Bank, State Bank of Patiala, State Bank of Travancore and others.
<a href="https://mercomindia.com/wp-content/uploads/2017/07/All-India-Solar-PV-Installations-By-Policy-Type-MW.png"><img decoding="async" loading="lazy" class="aligncenter wp-image-6196 size-full" src="https://mercomindia.com/wp-content/uploads/2017/07/All-India-Solar-PV-Installations-By-Policy-Type-MW.png" alt="" width="421" height="200" srcset="https://cms.mercomindia.com/wp-content/uploads/2017/07/All-India-Solar-PV-Installations-By-Policy-Type-MW.png 421w, https://cms.mercomindia.com/wp-content/uploads/2017/07/All-India-Solar-PV-Installations-By-Policy-Type-MW-300x143.png 300w" sizes="(max-width: 421px) 100vw, 421px" /></a>
Update on Various India State Policies
JNNSM: 
Phase I
Migration &#8211; 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 will be canceled as two project developers failed to execute the project.
Batch 1 – PPAs for Batch 1 projects were signed on January 10, 2011 for 620 MW (140 MW-PV, 470 MW-CSP). 125 MW have been installed and 15 MW are yet to be completed. CSP projects are due to be commissioned by May 2013.
Batch 2 – Project developers for 340 MW of the 350 MW allocated have signed PPAs according to NTPC Vidyut Vyapar Nigam Ltd. (NVVN), the sole off-taker of grid-connected solar power under JNNSM, with one of the winning bidders failing to qualify. These projects are due to be completed in March 2013.
Phase II
Phase II policy announcements are expected to be made around September or October 2012 by MNRE. There is a possibility of 3,000 MW to 9,000 MW allocated under Phase II.
Gujarat:
At the time this article was written, 655 MW have been installed under the Gujarat state solar policy, with  314 MW delayed with a revised December 2012 deadline. These  314 MW projects will receive newly announced 2012 tariffs which are about 30 percent lower compared to 2011 tariff levels.
Though Gujarat announced tariffs for 2012-2015, it has not announced any targets or goals for installations.
Karnataka:
Karnataka recently concluded bidding for 80 MW of solar (PV-60 MW, CSP-20 MW). The average bid for PV projects came to Rupees 8.37 ($0.17)/kWh, one of the lowest solar tariff rates in India.
Rajasthan:
Rajasthan has postponed the date to bid for 200 MW solar projects until at least August. No reasons were given for the delay.
Orissa:
Orissa recently auctioned off a 25 MW PV project for Rupees 7.00 ($0.14)/kWh, the lowest recorded bid in India.
Tamil Nadu:
The Tamil Nadu Energy Development Agency has submitted a draft solar energy policy to the state government.  According to our sources, a solar policy might be announced at any time. On a side note, Tamil Nadu has been notorious for non-payment of tariffs owed to wind power companies. 
<div class="saboxplugin-wrap" itemtype="http://schema.org/Person" itemscope itemprop="author"><div class="saboxplugin-tab"><div class="saboxplugin-gravatar"></div><div class="saboxplugin-authorname"><a href="https://cms.mercomindia.com/author/raj/" class="vcard author" rel="author">Raj Prabhu</a></div><div class="saboxplugin-desc"><div itemprop="description"><div class="designboxt">
<img class="alignleft" style="border-radius: 50%;height: 50px;margin-top: -4px;border: 1px solid #00b451" src="https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2022/04/Raj-New-200X200-1.jpg" width="50" />
Raj Prabhu, Staff reporter at Mercom India 
<a href="https://mercomindia.com/author/raj/" target="_blank" rel="noopener">More articles from Raj Prabhu.</a>
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<img class="alignleft" src="https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2022/04/Raj-New-200X200-1.jpg" alt="Raj" /><a href="https://mercomindia.com/author/raj/" target="_blank" rel="noopener">Raj Prabhu</a> is a recognized thought leader in clean energy markets where his work has influenced policies worldwide. He has a deep understanding of regulatory policy and clean energy markets and his market and opinion pieces are regularly published on both MercomIndia.com and other leading publications globally. Raj is also a regular speaker and presenter on clean energy policy and finance topics at conferences worldwide. Raj attended the KLE College of Science in Bangalore, India for physics and chemistry, and holds a Bachelor of Science Degree in Hotel and Institutional Management from Johnson and Wales University, Rhode Island. <a href="https://mercomindia.com/author/raj/">More articles from Raj Prabhu.</a></div>
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