Predicting a record year for India with ~10 GW of solar installations in 2017, and with reports that India's renewable capacity additions have caught up to thermal plants, experts are positive of an upward trajectory for the country's green power plans.
Energy transformation has arrived in India. According to the MNRE, India's total renewable capacity including solar, wind, bio-mass and small hydro grew by around 11.2 GW in FY2016-17, at par with thermal capacity addition, which registered a decline of 50 per cent in the year.
The country added 5,526 MW of new solar capacity (up 83 per cent over FY2015-16) and 5,400 MW of new wind capacity (up 63 per cent) in the year. While these numbers are impressive, it is worth noting that the solar capacity addition including rooftop solar is almost 50 per cent below the annual target of 12,000 MW. In contrast, wind capacity addition was more than 35 per cent over the 4,000 MW target.
Figures released by MNRE suggest that March was a blockbuster month with addition of 5.8 GW renewable capacity in a single month (more than the combined figure for previous eleven months). While financial year end is always busy, Bridge to India suspects that there was considerable pressure on implementing agencies to boost March numbers to show respectable addition numbers.
Second, the developers would also have been keen to bring numbers forward to take advantage of the many financial incentives including generation wind based incentive (GBI) for wind projects, accelerated depreciation and 10-year tax holiday that are going to be significantly cut or phased out completely from April 2017 onwards.
Mercom Communications India, a subsidiary of Mercom Capital Group, in its quarterly update on the Indian solar market noted that the Indian solar sector is witnessing strong growth with cumulative installations reaching approximately 12.8 GW at the end of Q1 2017.
Utility-scale projects account for about 12 GW, while rooftop installations accounted for almost 850 MW of the installed capacity.
The report forecasts 2017 installations to reach approximately 10 GW, a ~130 per cent increase year-over-year, compared to 4.3 GW installed last year as India becomes one of the top solar markets in the world after China and the United States.
The pipeline of Indian utility-scale projects is currently ~12.6 GW and there are approximately 6.1 GW of tenders pending auction. Six states now have installed capacity of over 1 GW.
'Solar in India has come a long way and 2017 is forecast to be the best year by far. Rapidly falling tariffs have resulted in solar closing in on parity with coal in recent auctions, which is expected to increase demand in the future,' commented Raj Prabhu, CEO and Co-Founder of Mercom Capital Group.
The sector performance on some other measures has been much weaker. Pace of new utility scale solar tender announcements and project allocations slowed down considerably at just 4.2 GW and 6 GW respectively, down 70 per cent and 33 per cent over last year.
Prabhu added, 'However, added that tender activity has slowed recently and the government needs to address transmission bottlenecks, finances of distribution companies and slowing demand for continued growth.'
This downward trend in new allocations is likely to continue, perhaps for another six months, as the government seem to have gone back to drawing board to incorporate learnings from the Rewa tender and India's first wind tender, Bridge to India believes. Extremely competitive reverse auctions fuelled by pent-up demand from slowing tender and auction activity are continuing to drive bids to record low levels. Solar tariffs have declined by ~75 per cent since 2010.
In the recently conducted 250 MW Kadapa Solar Park auction in Andhra Pradesh, bids reached a new record low of Rs 3.15 (~$0.048)/kWh, following the Rewa Solar Park auction in Madhya Pradesh, where bids reached Rs 3.30 (~$0.494)/kWh (levelised tariff over 25 years), over a rupee lower than the previous low tariff of Rs 4.34 (~$0.065)/kWh (recorded in the state of Rajasthan in January 2016).
Tender and auction activity has been slowing down over the last couple of quarters. According to Mercom's India Solar Project Tracker, only about 1.9 GW of solar was tendered in Q1 2017 (1 GW of this was re-tendered), compared to 3.4 GW in Q4 last year. There were 1.3 GW of solar projects auctioned in Q1 2017, compared to 255 MW in Q4 2016.
The slowdown in activity has been disconcerting to developers and manufacturers that have been positioning for much higher levels of activity based on India's solar installation goal of 100 GW by 2022.
With an even more ambitious target of 20,450 MW for 2017-18 for the renewable sector, it is clear that much more needs to be done to spur further growth. Falling prices will undoubtedly be of major help, but better regulatory enforcement of renewable purchase obligations and the UDAY scheme is critical.
Overall, Bridge to India expects FY2017-18 to register a very modest growth in renewable capacity addition, which should nonetheless easily come ahead of thermal capacity addition.
'Even with some of the challenges, we expect the Indian solar sector to remain one of the most important markets in the world over the next five years.' adds Priya Sanjay, Managing Director, Mercom Communications India.
- Jocelyn Fernandes