Comprehensive Pack

Comprehensive Pack
Solar Energy
1
• Industry Overview :3
• Recent Slowdown : 10
• Funding Challenges : 17
• Consolidation : 25
• Costs and Investments : 28
• Module Prices : 39
• Solar Rooftop : 48
• Future Outlook : 60
2
Industry
Overview
3
Capacity additions lower by ~6% y-o-y in 9M FY19
• Capacity additions were lower by 6 per cent y-o-y at 3,561 MW in 9M FY 2019 led by
commissioning of allocations made under central and state policies in the previous fiscals.
• Additions have been slower in this fiscal amid several policy issues and a rise in capital
costs.
• The imposition of 25 per cent safeguard duty, GST procedural issues, a weaker rupee and
rising cost of debt have caused capital costs to remain range bound between Rs 32-35
million per MW, as compared to expectations of a continuous decline.
4
Capacity additions lower at 3,561 MW in 9M FY’19 compared to 3,781
MW in 9M FY’18
• In 9M 2018-19, ~3.6 GW of solar power projects were commissioned, which was lower by
~6 per cent over the same period last year, while FY 18 had seen an increase of 69 per cent
y-o-y.
• The states of Rajasthan, Madhya Pradesh and Andhra Pradesh added ~2.1 GW alone (or
~60% of the total solar capacity additions), with several large projects under Rewa ultra
mega solar park scheme, SECI, Bhadla solar park scheme and Andhra Pradesh state solar
policy commissioning over the 9-month period.
5
Major capacities commissioned in 9M FY’2018-19
6
Solar Capacity Additions (MW)
Source: MNRE, Crisil Research

7
Solar Capacity Additions (MW)
• Performance of operational projects continues to remain stable with players like ACME,
ReNew, Adani – key names in the sector – reporting healthy PLFs of 19-22 per cent over
the past 11 quarters.
• Players have been designing projects utilizing a trend called DC (direct current)
overloading which entails connecting more modules on the DC side of the plant to generate
incrementally more in the non-peak generation hours.
• This has helped improve PLFs to the 21-22% range.
• Players have been known to utilize DC overloading up to 30-40% of AC (alternating
current) side capacity.
8
PLFs of operational projects for few key players

9
Recent Slowdown
10
Sector slows due to policy hang-ups in FY’19
• Government support has been key in the race for the 175 GW target till FY’22. Favorable
regulatory policies, government incentives and participation of public sector undertakings
have aided the growth of the solar sector since its inception.
• However, recent actions by various government agencies have thrown the sector off-track
with increased risk perceived in the near term. Key in this regard have been the following –
• Frequent bid cancellations – After the record-breaking tariffs of Rs 2.44 per unit in the
Bhadla solar park auctions in May 2017, several state distribution utilities became hesitant
to go through with fresh bids which were at higher tariffs.
• This had created a fear of discoms reneging on commitments, especially for the duration in
which PPAs remained unsigned post auctions.
11
• Further, tenders have been cancelled by good counterparties, namely GUVNL and SECI,
as bid tariffs were higher than their expectations.
• While SECI cancelled 2600 MW of its ISTS Tranche II solar scheme, GUVNL has
cancelled two tenders of a cumulative 1200 MW.
• The following auctions have been cancelled in 9M FY’2018-19:
12
13
• Recently, CERC directed SECI/NTPC to clear dues amounting to Rs 2.2 billion against
GST claims after petitions were filed by 11 subsidiaries of ACME and 3 subsidiaries of
Azure.
• However, if developers are to continue facing such delays and legal hurdles to obtaining
refunds, this could again affect working capital cycles and investor interest in the sector.
• Additional duty Investigations on solar sector inputs – Various players from the Indian
domestic solar component manufacturing industry (mainly modules) filed additional duty
petitions against foreign imports.
• Key in this regard has been a safeguard duty investigation, filed by the Indian Solar
Manufacturer’s Association (ISMA) in front of the Directorate General of Trade Remedies
(DGTR). The latter recommended the following trajectory for the duty –+
14
• The decision exempts developing nations from its ambit however excludes key exporters
China PR and Malaysia, a key source of cheap solar module and cell imports.
• The duty has been imposed from July 30, 2018 and has raised capital costs by 10-15% also
playing a role in tariffs rising to Rs 2.7-2.9 per unit over 9M FY’19.
• The government needs to ensure policy coherence for the sector to provide impetus to it
and achieve its goal of 100 GW by FY’22.
15
Funding Challenges
16
Developers look at several methods to raise funds; rising cost of debt a
concern in 9M FY’19
• The main source of finance for solar projects has been credit lines taken from domestic
banks. The confidence of the banks has been bolstered by the satisfactory performance of
most operational solar power plants.
• Some key banks’ lending to the solar sector are ICICI, SBI and Axis Bank.
• These banks have been known to finance projects at 10-12% with a tenure of 15-18 years
based on the creditworthiness of the borrower.
• There are also several non-banking financial companies such as (NBFCs), IIFCL (India
Infrastructure Finance Company Ltd), IREDA (India Renewable Energy Development
Agency), and PFC Green Energy which actively lend to the solar power market.
17
• In fact, share of solar power projects in IREDA’s overall lending portfolio has been
continuously on the rise.
• While, IREDA disbursed ~23% (RS 15.24 billion) of its overall disbursements in
FY’2016-17 towards solar, 2017-18 saw ~33% (Rs 27.46 billion) of its disbursements
going to the same.
• Similarly, the cumulative debt sanctioned till date by PTC India Financial Services (PFS)
towards renewable energy projects stood at Rs 73.2 billion, as of March 2018.
• Moreover, Rural Electrification Corporation Ltd (REC), which has a large portfolio of
consumers ranging from discoms to players in the transmission and distribution (T&D)
segment, also has plans to ramp up funding of renewable energy projects.
18
• In a quest to reduce the cost of capital for projects and further improve project economics,
many players have increasingly resorted to private equity and debt investments to free up
capital.
• The proceeds are used to invest in new projects.
• Developers have been exploring several diverse instruments / sources to raise finance such
as green bond issuances, external borrowings, private placements (Qualified institutional
buyers (QIBs)) etc.
• This not only lowers the cost but also frees up credit from domestic banks to be used again
as initial capital for new projects.
• One of the methods used has been green bond issuances.
19
• For instance, several large renewable energy players like Greenko, ReNew Power and
Azure Power have raised funds from the offshore market via green or masala bonds.
• Further, government entities and large financial institutions are also raising funds via the
bond route to invest in the country's thriving renewable energy sector.
• The most recent ones have been PFC, Greenko and IREDA raising USD 400 million, USD
461 million and USD 300 million, respectively, at the end of FY'2018 to fund renewable
energy projects in India.
• NTPC, with plans to construct 10 GW of solar projects by fiscal 2022, has raised a sum of
Rs 200 billion twice via green masala bonds in August 2016 and masala bonds in April
2017 (to finance power projects which may also include renewables).
20
• Indian entities have so far issued a cumulative of ~USD 6.5-7.0 billion in green bonds by
the end of December 2018 (more details in Annexure 1).
• Some key advantages of such issuances are: A firm with a strong background and
appropriate instrument structuring can raise funds at a lower capital cost than domestic
banks, including hedging costs, if market conditions are right.
• Additionally, green bonds offer a fixed rate of financing as compared with the floating
nature of project loans, in tandem with the fixed tariff Power Purchase Agreement (PPA)
revenue models of these projects.
• Green bonds enable diversifying of the debt profile and refinancing of existing bank debt,
allowing bank credit to be utilised later/elsewhere
21
• Structural flexibility is relatively easier when coupon payment frequency can be structured
(e.g. step-up in coupon rate at a later stage in the tenor period).
• However, this can affect yields and banks may also provide similar terms, depending on
• creditworthiness.
• However, the caveat here is that most recent bond issuances have gone towards refinancing
existing debt and meeting operating expenses of operational assets (commissioning and
stabilization of operations already achieved), which are less risky when compared with
greenfield projects.
• Consequently, this is a mode being utilised by players as well as financial institutions to
lower the cost of debt once the project is operational i.e. refinancing of the project at a later
stage.
22
Consolidation taking place, large / well-funded players driving it
• The race to build a larger portfolio than competitors, have caused M&A and consolidation
to be rife in the sector over the past two years.
• This has been driven by several factors – Several of the deals include if not all but to some
extent assets which in most cases are tied up at higher tariffs (bid out before FY’17).
• This not only helps players balance the weighted average tariff for the overall portfolio but
also lowers construction and project implementation risks as these are already operational
assets.
• Most of the large players like Azure, ReNew, Greenko etc. have been receiving equity
investments from global investors (PE firms, pension funds etc.)
• In periods where auctioning slows or bidding is too aggressive, utilizing funds for
inorganic expansion is also being considered a viable alternative.
23
Consolidation
24
Consolidation taking place, large / well-funded players driving it
• Acquiring projects in locations/states near already operational assets help improve

economies of scale where spare parts/staff can also be centrally located, catering to several
projects at once.
• Consolidation to continue with the on-going quest for a larger portfolio among larger
players and several smaller firms exiting the sector due to increased competition.
25
Key M&A deals over the recent past
Source: Industry
26
Costs and Investments
27
Solar project tariffs rise with duty imposition, developers in wait and watch
mode
• Developers have been bidding at higher tariff ranges due to the safeguard duty,
recommended by the Directorate General of Safeguards in July 2018, being imposed.
• As a consequence, developers are planning procurement once duty rates start to decline
(July 2019 and beyond).
• Further, Chinese authorities have cut subsidies to the solar sector, which has caused a crash
in module prices.
• Without a duty, tariffs would have continued in the Rs 2.5-2.7 per unit range however, with
the duty tariffs of Rs 2.7-2.9 are required for healthy returns of 10%-13%.
28
Tariff of Rs. 2.7 -2.9 p.u. required to generate healthy IRRs with the duty
imposition
• Our base case analysis is for an independent power producer (IPP) undertaking EPC in-
house and using imported modules given that this is the most prevalent model.
• For our analysis on project economics, the following are the key assumptions based on
our interactions with project developers and bankers.
• Capital cost: Rs. 34-35 million per MW for a project based on imported modules.
• Further, some Inverter overhaul charges in the 13th year of the project. These
assumptions are based current landed module costs of ~USD 0.24 and factoring the
safeguard duty at 25% in addition to the new GST rate of 8-9% (new clarification by
council).
29
imposition
• Plant Load Factor: A plant load factor (PLF) of ~21-23 per cent based on all India
average PLFs and factoring DC side overloading which has been assumed at 25 percent.
DC side overloading implies that PV arrays (DC side) of higher than rated capacity of
inverters could be connected to generate more output (number of units) from inverters,
essentially adjusting for losses in the system design.
• However, given no restriction on power that can be fed to the grid and also no cap on the
prices of such additional power, players are optimizing the system design to generate
more CUF at incremental cost.
• However, PLFs could vary significantly from location to location depending on the level
of irradiance.
30
imposition
• Debt to equity: A debt equity ratio of 70:30 based on the typical capital structure of
projects under operations.
• Foreign borrowing costs: Assumed a rate of about 9.5 per cent (including hedging costs,
with 12 months of moratorium) with developers availing various routes to lower cost of
debt including the option of refinancing of debt once assets become operational.
• Based on the above assumptions (factoring in DC overloading), a levelised tariff of Rs.
2.7 – 2.9 per unit is necessary for equity internal rate of returns (IRRs) of 10-13 per cent.
31
imposition
• This is applicable for independent power producers (IPPs) who generally do not avail
accelerated depreciation.
• (Accelerated depreciation benefit allows depreciation of 80 per cent of the capital cost in
the first year of commissioning).
• Capital costs are one of the key factors deciding viable tariffs.
• It is influenced by equipment costs (mainly modules which form 55-60% of overall cost),
exchange rate and taxation policies.
32
• Capital cost rises ~15 per cent with safeguard duty imposed; duty
trajectory key
• The GST imposition has increased the taxation rates across all components required to
develop a solar power plant, as indicated in the chart below.
• For instance, pre-GST, solar modules were exempt from any additional custom duties and
from Value added Tax (VAT) in several key states, however, GST imposition now implies
an additional IGST component (apart from existing BCD) on imports and 5 % CGST +
SGST for modules procured domestically (replacing VAT/CST).
• This caused a rise in taxes (apart from BCD which is zero) from the erstwhile zero to 5
percent for modules.
• The government has classified solar power generating systems (entire system, all
equipment) under the 5 per cent GST slab while electrical equipment such as transformers,
inverters
33
and cables have been classified under the 18 per cent category.
trajectory key
• Additionally, all services involved in the development of the project are also classified
under the rate of 18 per cent.
• Consequently, there was much confusion over the final tax rates applicable on a solar power
project.
• MNRE did issue a clarification last fiscal that entire solar projects should be taxable at 5%
however, if an EPC contract included both supply and services it would be adjudged on a
case to case basis.
• This created further concern as most projects were set up on an EPC basis whether in house
or outsourced. The issue lacked clarity for over a year until the GST council in December
2018 clarified with regards to EPC contracts as follows:
34
trajectory key
• This has caused much consternation in the sector as most projects are set up in EPC mode
only, as in procurement and services together.
• Even a simple supply order usually involves a service component which would again attract
the GST rates applicable to EPC contracts.
• The final tax rate would be in the 8-9 per cent range instead of the earlier expected 5 per
cent, causing a cost increase of 3-4 per cent on final capital costs.
• The sector is also under pressure from an additional duty on modules, a key component In
solar projects.
• The Directorate General of Trade Remedies (DGTR) imposed a safeguard duty of 25 per
cent on all imported cells/modules (including China and Malaysia) in July 2018 (see
REVIEW
35
section for further details) with the duty rate set to decline as follows:
trajectory key
• The duty had a direct impact on capital costs raising it by 10-15%, despite module prices
falling from USD 0.30 per wattpeak in March 2018 to USD 0.24 per wattpeak in December
2018.
• As a consequence, bid tariffs have moved up to the range of Rs 2.7-.9 per unit to be able to
sustain current capital costs of Rs 34-35 million per MW.
• Having said that, the rate is to be 20 per cent from July 2019, which would enable
developers who participate in auctions post January 2019 the leeway to procure when the
rate is lower. The same would hold true when rates go down to 15 per cent.
• Hence, over the long term, once duty rates decline as they should in a time bound manner,
cost pressures would ease and tariffs should also start lowering by ~5-10 paise per unit,
ceteris
36 paribus.
trajectory key
Source: Industry
37
Module Prices
38
A key factor determining capital costs is module prices, which is mainly
imported from China.
• Trend in module prices

39
• Capital costs declined sharply to about Rs. 30-35 million per MW (without factoring
overloading) by March 2018 from Rs. 100 million per MW at end of 2011 on account of
sharp fall in module prices (modules form about 55-60 per cent of the total capital costs of
setting up a solar power plant) led by significant overcapacity, particularly in China.
• Chinese players remain some of the big exporters of ready-made modules and cells to the
Indian domestic market.
40
• Module prices saw a sharp fall to USD 0.56/W in 2015-16 from USD 1.14/W in 2011-12
mainly led by a rapid decline in prices of poly silicon and non-silicon components.
• The declining trend has continued in 2016-17 and 2017-18, with average module prices
being USD 0.43/W and USD 0.32/W respectively.
• This was due overcapacities which persist in the entire value chain from polysilicon to
modules in the Chinese market, a major exporter of modules to India.
• Further, at the start of June 2018, China’s National Energy Administration announced a
reduction of the FiT rates by RMB 0.05-0.07 per kWh, limits on capacity additions with
distributed generation limited to 10 GW and stopped subsidies for utility-scale solar
projects.
41
Trend in module prices
• Other programs such as the top-runner and poverty alleviation program were however, not
to be affected.
• This however, caused weakening in demand for modules from the world’s leading solar
market.
• Thus, causing the excess capacities to find new markets such as India.
• As a consequence, module prices further crashed ~38% over April 2018- December 2018,
from USD 0.30 per wattpeak to USD 0.24 per wattpeak.
• This however, has had significant consequences for the leading module makers. Chinese
module manufacturers have not fared well, with several large players witnessing low
margins as they aggressively compete for a shrinking domestic market.
42
Financials of key Chinese solar module manufacturers
• This has also impacted upstream players with one of the largest polysilicon makers,
GCL-Poly also indicating expected losses for CY’2018 amid rapidly declining
profitability.
Source: Crisil Research

43
GCL-Poly reports weak financials in H1 CY18
Source: Crisil Research

44
• China’s National Reform and Development Commission (NRDC) released a new policy
document in January 2019 which laid out a vision to move towards subsidy free projects.
The latter is applicable till CY 2020.
• It states guidelines to remove all central subsidies for ground mounted solar (local
government subsidies are still allowed), and providing other forms of support such as land
incentives, low cost financing etc. In regions which are not resource rich, competitive
bidding would be undertaken to determine tariffs.
• This would hence, change the way the sector functions in China entirely, however it is still a
positive as it brings back the hope of future capacity additions which were up to now
constrained altogether, since June 2018.
• However, new RE targets for the 14th year plan are still awaited
45
• A recent symposium by the National Energy Administration (NEA) indicated they may be
in the range of 220-240 GW.
• As a result, module prices to remain at USD 0.23-0.25 per wattpeak by March 2019 and
over H1 CY2019 as well, as demand starts picking up and capacity utilizations start to rise
again.
• Consequently, capital costs to gradually decline in tandem with the safeguard duty
trajectory provided everything else remains the same (ceteris paribus).
46
Solar Roof-top
47
Close to 8 GW solar rooftop capacities expected to be commissioned over
next five years (FY 2019-23)
• Solar rooftop power capacity additions of ~8,000 MW over the next five years (2019-2023).
• The capacity additions would be driven mainly by commissioning of capacities disbursed
by SECI (1000 MW); capacities allocated by the state governments (up to 500 MW),
commissioning of ~2,000-2,500 MW of capacities by government institutions such as
metros, railways, airports; and ~2,000-3,000 MW of capacities to be added by industrial and
commercial consumers under net/gross metering schemes of various states.
48
Only ~2 GW of grid-connected roof-top capacity added till March 2018 due
to high costs and limited focus
• Rooftop projects are small-scale solar photo-voltaic (PV) installations on roofs of buildings
(for a detailed view on the operating models, refer to Annexure I).
• Rooftop projects may or may not be connected to the grid.
• As per the government target of 100 GW of solar by FY’22, 40 GW is proposed to be added
under rooftop-based solar systems.
• However, till FY 2018, only ~2.0 GW of rooftop capacity is estimated as installed, with
~400-600 MW estimated to have been added in FY’18 as against ~9,010 MW of ground-
mounted solar projects in the fiscal.
• While, MNRE subsidized projects comprise 50% of the above (~1 GW of the installed
capacity), the private market formed mainly by commercial and industrial customers (not
• subsidized)
49
are estimated to form the remaining 50% of the installed capacity.
• Roadblocks hindering growth of rooftop solar include high cost of rooftop projects, limited
availability of finances for rooftop projects, weak infrastructure of power distribution
companies, poor implementation of open access, and cheaper solar power available from
ground-mounted projects.
• Although, MNRE has entrusted Solar Energy Corporation of India (SECI) with
implementation of large-scale, grid-connected rooftop PV projects, with subsidy support
from National Clean Energy Fund (NCEF) funds, release of subsidy has been delayed by
more than six months in some cases.
• Nevertheless, rooftop solar projects have attracted interest from players in the entire solar
value chain ranging from module manufactures (TATA Power Solar, Waaree Energies,
50
• Vikram Solar, etc.) to system integrators (Rays Power, Jackson Engineers) and independent
power producers (Welspun Solar, Azure Power, Sunedison, Mahindra Solar, etc.)
• owing to falling costs and favourable regulatory policies in a few states (net metering,
exemption on electricity duty, wheeling and cross-subsidy charges).
51
Rooftop schemes approved for funding by SECI till YTD 2018-19 (at end of
December 2018)
Source: MNRE
52
Regulatory support required to drive sector; project economics to drive
additions from C&I base
• The central government has strongly stressed rooftop solar, targeting a whopping 40% of
the 100 GW generation capacity target under the National Solar Mission (NSM) from this
segment by 2022.
• Thus, government support is critical to boost growth in the long term.
• For instance, the central government is continuing the provision for providing 30% capital
subsidy for rooftop projects; MNRE has increased its financial assistance target (in form of
capital subsidy) eightfold to Rs 50 billion over the next five years (2016-2020).
• The subsidy would be sufficient to support ~4.2 GW of rooftop projects, by residential
category of consumers and by public institutions (government hospitals, schools, etc.)
across various sectors.
53
Regulatory support required to drive sector; project economics to drive
additions from C&I base
• However, timely disbursement of the same is necessary to avoid execution delays on the
ground and dent investor confidence in the market.
• Central-level benefits provided for rooftop projects are further detailed below.
54
Average tariff for different categories of customers

55
Average tariff for different categories of customers
• Conversely, residential and agricultural consumers have no economic incentive to set up
rooftop projects on net metering basis, as their tariffs are low on account of high cross-
subsidy.
• For such consumers, the economics would be favourable only if they were allowed to install
projects of size more than ~2.5 times their connected load (currently the restriction is 0.5-
0.8 times their load).
• This would enable them to meet their electricity needs and earn revenues for additional
electricity sold to discoms at average power purchase cost (APPC) tariffs.
• Further, discoms have set limits for maximum capacity of plants that could be installed
under the net metering mechanism as 0.5 kw to 1,000 kw, which dampens interest in such
projects.
56
~7-8 GW rooftop solar additions expected by 2023
• ~7-8 GW of projects to be commissioned under the solar rooftop segment over the next five
years (2019-2023), mainly led by commissioning of capacities disbursed by SECI (1000
MW); capacities allocated by the state governments (up to 500 MW),
• commissioning of ~2,000-2,500 MW of capacities by government institutions such as
metro, railways and airports; and ~2,000-3,000 MW of capacities to be added by industrial
and commercial consumers under net/gross metering schemes of various states.
• MNRE provides central financial assistance for all rooftop projects constructed by
residential category of consumers: 70% for special category states and for 30% for other
states.
• Solar power can act as an alternate for states with high load-shedding such as Tamil Nadu,
Uttar Pradesh and Punjab, which are also served by diesel generator sets, and for rural areas
with
57 poor grid connectivity.
Projected rooftop capacity additions over 2018-19 to 2022-23

58
Future Outlook
59
48-50 GW solar capacity to be added over next five years
• Solar power capacity additions to rise over the next five years.
• This will be driven by commissioning of projects allotted under different state policies;
National Solar Mission (NSM); other SECI schemes; and central public-sector undertaking
tenders. Regulatory focus is key to supporting capacity additions ahead, in addition to
adequate land availability, timely implementation of grid infrastructure and the ability of
players to raise low cost funds.
60
Solar capacity additions of 48-50 GW over 2019-2023
• 48-50 GW of solar photovoltaic (PV) capacity additions over 2019 to 2023 (refers to fiscal
year of April to March).
• This will be driven by additions under The National Solar Mission (NSM) Phase II Batch II,
III, IV, V and VI; Other schemes launched by SECI (ISTS, floating solar tenders, state
specific schemes etc.)
• Capacities tendered by distribution companies in various states to fulfill Renewable
Purchase Obligations (RPO); Capacities tendered by cash rich public sector undertakings
(PSU) such as National Thermal Power Corporation (NTPC), Neyveli Lignite Corporation
(NLC), Coal India Limited (CIL) etc.; Rooftop projects.
• To arrive at capacity additions, progress of capacity allocations under the above
61
Solar capacity additions of 48-50 GW over 2019-2023
• For our analysis, also factored in the economic feasibility of tariffs, extent of payment
security, financial health of state discoms, Renewable purchase obligation (RPO) targets as
well as execution risks in project implementation.
• From our analysis, solar power capacity additions of 48-50 GW over the next five years
(FY 2019-23) as compared to ~20 GW over the last five years (FY 2014-18).
• However, the share of solar power in total units generated (MUs) is likely to remain
between 6-7 per cent by 2023 as thermal based power would continue to be the dominant
source of power.
62
Various policies announced by government
63
GST to usher in warehousing investments in India
• Solar power capacity additions of 48-50 GW over the next five years (FY 2019-23) as
compared to ~20 GW over the last five years (FY 2014-2018).
• Growth in capacity additions will be driven by government support with an
aggressive tendering roadmap outlined and being followed by the government so far.
• Few external factors such as improvement in technology (floating solar, module
efficiency) and low capital costs is also key to enabling additions.
• However, a lack of policy coherence has caused uncertainty to mount for developers
over FY’18 and FY’19 impacting bid response.
64
Solar power capacity additions of 48-50 GW expected over the next five years
(2019-23)
• Solar power capacity additions of 48-50 GW over the next 5 years (FY 2019-23) as
compared to 20 GW over the last 5 years (FY 2014-2018).
• Capacity additions will be driven by the following: NSM: With 3000 MW of Tranche I of
NVVN bundling Scheme almost entirely commissioned (1 project of 250 MW remains),
central level allocations have picked up under Phase II Batch III and IV with ~2.2 GW
under implementation and another 150 MW in tendering phase.
• Other Central Schemes – The Solar Energy Corporation of India (SECI) has also started
tendering projects outside the JNNSM Batch program.
• It has initiated the Inter-State Transmission System (ISTS) scheme, wherein projects are
planned for connection with the ISTS grid directly.
65
(2019-23)
• Under this, SECI has already allocated 2.6 GW and has another 1.2 GW in tenderin phase.
• It has also tendered close to 1.5 GW and allocated ~250 MW under other schemes till
December 2018.
• State solar policies: With thrust from the central government, states have also come out
with aggressive targets to be achieved by 2022 under their state solar policies.
• A total of ~6.8 GW is under construction based on already allocated schemes and another
7.5 GW is in tendering phase based on released tenders under various state policies.
• States are facilitating land acquisition via solar park allocations in their respective states.
• PSUs: Also, the government is encouraging cash rich PSUs to set up renewable energy
projects.
66
(2019-23)
• In particular, NTPC has already commissioned a total of over ~870 MW of capacities, has
allocated 2750 MW and tendered a further ~300 MW, under various schemes.
• It has a target of installing ~10 GW of renewable energy capacities by FY’2022. Similarly,
Indian railways has committed to 5 GW of solar power by 2025.
• Other PSUs such as NLC, NHPC, defense organizations and governmental establishments
are also expected to contribute to this addition.
• Rooftop Solar projects: ~8 GW of rooftop projects (under CAPEX and OPEX mode) to
commission by FY 2023 led by high industrial and commercial tariffs and declining
levelised cost of energy for solar rooftop projects.
67
(2019-23)
• However, the capacity additions should be supported by improvement in the discoms
infrastructure, continuation of net metering regulations/benefits and other regulatory
incentives.
• The renewable energy domain is highly dependent on policy support and any uncertainty
with regards to the same is highly negative.
• Consequently, considering the current regulatory haze, outlook has been downward revised.
68
Lack of policy coherence a key risk for the sector presently; duty trajectory
key to lowering of cost pressures
• Even though, the government push for solar has been supportive over the past 2-3 years,
FY’18 and FY’19 has seen policy incoherence with instances of PPA renegotiation / bid
cancellations, additional duty investigations on solar inputs, lack of clarity on GST
procedures and a change in the customs duty classification of solar cells/modules.
• While, the customs duty issue has been clarified, GST procedural issues persist but are
being worked out by the industry gradually.
• Further, the Directorate General of Trade Remedies (DGTR) in July 2018, imposed a
safeguard duty of 15-25% on cells/modules (depending on year of imposition) which has
led to an increase in capital costs to the tune of 10-15%.
• Despite the increase in costs for developers, regulatory authorities are not recognizing the
same
69 and continue to maintain expectations of bid tariffs near the Rs 2.5 per unit mark.
Lack of policy coherence a key risk for the sector presently; duty trajectory
key to lowering of cost pressures
• This has led to frequent bid cancellations and uncertainty amongst developers, causing poor
bid response for tenders where tariff ceilings are low.
• However, consequently, regulatory authorities have also been forced to revise the tariff
ceilings especially for tenders where adequate response was not received.
• Pricing impasse can be solved by authorities recognizing the prevailing market dynamics
coupled with easing cost pressures as the duty rate starts to decline.
• However, arbitrary cancellation of auctioned capacities is starting to have a negative
influence on investor sentiment and needs to be curtailed.
70
Land acquisition, transmission infrastructure & fund availability critical to
Successful implementation of solar projects
• Although the potential of solar energy is high, there exist few challenges, which are critical
to achieving rapid growth of solar power.
• Availability of contiguous parcels of land – With rapid capacity additions and stiff
competition it becomes imperative for developers to acquire land at competitive costs and in
areas with high levels of solar irradiance.
• The 40 GW solar park scheme is facilitative in this aspect however, beyond that capital
costs and hence, tariffs do fluctuate state to state depending on land prices and irradiance
quality.
• Adequacy of evacuation infrastructure – Grid integration of renewables is becoming
increasingly key to the growth of the sector.
71
• Instances of delay in readiness of transmission infrastructure at solar parks have caused
concern amongst developers.
• Regulatory authorities must ensure proper planning and adequate pace of implementation to
support renewable energy additions going forward.
• Availability of low cost capital - With the emergence of several large players in the sector,
scale and experience has aided fund raising to an extent, especially with the backing of
several foreign investors.
• However, a rising interest rate regime, weak rupee, conservative risk appetite of lenders and
other added cost pressures makes it imperative for developers to maintain prudent capital
management to sustain over the long term.
72
• Even though, developers have been tapping alternate / new routes to raise money from time
to time, several challenges are emerging on this front as well.
• Further deterioration in the financial profile of distribution utilities resulting in offtake
issues and payment defaults, declining power deficit and aggressive bidding are also other
key monitorables.
73

Comprehensive Pack - Solar Energy

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• Costs and Investments : 28

Source: MNRE, Crisil Research

Source: MNRE, Crisil Research

• Acquiring projects in locations/states near already operational assets help improve

Source: MNRE, Crisil Research

Source: Crisil Research

Source: Crisil Research

Source: MNRE, Crisil Research

Source: MNRE, Crisil Research

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