Mercom Capital Group India Solar Market Update India Solar Quarterly Market Update Indian Solar Market Picks Up Speed With More Than 4 GW Forecasted in 2016 March 2016 KEY FINDINGS India solar installations totaled 2,133 MW in 2015, up from 883 MW installed in 2014, year-over-year (YoY) growth of 142%. Mercom is forecasting 2016 installations to reach approximately 4 GW, almost 100% YoY growth. Auctions are being announced at a brisk pace even though delays and extensions are fairly common. Approximately 10 GW of solar projects are currently under development with about 8.4 GW more to be auctioned over the next few months. So far, 16 states have principally agreed to join the UDAY debt restructuring program. Of these states, only seven have signed a memorandum of understanding (MoU). The World Trade Organization (WTO) has ruled against India’s domestic content policy for solar cells and modules. Aggressive bidding continues to be a major concern with the latest auctions hitting new lows at ₹4.34 ($0.064)/kWh. The Clean Environment Cess (tax) has doubled from ₹200 (~$3)/ton to ₹400 (~$6)/ton in the 2016-17 budget. A national RPO of 8% by March 2022 has been approved by the Union Cabinet in the revised power tariff policy 2016. List of Charts/Tables India Solar Installations (MW) ……………………………………………………………..……………….. 2 India Solar Policy Map ………..…….………………….…….…………………………………….……….. 4 Utility-Scale Solar Projects in India …………………………………………………………….................. 5 All India Cumulative Solar Installations By Policy Type (MW) ……………………..…………………… 5 India Solar Project Pipeline (MW) …………………………….……………………………………….…… 6 JNNSM Phase II, Batch 2 Tenders/Auction Results ………………….................................................. 7 JNNSM Phase II, Batch 3 Tenders/Auction Results …………………................................................. 9 Solar Bids in Reverse Auctions in India ( ₹/kWh) ……………………………..……...……...................... 11 Monthly Average Chinese Module Spot Prices ……………………………………………...................... 11 Ministry-wise NCEF Fund Allocation By Years ………………….………………………........................ 16 Haryana Auction Results ……………………………………………..………………………...……….….. 21 India Solar Installations (MW) By Location (Feb 2016) ……………………………………………..….. 23 ©2016 Mercom Capital Group, llc. ALL RIGHTS RESERVED. I www.mercomcapital.com I [email protected] I Page 1 Mercom Capital Group India Solar Market Update The Indian solar sector is finally emerging from hibernation with solar installations doubling in 2015 after three years of flat growth. Solar installations totaled 2,133 MW in 2015, up from 883 MW installed in 2014, YoY growth of 142%. Cumulative installations have crossed the 5 GW mark with 5.6 GW as of February 2016. There are currently over 10 GW of solar projects in various stages of development. Mercom is forecasting 2016 installations to reach approximately 4 GW, almost 100% YoY growth. India Solar Installations (MW) Feb 2016 12,000 50,000 Annual Solar Installations 10,500 10,000 Cumulative Solar Installations 9,500 40,000 8,970 8,000 8,178 30,000 6,000 4,054 20,000 Annual Installations (MW) Installations Annual 4,000 (MW) Installations Cumulative 2,133 10,000 2,000 986 1,004 883 6 12 172 0 0 2009 2010 2011 2012 2013 2014 2015 2016F 2017F 2018F 2019F 2020F Data derived from MNRE, Mercom Project Tracker & Public Sources Source: Mercom Capital Group, llc Auctions are being announced at a brisk pace even though delays and extensions are fairly common. The government, after a slow start, is demonstrating its commitment towards achieving the ambitious installation target of 100 GW by 2022. Currently, about 10 GW of solar projects are under development with about 8.4 GW more to be auctioned over the next few months. With 5.6 GW installed as of February 2016, about 95 GW of solar will need to be installed in seven years at a pace of 13.5 GW a year to reach 100 GW by 2022. After years of slow growth, the Indian solar industry should be ecstatic with all the activity and forecasted growth but developers and manufacturers are cautiously optimistic. Their major concern continues to be aggressive bidding with the latest auctions hitting new lows at ₹4.34 ($0.064)/kWh, a drop of about 6% in the last three months. Projects with tariffs below ₹5 (~$0.0735)/kWh, unless they are built at a cost of ₹5 crores (~$0.7 million) or below, are being considered extremely risky and difficult to finance by lenders as well as by a majority of developers. Currently, most domestic banks are unwilling to fund projects below ₹5 (~$0.0735)/kWh as they fear failed projects that could end up on their books as non-performing assets. Some companies that have bid below ₹5 (~$0.0735)/kWh are now in trouble and there could be more such cases in the future unless developers pull back and some sanity is restored. Failed projects could freeze investments and slow down installations. The government looks very committed to solar and the market is going to be very large; there is no reason for this race to the bottom. ©2016 Mercom Capital Group, llc. ALL RIGHTS RESERVED. I www.mercomcapital.com I [email protected] I Page 2 Mercom Capital Group India Solar Market Update But most projects with bids below ₹5 (~$0.0735)/kWh are, however, expected to be commissioned in 2017 and developers are hoping that module and Balance of System (BOS) costs will continue to drop along with interest rates to make these projects feasible. The Indian government’s recently announced budget did not include much for the solar sector. Accelerated depreciation will be reduced from 80% to 40% starting in FY 2017, and will mostly affect the rooftop solar, some large-scale solar and wind sectors. Investment into IREDA has been increased which will boost lending. The “Clean Energy Cess,” now called the “Clean Environment Cess” (or coal tax), has been raised from ₹200 (~$3)/ton to ₹400 (~$6)/ton which will increase the cost of coal while making solar more cost-competitive. But as we have highlighted before, almost half of the coal tax collected has been going towards river cleaning projects. Based on the figures so far, we cannot assume that doubling the coal cess will result in all of the funds going to renewables. While budget maneuverings happen, taxing the coal industry for CO 2 emissions and diverting half of those funds to cleaning rivers is not the right way to do it. The increased costs will eventually be passed on to the consumer in the form of higher electricity bills. A revised power tariff policy that guides government agencies was recently approved by the Union Cabinet. An important highlight was the increase in the renewable purchase obligation (RPO) for solar to 8% by 2022. This is a significant step towards achieving the 100 GW goal, but the RPO will remain just a number unless there is strict enforcement. The Ujwal DISCOM Assurance Yojana (UDAY), a program to improve the financial condition of DISCOMs, has so far attracted 16 states which have agreed in principle to join the voluntary program; seven of these states have signed an MoU. A lot rides on the success of UDAY as DISCOMs currently are sitting on about ₹4.3 lakh crore (~$63 billion) in debt as of September, 2015. The poor financial condition of DISCOMs has resulted in low offtake of power and delayed payments, increasing borrowing costs for developers. The World Trade Organization (WTO) ruled against the domestic content policy of India regarding solar cells and modules. The ruling was expected and will, in the short term, affect local manufacturers that were heavily dependent on domestic content rules. Domestic Content Requirement (DCR) projects made up a small portion of the projects auctioned and recently have had difficulty attracting developers. In the long term, the ruling should be a positive as it opens up more non-DCR projects. Restricting the use of non-domestic cheaper components while expecting solar power at the lowest possible price has never made sense. The Indian government is expected to appeal the WTO ruling. ©2016 Mercom Capital Group, llc. ALL RIGHTS RESERVED. I www.mercomcapital.com I [email protected] I Page 3 Mercom Capital Group India Solar Market Update India Solar Policy Map Phase I Batch 1 Batch 2 620 MW 350 MW (270 MW CSP pending) (In-Operations) Phase II Batch 2 - Tranche I Batch 3 - 2,000 MW Batch 1 Batch 4 - 5,000 MW Draft Batch 6 - 50 MW (High 3,000 MW (Tender/Auction) Batch 5 - 1,000 MW (CPSU) 700 MW Guidelines Visibility Areas) (40 MW pending) (Tender/Auction) 2,690 MW 500 MW Odisha Solar 500 MW Ghani Solar Park 500 MW Maharashtra Solar Approved 17 CPSUs under 2 MW West Godavari Solar Projects TI - 450 MW Auctioned, Projects (Odisha) - Yet to (AP) - Auctioned 50 MW (DCR) Re-tendered Announce seven different Ministries Projects (AP) - Tendered 500 MW Gani Sakunala 250 MW Gujarat Solar Park Solar Park (AP) - Auctioned TII (Gujarat) - Tendered Others 420 MW Bhadla PII Solar 440 MW UP Solar Park TIII Park (Rajasthan) - (UP) - Tendered Auctioned Defence SECI - EPC Solar Canal Solar Projects NTPC Self Owned Solar Parks - 20 GW Establishments Projects 100 MW Projects - 10 GW 300 MW 2,000 MW 500 MW Ananthapuram 100 MW UP Solar Projects Solar Park TIV (AP) - (UP) - Auctioned Tendered MNRE Approved 33 250 MW Ananthapuram Solar Parks in 21 States PI Solar Projects (AP) - 230 MW Rajasthan Solar 1,000 MW Karnataka Solar with 19.9 GW Under Constructions Projects (Rajasthan) - Projects TV (Karnataka) - Tendered Tendered 260 MW Rajasthan Solar Projects - 600 MW Pavagada Solar Rajasthan (Auctioned) Park (Karnataka) - Tendered 250 MW Madhya Pradesh Solar Projects 400 MW Telangana Solar (MP) - In Negotiations Projects (Telangana) - Tendered 750 MW Ananthapuram PII Solar Projects (AP) - 250 MW (AP) Tendered to be tendered shortly 1,000 MW Pavagada Solar Park (Karnataka) Source: Mercom Capital Group, llc Tendered ©2016 Mercom Capital Group, llc.