INDIA SOLAR COMPASS 2017Q2 © BRIDGE to INDIA, 2017 2 Preface

INDIA SOLAR COMPASS 2017Q2 © BRIDGE TO INDIA, 2017 2 Preface

Dear Reader,

I am delighted to present to you our new, more comprehensive India Solar Compass. As the Indian solar market matures and grows in volumes, we have expanded the scope of this report to pack all vital information – tender and project updates, leading players, financing deal flow, policy status etc. The Compass aims to provide you with not just an update on the previous quarter but also an insight into the coming quarters. I hope that it will give you a unique vantage point on the sector dynamics in a concise yet comprehensive format.

I have no doubt that there is huge scope for improvement in both content and format. Please help us with your feedback.

The Compass shall be a paid report from next quarter onwards. You have a number of subscription options – for more details, please contact [email protected].

Sincerely,

Vinay Rustagi Managing Director

1. Introduction 5 2. Total installed capacity 6 3. Capacity addition 10 3.1 Slowdown in capacity addition in Q2 2017 10 3.2 Capacity addition estimate for Q3 2017 13 4. Leading players 15 4.1 Leading developers based on capacity commissioned in Q2 2017 15 4.2 Solar modules 15 4.3 Inverters 16 5. Tender progress updates 17 5.1 Increase in tender issuance (and cancellations) 17 5.2 Tender result announcements 21 5.3 Anticipated tenders 25 6. Pricing updates 26 6.1 EPC costs 26 6.2 Solar modules 26 6.3 Inverters 27 7. Financing 29 7.1 Equity funding 29 7.2 Debt funding 30 7.3 Mergers and acquisitions 31 8. Policy and regulatory updates 33 8.1 Central government 33 8.2 State governments 34 8.3 Other updates 35 9. Key market insights 38 9.1 GST implementation to result in temporary hiccups 38 9.2 Low tariffs to halt solar tracker market 38 9.3 India begins transition from 1,000V to 1,500V systems 39 10. Relevant international developments 40 10.1 Extension of China’s FIT deadline to delay cycle of 40 module price reduction 10.2 Suniva’s safeguard petition to add to increased 41 global Q3 and Q4 demand 10.3 US withdrawal from Paris accord not to have any 41 long-term impact on India 10.4 Increasing adoption of mono c-Si and PERC technology 42

Q2 2017 was a landmark period in the Indian solar sector, when tariffs fell below M 3.00/ kWh level making solar power the cheapest new source of power in India. At these tariff levels, solar power becomes financially attractive for distribution companies (DISCOMs) and other large users. It is no longer a regulatory or environmental compulsion.

But India’s energy transition is not proving to be easy. Tariff reduction of 40% in last year has resulted in several ongoing tenders being scrapped as states and other agencies are redesigning their procurement schemes. More worryingly, some states including Uttar Pradesh, Andhra Pradesh and Tamil Nadu are seeking to renegotiate or cancel previously allocated projects (at higher tariffs). It is a testing time for project developers, investors and lenders who are anyway facing many other challenges.

Key highlights of the quarter:

• More than 3,000 MW of new tenders were announced, greater than the aggregate of all new tenders announced in previous three quarters. But at the same time, 2,100 MW of tenders were scrapped. Slowdown in project allocation has become a major concern for developers, who are struggling to find new project opportunities and deploy their capital. This, in turn, is leading to fierce competition in tenders and reduced returns.

• After falling faster than expected over the last year, module prices started firming up towards the end of the quarter. Prices are expected to remain firm for another 2-3 months driven by strong demand from China and the USA (in anticipation of possible safeguard duties). Availability is also becoming very tight and is likely to lead to delays in project execution timelines for Q3 and Q4.

• Goods and Services Tax (GST) was introduced from July 1, 2017. The industry is relieved that modules qualify for a concessional rate of 5%, but there is still confusion about the rate on other equipment. Overall, we expect a net increase in project cost of 3-8% depending on GST rate for other equipment.

• On the financing side, private equity and M&A activity in the sector remains buoyant. There is huge investment interest in the sector and we expect M&A deal flow to accelerate as primary project pipeline slows down.

While the sector still presents an immense growth opportunity in the long run, developers and manufacturers face considerable challenges in the short run. But it can now be termed as a mature market, which means that all incentives and support mechanisms will be withdrawn over time as noted by the draft National Energy Policy (NEP).

India’s total installed solar power generation capacity reached 15,611 MW on June 30, 2017. Total project pipeline, where projects have been allocated to developers, stands at 12,250 MW.

Figure 2.1: Total installed and pipeline capacity as on June 30, 2017

Source: BRIDGE TO INDIA research Note: All figures are in MW

Performance of leading states for both utility scale solar and rooftop solar is shown in the following charts.

Source: BRIDGE TO INDIA research

Notes 1. The Jharkhand state tender for 1,200 MW, issued in March 2016, is not included as it is likely to be cancelled. 2. All numbers and comments in this report apply to utility scale solar unless explicitly mentioned for rooftop solar.

Source: BRIDGE TO INDIA research

Top 20 developers account for 60% of total commissioned and pipeline capacity. Greenko has commissioned the highest capacity so far (1,082 MW). Adani (1,157 MW) and Acme (1,150 MW) have the largest capacities in pipeline.

Source: BRIDGE TO INDIA research Note: HPPPL- Hindustan Power Projects Private Limited

After a bumper Q1 2017 (end of FY17), pace of commissioning in Q2 2017 was relatively slow. While anticipated capacity addition, based on PPA signing dates and commissioning schedule, was around 3,300 MW, actual addition was only 1,437 MW. Out of this, 635 MW (44%) came from central policy projects and 802 MW (56%) from state policy projects.

1,047 MW (75%) of the commissioned capacity was in the open category while the remaining was under domestic content requirement (DCR).

Figure 3.1 New capacity addition in Q2 2017

Source: BRIDGE TO INDIA research

Telangana installed the highest capacity in Q2. The state is also likely to deploy more capacity than any other state in the coming quarter.

Source: BRIDGE TO INDIA research

Key reasons for slippages in capacity addition

Telangana 2,000 MW tender: Around 1,680 MW of the 2,000 MW tender was due to be commissioned in Q2 but only 640 MW came online bringing total capacity commissioned so far to 920 MW. Several projects have faced delays due to land related issues, delays in statutory approvals etc. Key developers who commissioned capacities in Q2 are Shapoorji Pallonji (100 MW), ReNew (143 MW) and Acme (255 MW).

SECI Maharashtra 450 MW tender: The tender saw only 170 MW come online by three developers - Orange renewables (100 MW), Bhageria Industries (30 MW) and Sepset constructions (40 MW). Another 180 MW capacity (Atha group, Suzlon and SolarArise) is likely to be commissioned in Q3 2017.

The remaining 100 MW capacity allocated to Welspun is unlikely to be commissioned during the next six months. When Welspun sold its project portfolio to Tata Power in September 2016, it retained the 100 MW project because of Solar Energy Corporation of India (SECI) stipulation that developers cannot sell more than 49% stake until a year after commissioning. Welspun has paid M 84 million in delay penalties and filed a petition in the Delhi High Court to restrain SECI from cancelling the project.

NTPC Rajasthan 420 MW tender: Projects under this tender were due to be commissioned in Q1 2017. 140 MW was commissioned by Fortum (70 MW) and Rattan India (70 MW) in Q1 2017 while Solairedirect has partially commissioned its 90 MW project in Q2 2017. Remaining 190 MW capacity (Rising Sun and Solairedirect) is likely to be commissioned in Q3 2017.

© BRIDGE TO INDIA, 2017 11 Madhya Pradesh 300 MW tender: 150 MW of capacity awarded to SkyPower was due to be commissioned in Q2 2017 but commissioning is likely to be delayed beyond Q4 2017. Remaining 150 MW has already been commissioned in previous quarters.

Punjab 500 MW tender: These projects were due for commissioning in Q4 2016 and there is still around 125 MW pending. Pending projects were awarded to Today Group and there is a lack of clarity about their commissioning status.

Figure 3.3 Actual commissioning vs anticipated commissioning for Q2 2017

Source: BRIDGE TO INDIA research, company interviews Note: Anticipated commissioning estimates include slippages from previous quarters

Rooftop solar - Around 264 MW of capacity is estimated to have been added in Q2 (137% increase over Q2 2016), which saw a rush for completion of projects due to the impending GST implementation.

Around 1,565 MW of new capacity is expected to come online in the current quarter. Andhra Pradesh is likely to add 500 MW under the Andhra Pradesh Power Generation Corporation Limited (APGENCO) tender and Telangana is expected to add 420 MW under its 2,000 MW state tender.

Figure 3.4: Likely capacity addition in Q3 2017

Source: BRIDGE TO INDIA research

Rooftop solar - Pace is expected to slow down in the current quarter and around 200 MW is expected to be added in Q3 2017.

4.1 Leading developers based on capacity commissioned in Q2 2017

Acme deployed the largest capacity amongst all developers, followed by NTPC, ReNew, Adani and Azure Power.

Figure 4.1 Developer-wise capacity installed in Q2 2017

Source: BRIDGE TO INDIA research Note: The data does not include partly commissioned projects (177MW).

4.2 Solar modules

Talesun was the largest module supplier for projects commissioned in Q2 2017, accounting for around 180 MW of capacity. It was followed by Hareon (143 MW) and JA Solar (120 MW). The share of Indian module manufacturers was 31% (390 MW), accounted almost entirely by DCR projects.

Source: BRIDGE TO INDIA Research Note: The data does not include partly commissioned projects (177MW).

4.3 Inverters

Four companies – ABB, Hitachi, Sungrow and SMA – supplied around 80% of the inverters installed in Q2 2017.

Figure 4.3 Market share of inverter suppliers in Q2 2017

Source: BRIDGE TO INDIA research Note: The data does not include partly commissioned projects (177 MW) as well as projects commissioned under the Andhra Pradesh 150 MW DCR tender.

After three slow quarters, there was an encouraging increase in new tender announcements in Q2 2017. Capacity tendered in Q2 2017 – 3,150 MW – was higher than total capacity of 2,925 MW tendered in three previous quarters taken together.

Figure 5.1 New tender announcements and allocations

Source: BRIDGE TO INDIA research

Figure 5.2 Number of tenders announced in Q2 2017

Source: BRIDGE TO INDIA Research

© BRIDGE TO INDIA, 2017 17 The largest tender in Q2 2017 was issued by Tamil Nadu Generation and Distribution Corporation Limited (TANGEDCO) for 1,500 MW. Other new notable tender was issued by SECI (750 MW Bhadla solar park). Power output from this project is expected to be sold to Uttar Pradesh.

Figure 5.3 Tenders announced in Q2 2017

Source: BRIDGE TO INDIA Research

Table 5.1: Key details for new tenders announced in Q2 2017

Tamil Nadu 1,500 MW Tender issue date May 2017 Tendering authority/ offtaker TANGEDCO Capacity 1,500 MW Location Tamil Nadu Tender scope Project development Category Open Allocation basis Tariff bidding Solar park availability None Benchmark tariff M 4.00/ kWh Project size Up to 1,500 MW Financial criteria Net worth equal to or greater than INR 1 million/ MW Deposits and bank guarantees Earnest money deposit (EMD)- M 25,000/ MW (for project capacity less than 100 MW); M 50,000/ MW (for project capacity more than 100 MW)

Performance bank guarantee (PBG) - M 3,000,000/ MW

© BRIDGE TO INDIA, 2017 18 SECI Rajasthan 250 MW Tender issue date June 2017 Tendering authority/ offtaker SECI Capacity 250 MW Location Rajasthan Tender scope Project development Category Open Allocation basis Tariff or Viability Gap Funding (VGF) bid Solar park availability Bhadla solar park, phase IV Benchmark tariff; VGF M 3.43/kWh; M 10,000,000/ MW Project size 50-250 MW (in increments of 50 MW) Financial criteria None Deposits and bank guarantees EMD: M 1 million/ MW PBG: M 2 million/ MW

SECI Rajasthan 500 MW Tender issue date June 2017 Tendering authority/ offtaker SECI Capacity 500 MW Location Rajasthan Tender scope Project development Category Open Allocation basis Tariff or VGF bid Solar park availability Bhadla solar park, phase: III Benchmark tariff ;VGF M 3.43/kWh; M 10,000,000/ MW Project size 50-500 MW Financial criteria None Deposits and bank guarantees EMD: M 1 million/ MW PBG: M 2 million/ MW

Gujarat 500 MW Tender issue date June 2017 Tendering authority/ offtaker Gujarat Urja Vikas Nigam Ltd. (GUVNL) Capacity 500 MW Location Gujarat Tender scope Project development Category Open Allocation basis Tariff bid Solar park availability None Benchmark tariff ;VGF - Project size 25-500MW Financial criteria Net worth greater than M 15 million/ MW Deposits and bank guarantees EMD: M 1 million/ MW PBG: M 5 million/ MW

© BRIDGE TO INDIA, 2017 19 Gujarat 150 MW Tender issue date June 2017 Tendering authority Gujarat State Electricity Corporation Limited (GSECL) Offtaker GUVNL Capacity 150 MW Location Gujarat Tender scope EPC Category Open Allocation basis EPC cost Solar park availability Charanka solar park Project size 50-150 MW Financial criteria Combined turnover for last three financial years of at least M 5.4 billion Technical criteria EPC experience of at least 100 MW, minimum 50 MW in India Bank guarantee 10% of EPC contract price

Andhra Pradesh 100 MW Tender issue date April 2017 Tendering authority APGENCO Offtaker Andhra Pradesh Southern Power Distribution Company Capacity 100 MW Location Andhra Pradesh Tender scope EPC Category Open Allocation basis EPC Solar park availability Ananthapuramu solar park Project size 100 MW Financial criteria Average annual turnover of the bidder should not be less than M 2.03 billion during the preceding three completed financial years Technical criteria Minimum solar EPC of 40 MWp Deposits EMD: M 50.7 million

Hindustan Salts 100 MW Tender description Hindustan Salts, a government owned company has invited EPC bids for this project. The bidder offering highest share of revenue to Hindustan Salts will be the winner. Tender issued May 2017 Tendering authority Hindustan Salts Capacity 100 MW Tender scope EPC

© BRIDGE TO INDIA, 2017 20 Neyveli Lignite Corporation 20 MW Tender description NLC has invited bids for 2 x10 MW projects integrated with 28 MWhr battery storage at Port Blair, South Andaman. Tender issued May 2017 Tendering authority Neyveli Lignite Corporation (NLC) Capacity 20 MW Tender scope EPC and O&M

Puducherry 30 MW Tender description Government of Puducherry has issued an expression of interest for buying 30 MW of solar power. The rate of purchase of power will be determined by the Joint Electricity Regulatory Commission (JERC). Tender issued May 2017 Tendering authority Government of Puducherry Capacity 30 MW Tender scope EPC

In a big setback to the sector, eight tenders with an aggregate capacity of 2,130 MW have been cancelled. Out of this, 325 MW of project capacity was cancelled post allocation (EPC tenders by Coal India and NTPC). Primary reason for cancellation is steep reduction in tariffs seen in recent tenders (SECI Rajasthan, Bhadla solar park - M 2.44/ kWh project), which is creating uncertainty in DISCOM power purchasing plans.

Table 5.2: Cancelled tenders

Tendering authority Capacity (MW) Date of tender Location Tender scope issuance SECI 500 Q2 2016 Andhra Pradesh Project development 200 Q3 2016 Karnataka Project development 150 Q2 2016 Andhra Pradesh Project development 100 Q3 2016 Andhra Pradesh Project development

NTPC 750 Q1 2016 Andhra Pradesh EPC

Sambhar Salts 100 Q4 2016 Rajasthan EPC

NLC 130 Q1 2016 Rajasthan EPC

Coal India Limited 200 Q1 2016 Madhya Pradesh EPC

5.2 Tender result announcements

Tenders results were announced for a total capacity of 2,500 MW in Q2 2017. The quarter saw the lowest ever bid for solar tariffs at M 2.44/ kWh.

Source: BRIDGE TO INDIA research Note 1. Tariffs shown for Madhya Pradesh 750 MW (Rewa) tender are levelized tariffs. 2. We have shown levelized tariffs for projects with VGF availability.

NTPC Andhra Pradesh 250 MW (Kadapa solar park)

The tender was oversubscribed with aggregate bids received for 1,250 MW. Lowest bid of M 3.15/ kWh was submitted by Engie-owned Solairedirect. We understand that Andhra Pradesh is now reluctant to buy this power.

Figure 5.5 Bid results of NTPC Andhra Pradesh 250 MW tender

Two separate auctions were conducted for capacities of 250 MW and 500 MW respectively by SECI in Bhadla, Rajasthan. The tenders were highly oversubscribed (~x12) and intense competition led to record new lows in solar tariffs (Competition in the Indian solar market intensifies further ). Winning bidders include Acme (M 2.44/ kWh, 200 MW), Softbank (M 2.45, 300 MW), Phelan (M 2.62, 50 MW), Avaada (M 2.62, 100 MW) and SB Energy (M 2.63, 100 MW).

Figure 5.6 Bid results of SECI Rajasthan 250 MW (Bhadla solar park) tender

Figure 5.7 Bid results of SECI Rajasthan 500 MW (Bhadla solar park) tender

Unlike other tenders, this tender was under-subscribed because of poor tender design (for example, requirement for developers to own land before bidding). TANGEDCO received bids from 22 developers for a total capacity of only 300 MW. The lowest tariff submitted was M 4.40/ kWh. However, after TANGEDCO received bids for another 1,500 MW tender (see below) with lowest tariff of M 3.47/ kWh, it cancelled this tender.

Tamil Nadu 1,500 MW

This tender was over-subscribed despite TANGEDCO’s poor rating and dismal record in previous tenders. Bids were received from 39 companies for a total capacity of 3,774 MW. State-owned NLC, which bid for entire 1,500 MW capacity, was awarded the highest capacity of 709 MW. Raasi Green Earth Energy quoted the lowest tariff of M 3.47/ kWh, the lowest tariff in the state so far, and matched by all other winning bidders.

Figure 5.8 Bid results of Tamil Nadu 1,500 MW tender

As of June 30, 2017, allocation of projects aggregating to 1,360 MW capacity for utility scale and 500 MW for rooftop solar is pending.

Tendering authority Capacity (MW) Date of tender Location Tender scope issuance NTPC 750 Q1 2017 Karnataka EPC 17 Q4 2016 Andaman and Nicobar Islands EPC 8 Q4 2016 Andaman and Nicobar Islands EPC

NLC 500 Q4 2016 Tamil Nadu EPC

SECI 50 Q2 2016 Himachal Pradesh Project development

35 Q2 2016 Puducherry Project development

SECI (Rooftop solar) 500 Q4 2016 Pan India 50 MW EPC and 450 MW Project development

5.3 Anticipated tenders

There is usually very little visibility on upcoming tenders but we believe that SECI is likely to announce tenders of 680 MW capacity in the coming months. State EPC tenders from Karnataka and Maharashtra are also likely to be announced in Q3 2017. We do not expect any new tenders from NTPC in this quarter.

Table 5.4 Tenders likely to be announced shortly

Tendering authority Capacity (MW) Location Solar park Tender scope availability SECI 200 Karnataka Yes Project development 250 Chhattisgarh Yes Project development 230 Odisha No Project development - Bihar - Project development - Delhi - Project development - Uttar Pradesh No Project development

Karnataka Renewable Energy 200 Karnataka Yes EPC Development Ltd.

Maharashtra State Power 150 Maharashtra No EPC Generation Corporation Ltd

Source: BRIDGE TO INDIA research

EPC costs dropped by 6% to M 33/ W in Q2 2017 but increase in module prices coupled with GST implementation is expected to lead to a 11% increase in Q3 2017.

Figure 6.1: BTI India Solar EPC Price Index

Source: BRIDGE TO INDIA research

6.2 Solar modules

Module prices for delivery in Q2 were around USD 0.30 / Wp. The slower rate of decrease in prices in Q2 was owing to high demand in China with its annual June 30 commissioning deadline under the FIT scheme. With announcement of FIT extension by some provinces in China and imposition of 5% GST, Q3 prices are expected to be higher by USD 2-3 cents.

Figure 6.2: BTI India Solar Module Price Index

Source: BRIDGE TO INDIA research

Most players have reported a stabilization in prices for 1,000 V central inverters at around M 1.80/ W. Many inverter suppliers have also recently launched 1,500 V products and built an order pipeline of about 1 GW. This is a premium market but we understand that there is no material price differential.

Figure 6.3: BTI India Solar Inverter Price Index

Source: BRIDGE TO INDIA research

Private equity (PE)

Q2 2017 continued to see sustained flow of PE money in the sector with total funding of USD 514 million (+ 6% over Q1 2017). The highlight was Actis committing USD 500 million to SPRNG, a new India-centric solar power platform.

Figure 7.1: PE fund inflow in the Indian solar sector

Source: BRIDGE TO INDIA research, news reports

Table 7.1: Key PE transactions in 2016-2017 No Company Investor Amount (USD MN) Quarter 1 Greenko Abu Dhabi Investment Authority 150 Q2 2016 GIC, Singapore 80

2 Ezon Energy Solutions Natori Nohisa, Japan 20 Q4 2016

3 Hero Future Energies IFC 125 Q1 2017

4 ReNew Power JERA, Japan 200 Q1 2017

5 IgrenEnergi BB Tower, Japan NA Q1 2017

6 Greenko GIC, Singapore 124 Q1 2017 Abu Dhabi Investment Authority 31

7 Oriano Solar SIDBI (Smridhi Fund) 3 Q1 2017

8 SPRNG Actis 500 Q2 2017

9 Mera Gaon Power Engie Impact Fund, ElectriFI 3 Q2 2017

10 Azure Power Hareon Solar 11 Q2 2017

Source: BRIDGE TO INDIA research

The three main listed renewable IPP stocks – Azure, Mytrah and Orient – continued to display high volatility and traded in line with or below respective indices. ReNew Power’s and Acme’s planned IPOs are believed to be about 12 months away.

Figure 7.2: Renewable stocks trading pattern vs indices

Source: BRIDGE TO INDIA research

7.2 Debt funding

Indian bank lending rates continue their downward trajectory. State Bank of India’s Marginal Cost of fund based Lending Rate (MCLR) was 8% in Q2 2017 (down from 10%, 3 years ago). Solar projects are able to raise up to 20-year Rupee denominated project financing debt at a cost of around 9.25-10.00% per annum.

Table 7.2: State Bank of India MCLR - (1 year) June 2014 10.00% June 2015 9.70% June 2016 9.15% June 2017 8.00%

Source: State Bank of India website

Offshore debt raising

Offshore debt market continues to be an important source of funds for the Indian solar market. Tata Cleantech raised USD 40 million in the form of green bonds from IFC..

Company Facility Amount (USD million) Quarter Greenko Green bonds 500 Q3 2016

State Bank of India World Bank line of credit 625 Q3 2016

ACME Piramal Finance mezzanine facility 74 Q3 2016

Yes Bank Green bonds issued to FMO 50 Q3 2016

ReNew Power ADB (LEAP) 390 Q1 2017

ReNew Power Masala bond 450 Q1 2017

State Bank of India EIB line of credit 200 Q1 2017

Tata Cleantech Green bonds issued to IFC 40 Q2 2017

Source: BRIDGE TO INDIA research

7.3 Mergers and acquisitions

M&A market remained highly active although no new deals closed in Q2. Many PE funds and developers (Ostro, Orange and Equis, amongst others) are understood to be looking to sell part or whole of their project portfolios. Buyer interest remains high at a time when the primary project pipeline is relatively slow.

Figure 7.3: M&A activity in the Indian renewable sector

Buyer Seller Capacity Stake Deal Value Quarter acquired (USD MN) Greenko SunEdison 587 MW 100% 42 Q1 2016

CLP India Suzlon 100 MW 49% 11 Q2 2016

Amplus Energy SunEdison (rooftop) 7 MW 100% - Q2 2016

Tata Power Welspun 1140 MW 100% 545 Q3 2016

Canadian Solar Suzlon 30 MW 49% 4 Q4 2016

Unisun Suzlon 15 MW 49% 2 Q4 2016

IDFC Punj Lloyd 45 MW 100% 15 Q4 2016

Ostro Energy Suzlon 50 MW 49% 7 Q4 2016

DPSC Punj Lloyd 30 MW 49% - Q4 2016

Hinduja Group Fonroche 22 MW 100% - Q4 2016

AMP Solar Suzlon 15 MW 49% 2 Q4 2016

Source: BRIDGE TO INDIA research

GST rate of 5% for solar equipment

The new GST regime became applicable from July 1, 2017. Solar power generating system, equipment and parts have been placed under the lowest rate slab of 5%. However, there is still confusion on GST rate on equipment other than modules (GST launched but clarity still missing for the solar sector ). We understand that many companies are selling equipment with a GST rate of 5% but seeking an undertaking from the buyer that the latter will bear extra cost if applicable GST rate is eventually determined to be 18%.

Prior to implementation of GST, various tax incentives including zero or concessional value added tax (VAT) and excise duty exemptions were available for the industry. The sector will cease to enjoy all these sundry exemptions except customs duty concessions. http://pibphoto.nic.in/documents/rlink/2017/may/p201751905.pdf

Draft NEP recommends exposing renewable energy to market discipline

NITI Aayog has issued draft NEP to chart the way forward for Indian government to meet its commitments on energy access, climate change and renewable energy capacity addition. It proposes four national energy objectives — access at affordable prices, improved security and independence, greater sustainability and economic growth. Key recommendations relating to renewables include:

1. Gradual removal of various financial and non-financial incentives given to renewable energy including capital subsidies, waivers on inter-state transmission charges and the ‘must run’ status;

2. Significant investment in renewable energy integration into the grid and building the cost of grid balancing into final price of renewable energy;

3. Separation of content and carriage to promote competition in the power distribution segment and ensure DISCOM commercial viability;

4. Replacement of cross-subsidy surcharge with a new tax on purchase of electricity; http://niti.gov.in/writereaddata/files/new_initiatives/NEP-ID_27.06.2017. pdf

The Ministry of Power has extended the waiver for inter-state transmission charges and losses for solar projects until end-December 2019. The waiver is only applicable to projects selling power to the DISCOMs under a competitive bidding process. The waiver will help in supporting sector growth in resource rich regions such as Rajasthan, Gujarat and Madhya Pradesh. http://powermin.nic.in/sites/default/files/webform/notices/amendment_ order_of_30th_Sep_2016_waiver_of_inter_state_0.pdf

SECI reduces benchmark tariff for utility and rooftop solar projects

SECI reduced benchmark tariff to M 3.43/ kWh in its Rajasthan 750 MW (Bhadla solar park) tender, announced in Q2 2017, down from M 3.93/ kWh for a similar 750 MW Rajasthan tender issued in Q4 2016. The reduction comes after steep fall in tariffs to M 2.44/ kWh in recent Rajasthan auction.

SECI also reduced the benchmark tariff for grid-connected solar rooftop projects in its 500 MW rooftop tender from M 7/ kWh and M 4.82/ kWh to M 5.97/ kWh and M 4.42/ kWh for general category and special category states, respectively.

The reduction in benchmark tariffs is meant to be consistent with falling cost of solar equipment and is expected to increase offtaker interest in solar power. http://www.seci.gov.in/upload/uploadfiles/files/RfS%20500%20MW%20 ILFS(Bhadla%20III)%20NSM%20Ph-II%20B-IV%20T-XI_Final%20Uploaded. pdf

8.2 State governments

Andhra Pradesh lays a time bound mechanism for power evacuation from solar power plants

The regulation lays down a mechanism for interconnection and power evacuation from all renewable energy power plants in the state. DISCOMs and state transmission company are held responsible for augmentation of transformer capacity within a time bound manner. They are also mandated to sign off on technical feasibility proposal for evacuation within 14 days. While the regulation provides respite to developers by fixing responsibilities of various authorities for evacuation of power, it doesn’t include any penalty mechanism for non-compliance. http://www.aperc.gov.in/aperc1/assets/uploads/files/8d9e9-power-evac_ reg_-3of2017.pdf

In view of declining capital cost of solar projects, Maharashtra Electricity Regulatory Commission (MERC) has reduced benchmark tariffs by about 15% to M 5.13/ kWh and M 4.74/ kWh (without and with accelerated depreciation respectively) for solar projects commissioned in 2017-18. This tariff is determined for a period of 13 years. http://www.mercindia.org.in/pdf/Order%2058%2042/Order-33%20of%20 2017-28042017.pdf

Karnataka Electricity Regulatory Commission (KERC) has also revised benchmark tariff for solar projects from M 6.51/ kWh to M 4.36/ kWh. http://www.karnataka.gov.in/kerc/Documents/Revision%20of%20tariff%20 for%20Grid%20Interactive%20Megawatt%20scale%20Solar%20Power%20 Plants%20for%20FY18.pdf

8.3 Other updates

1. Ministry of New and Renewable Energy (MNRE) has mandated solar equipment manufacturers, sellers and distributors to abide by Indian standards under the draft quality control solar PV systems, devices and components goods order 2017. http://mnre.gov.in/file-manager/UserFiles/Draft-Quality-Control-SPV- Systems_%20Devices_&_Components-goods-order.pdf

2. MNRE has amended guidelines for disbursal of national clean energy fund (NCEF) grant towards green energy corridor projects. http://mnre.gov.in/file-manager/UserFiles/Revised_guidelines_for_ GEC_27062017.pdf

3. SECI has amended guidelines for 5,000 MW of grid-connected solar projects under batch IV of phase II of NSM to allow for states other than the host state to buy entire or part project capacity. http://mnre.gov.in/file-manager/UserFiles/Amendment-Scheme-for- over-5000MW-Grid-Connected-SPV-Power-Projects-with-VGF-under- JNNSM-22062017.pdf

4. Government of Gujarat has amended its solar policy to remove 50% cap of sanctioned load for solar rooftop installations. http://geda.gujarat.gov.in/media/Amendment_in_the_Provisions.pdf

5. Gujarat Energy Regulatory Commission has levied an additional surcharge of M 0.49/ kWh on open access consumers for Apr-Sep, 2017. http://gercin.org/uploaded/document/82940f17-740a-432a-ace6- 4fc3faa65398.pdf

© BRIDGE TO INDIA, 2017 35 6. Telangana State Electricity Regulatory Commission has approved transmission charges of M 56.30/ kW/ month and M 73.12/ kW/ month for FY 18 and FY19, respectively. http://www.tserc.gov.in/file_upload/uploads/Tariff%20Orders/ Current%20Year%20Orders/Transmission%20Tariff%20Order%20 3rd%20CP%20BP.pdf

7. Telangana DISCOM, Telangana State Southern Power Distribution Company Limited, has mandated advance payment for wheeling charges for open access consumers. https://www.tssouthernpower.com/ShowProperty/CP_CM_REPO/ Pages/Hotlinks/HotlinksHome/Open%20Access%20Consumers

8. Madhya Pradesh Electricity Regulatory Commission has proposed a penalty for more than 15% deviation in scheduled power desptach under draft regulation on deviation settlement mechanism. http://www.mperc.nic.in/260517-Model-DSM-Regulations-State.pdf

9. Bihar plans to add 2,969 MW of solar energy capacity as per its new renewable energy policy. http://energy.bih.nic.in/docs/Renewable-Energy-Sources-2017.pdf

GST implementation is not expected to have any material long-term impact on solar sector in India. We expect project costs to increase by 3-8% post GST implementation depending on GST rate for other equipment, which should be negated by ongoing fall in equipment costs and interest rate. However, we expect some short-term challenges in developers and EPC players claiming the concessional rate of 5% on all equipment while processes are being streamlined and clarified. The following table assesses the likely impact of GST implementation on price of major equipment.

Table 9.1: Likely impact of GST implementation on solar projects Components Taxes under previous tax regime Taxes under GST Resultant change in cost Cells and Exempted from all duties; VAT 5% ↑ by 5% in states with modules applicable as per state-specific (For domestic manufacturers and zero VAT rates importers alike)

Solar Total customs and excise duty BCD of 10% + IGST of 5%; ↑ by 2-3% (with inverters of 28.44% (effective 5.15% after Concession on customs duty is customs duty availing concessions) expected to continue; concessions) Exemption on excise duty has been discontinued

All services Service tax of 15% 18% ↑ by 3%

Total EPC by 3-8% 9.2 Low tariffs to halt solar tracker market

The market for solar trackers in India has grown rapidly to reach an installed capacity of 1.6 GW by March 2017. We estimate Q2 tracker installations at 450 MW and expect another 800 MW installation in Q3. Overall, we estimate that 12-15% of new projects in 2017 will use trackers.

Figure 9.1: Solar tracker installations in India

Source: BRIDGE TO INDIA research

© BRIDGE TO INDIA, 2017 38 The Indian tracker market is dominated by foreign players like USA-based NEXTracker and China-based Arctech Solar, with domestic suppliers including Mahindra Susten and Scorpius holding a relatively small share. NEXTracker is setting up a manufacturing facility in India, which is expected to commence production in Q3 2017. Meanwhile, Mahindra, which currently sells more than 95% of its solar trackers in India, plans to expand its international reach and expects India to account for only 20-30% of its total installations in 2018.

More than 20% of the ground mounted solar projects globally are installed with trackers. This number stands at 70% in the USA, global leader in this market, but only 12.5% in India. Trackers have been gaining market share in India but are expected to lose their value proposition with sharp fall in module prices. As against additional power output of 9-14%, additional capital expenditure for trackers is estimated to be M 3.50-4.50/ Wp (10-13% of total capital expenditure) in India.

9.3 India begins transition from 1,000V to 1,500V systems

With tariffs falling dramatically in the last year, developers are looking to further optimize project capital expenditure. Transition to 1,500V architecture can help by reducing costs due to i) reduction in number of inverters by approximately 30%; ii) reduction in number of combiner boxes by 50%; iii) consolidation of peripheral electrical equipment such as cables due to larger block sizes; iv) reduction in labour costs; and v) reduced losses at higher voltages. Savings can amount up to USD 0.05/W (around 9% of total capital expenditure)though there can be large variations across different sites. 1,500V systems accounted for around 9% of total world-wide capacity installed in 2016.

Based on our discussions with developers, a few projects are already being implemented using 1,500V systems and there is substantial new capacity in pipeline. Amongst module suppliers, First Solar is implementing two projects (60MW and 40MW) in Andhra Pradesh and Karnataka. The company, which now produces only 1,500V compatible modules is strategically pushing for adoption in the market by opting to implement all future projects as 1,500V systems.

The Indian supply chain is still not geared fully for compatible BOS equipment meaning that there are pricing and availability challenges. But we expect a near-complete transition to 1,500V systems within two years.

Given that China accounts for more than 40% of global PV demand and more than 60% of global solar module supply, a change in demand-supply dynamics in China has major repercussions for international module prices.

Q2 typically see a surge in solar project installations in China because of the annual FIT deadline in at the end of June month. In 2016, around 15 GW of the annual installed capacity of 34 GW was commissioned in Q2. Q2 2017 has also seen considerable new capacity addition of 17.2 GW. This Q2 rush usually results in stabilization or firming up of solar module prices during middle of the year. As evidence, module price in India fell by only 5% during H1 2016 but by nearly 15% in H2 2016.

For 2017, a few provinces in China have extended their FIT 2016 deadline until September 2017 while most others have extended the same until July 2017. Moreover, the 9 GW ‘Top Runner’ programme deadline will run until September 2017. Spillover of module demand to Q3 means that module prices in India have been firming up in the last few months posing problems for Indian developers banking on steep price falls in Q3.

Figure 10.1: Quarterly solar installation capacity in China

Source: BRIDGE TO INDIA research

The US based solar cell and module manufacturer, Suniva, filed a petition with the US International Trade Commission (ITC) in April 2017 for levying a tariff on imports of solar cells and a minimum price for module imports. ITC will reach a decision September 22, and a recommendation for action will be sent to President Trump by November 13. A potential levy of USD 0.40/W on cells and a floor price of USD 0.78/W on modules could more than double the cost of imported c-Si modules, resulting in a US demand shock.

A decline in US demand would leave cell and module manufacturers across the world with excess capacity, with negative consequences on future pricing. Meanwhile, the uncertainty regarding this decision is resulting in an installation rush in Q3, increasing the pressure on module supply in this quarter globally.

10.3 US withdrawal from Paris accord not to have any long-term impact on India

The US withdrawal from Paris treaty is not expected to have any long-term impact on the growth of solar market in the USA or the world (Renewable sector to ‘trump’ Trump ). The global solar market, which was given an initial push by political commitments and national policies is now increasingly driven by economic rationale. This was made evident when various states within the USA including California, Washington, New York and Massachusetts as well as most other nations including Germany, France, Italy, China and India reaffirmed their commitment to mitigate climate change even after the Federal government announcement.

One potential short-term impact on developing countries including India may be a reduction in flow of aid funds from the USA. US government agencies such as Overseas Private Investment Corporation and United States Agency for International Development have been very active in promoting the growth of solar sector through various financial support and technical advisory initiatives. Suspension of such initiatives may impact the Indian market in the short-term but with declining costs of solar power generation and high investor interest in the market, we believe that India would be able to mitigate any negative impact easily by suitable planning and recalibration of its various programmes.

The crystalline silicon (c-Si) technology, continues to dominate the global market, comprising more than 90% of the total photovoltaic module shipments in 2016 with the rest being accounted for by thin film technology. Within c-Si modules, poly-crystalline modules accounted for a dominant share of around 70% in 2016. However, the annual market share in wafer production of mono- crystalline modules, which are around 2 percentage points more efficient than poly-crystalline modules, has gradually increased from 20% in 2012 to 29% in 2016, and is expected to further increase to 37% by 2020. The increasing uptake of mono c-Si is mainly because of the narrowing price differential between the mono and poly technologies from 20% in 2014 to 8% in June 2017.

China has already taken policy steps towards increasing adoption of mono c-Si and passivated emitted rear cell (PERC) modules. Through its ‘Top Runner’ programme, it is incentivizing investment in high efficiency cells, modules and inverters. By September 2017, it is expected to have a cumulative installed capacity of 14-16 GW under higher efficiency modules programme. It is mainly due to this push that leading manufacturers of like LONGi have witnessed an annual growth of 98% in shipment of mono c-Si cells and modules in 2016. LONGi plans to add a 5 GW dedicated mono ingot facility and another 5 GW ingot and wafer plant to cater to the increased demand for mono c-Si modules. Other major companies including GCL, SunPower, JA Solar and Jinko Solar have similar expansion plans. Global share of mono c-Si and mono PERC technologies is expected to continue to increase as economies of scale in production further reduce their costs but adoption in India is expected to take longer given the extreme price sensitivity of the market.

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