Latest update on the state of India’s solar energy sector.
India’s ‘best ever’ quarter in terms of solar capacity addition.
Despite the sun shining bright on India’s solar market, lower installations will cloud the industry’s prospects, a report has said. Mercom India Research’s newly released Q1 2018 India Solar Market Update report said 3,269 MW of solar capacity being installed in the country’s “best ever” quarter.
The report found that installations rose by 34 per cent compared to 2,991 MW installed in Q1 of 2017, though the record quarter was partly made up of projects commissioned for Q4 2017, but could not be completed due to grid connection issues.
In spite of the record quarter, the report is forecasting lower solar installations of approximately 8-9 GW in calendar year 2018, which is lower than 9.6 GW installed in 2017. This can be attributed to a smaller pipeline of projects caused by the air of uncertainty surrounding the safeguard duty (imposed during import surges to protect the local industry) and a slowdown in procurement by DISCOMs as higher module prices drove up auction bids.
“Even though Q1 was a record quarter, solar procurement activity has been muted over the last few quarters,” said Raj Prabhu, CEO and co-founder of Mercom Capital Group. But he hopes that with a potential decline in module prices, tariffs are expected to decline with distribution companies ramping up procurement activity.
According to the report, some of the challenges that are stalling solar development activities are:
-An obscure safeguard duty - a clarity is urgently needed on how it will be imposed and at what levels to shore up the development activity that has slowed down.
-Issues relating to the Goods and Services Tax (GST) are cropping up again in some states. As the adoption of solar continues to rise, many states have started to implement deviation charges on wind and solar projects for over and under generation of power.
-The Q1 India Solar Market Update revealed that rooftop solar has been growing at a healthy pace but is very dependent on government tenders and projects. Open access projects were really sought after, but slowly states are making them less attractive by levying wheeling and banking charges.
-Residential solar is still untapped as financing and upfront costs continue to be big challenges. Government subsidies are not getting paid on time, affecting small installers.
According to the report, large-scale projects accounted for 88 per cent of the installations with 2,879 MW compared to 2,188 MW in Q4 2017 and 2,746 MW installed in Q1 2017. Rooftop installations accounted for 12 per cent of the installations with 390 MW, which was up compared to 260 MW installed the previous quarter and 245 MW installed in the first quarter of 2017.
The large-scale solar project pipeline for India stands at 9.7 GW with 10.2 GW tendered and pending auction as of the end of Q1 2018.
The uncertainty around the trade case has put a freeze on development activity and needs to be resolved immediately. The industry needs clarity on the safeguard duty to understand how it will be imposed and at what levels. Even with the announcement of the pass-through provision, concerns remain, and the industry wants a step-by-step implementation plan on paper with proper approvals.
The withdrawal of the anti-dumping petition was welcomed by many developers and EPCs, but the Indian Solar Manufacturers Association (ISMA) said that it intends to refile the case with new data. There is speculation that the case may be withdrawn if a satisfactory level of safeguard duty is imposed.
Issues relating to the Goods and Services Tax (GST) are cropping up again in some states, while custom duty issues at ports are now mostly resolved. As the adoption of solar continues to rise, multiple states have started to implement deviation charges on wind and solar projects for over and under generation of power. The Q1 India Solar Market Update found that rooftop solar has been growing at a healthy pace but is very dependent on government tenders and projects. Open access projects were really sought after, but slowly states are making them less attractive by levying wheeling and banking charges. Residential solar is still untapped as financing and upfront costs continue to be big challenges. Government subsidies are not getting paid on time, affecting small installers.
On the bright side, solar module average selling prices (ASPs) began to decline in Q1 2018 after two consecutive quarters of increasing prices. The safeguard duty threat and rising module prices were the biggest challenges in the second half of 2017 and with module prices trending down we can expect procurement activity to pick up.
“It now comes down to how the safeguard duty will be handled. Will the government apply a low tariff which could be easily absorbed by the industry as Chinese module prices decline or will trade cases drag on continuing to create uncertainty in the near future? There is a clear opening for the government right now to use this opportunity to lay the path for growth. Overall, things are looking much brighter for the Indian solar industry going into the second half of 2018,” added Prabhu.