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Renew | January 2017

Elemental Dissonance

Solar is on a roll, with a slew of project announcements and government backing, however, maunfacturing is yet to hitch onto the wagon.

Solar has many unique attributes which make it a preferred source of power, particularly in India, a densely populated country with a high energy deficit - where it can be rapidly deployed across most parts of the country, due to its modular nature and by virtue of it being environment friendly.

According to Bridge to India, India is perhaps the most exciting solar market in the world helped by rapidly improving the commercial viability of solar PV technology, its huge need for power and of course, its social and environmental imperatives. The recent International Solar Alliance (ISA) initiative seems to back this notion as well. The Government of India (GoI) has wholeheartedly backed the renewable sector in India by announcing a target of 100 GW solar by 2022, while corporates too have pledged huge investments towards this goal. However, key elements that industry experts feel needs to be focussed more on in the solar manufacturing sector are technology and quality.

Current Scenario
As of September 2016 cumulative solar installations in India have reached 8,643 MW (~8.7 MW). Consultancy firm Mercom Capital Group is forecasting solar installations to reach approximately 4.8 GW for calendar year 2016; with installations in calendar year 2016 so far having reached 3.8 GW.

Approximately 500 MW of solar has been installed in about a month since Mercom last reported installation figures for India and four states have crossed the 1 GW solar installation mark. Out of the 8.6 GW installed so far, Tamil Nadu, Rajasthan, Gujarat and Andhra Pradesh have had significant activity and account for 59 per cent of total capacity installations.

Meanwhile, India currently has 14 GW of solar projects in various stages of development and another 7 GW waiting to be auctioned. Here, solar installations are continuing to grow, even with a slowdown in power demand, a decline in capacity utilisation among thermal projects, and the availability of cheap power on the power exchanges across the country.

´The challenge is going to come next year when approximately 9 GW of solar power is forecast to be installed. Unless the ´must run´ status for solar projects is strictly enforced we are going to see some challenges,´ said Raj Prabhu, CEO of Mercom Capital Group.

This means growth in manufacturing capabilities and capacities that move parallel to the targets set and technological advancement in manufacturing set-up and processes, and grid infrastruture; that will make evacuation of solar power more feasible than the current situation.

Despite growing opportunities, the manufacturing sector - not merely assembly - is yet to take off. From the local market perspective, Ashish Khanna, ED & CEO, Tata Power Solar explains, ´Low quality products coming into the country have had a significant impact. It has hindered the local manufacturing industries from taking advantage of the potential that is there,´ states.

Local manufacturing industries need a pipeline to be convinced that they will have customers as they can´t simply walk away if there are no takers. This is why people think deeply before committing themselves. So, unless there is a clear pipeline and guarantee for sale of products, it will hinder competition with imported goods and we will have to bear the inequality of being compared to low quality products.

When local manufacturers fear being passed over in favour of cheap imports or large companies that can cover up costs, the entire excercise is a failure as the Tamil Nadu tender has plainly demonstrated. Big players too have shied away as the state did not do much to assuage their doubts.

According to Bridge to India, Tangedco´s tender, flouted for 500 MW of utility scale solar projects, received limited interest predominantly from smaller developers who submitted 20 bids totalling just 116 MW. This tender follows an allocation of approx. 1,200 MW in early 2015 where a fixed tariff of Rs 7.01/kWh ($0.10/kWh) was offered to developers.

For that allocation, interest was received for a capacity of around 3,200 MW from over 90 developers. Given such large over-subscription, Tamil Nadu tightened qualification criteria significantly for this tender. Bidders were required to own land at the time of bidding and fully commission the projects within 10 months of PPA execution, which is much more stringent in comparison to other tenders.

Developers had major concerns about grid curtailment, payment delays and a very tight time line but no credible steps were taken to address these. A rush to complete the tender in time has in fact proven counterproductive. Also, there is no reasonable justification for why Tamil Nadu does not go through NTPC or SECI for allocations; as this could enhance off-take bankability and help reduce tariffs.

Moreover, despite boasting the largest installed wind and solar capacities (it has a total wind and solar installed capacity of 9 GW as against base load of around 11 GW), Tamil Nadu has been suffering from grid congestion issues for some time. Recent improvements in connectivity to the national grid have been made, but power evacuation remains a major problem particularly for renewable projects.

As a result, developers are facing severe grid availability issues as well as long payment delays. Tangedco is in poor financial health with a credit rating of C+ as per the Ministry of Power framework. Payments to power producers have been delayed by as much as 18 months in the past. But the state has still been resisting signing up for UDAY. At a pre-bid meeting held earlier this month, several developers expressed concerns about these issues but Tangedco failed to address these concerns.

Based on an analysis of past bidding trends, Bridge to India has observed that risk premium for poorly rated utilities can be as high as 600 bps in comparison to AAA rated off-takers such as NTPC. Poor bankability leads to higher tariffs and higher tariffs reduce profitability for power distribution companies. It has become a vicious cycle.

Thus, Tamil Nadu and many other states in the country need urgent reform of its power sector operational and financial organisation.

´In the meantime, states would be much better off by procuring new renewable capacity through NTPC or SECI, which would enhance off-take bankability, reduce project risk for developers and bring down power cost for consumer,´ feels Prabhu.

Manufacturing in India
Providing another dimention to the problem,
Ajay Prakash Shrivastava, President, Solar Energy Society of India, says, ´ the main reason for slow pick up in domestic manufacturing is the continued large scale import of solar modules.

He believes that unless imports are restricted, domestic manufacturing will not speed up. Furthermore while praising GoI´s ambitious targets, he said,´our opinion is that the government should have first fixed domestic manufacturing targets instead of installation targets.´

The current scenario has given the advantage to importers, resulting in outflow of valuable foreign exchange. Manufacturing targets would have benefited the country through increase in GDP and employment at large scale.

Adds Khanna, ´I believe that solar solutions will be endorsed by even small individual consumers and it is critical that the government comes up with policies to ensure that they get only quality products.´

He adds, ´My belief is that it will be good for the country and all the manufacturing industry if rooftop solar and micro-grid solutions for consumers are completely Made in India products.´

We need to look at large companies in the US or China particularly, as they have vertically integrated companies (in GW scale), which helps them control the manufacturing quality as well as the cost.

The Chinese have fully integrated production lines all over the country and they are highly subsidised, which is why they are successful. Also, there is no large player or a big corporate house in the solar sector as such. We are not backwardly integrated and are only manufacturing cell or wire can toda or doing parallel assembly, leaving no margin to squeeze the costs. 

In May 2016, MNRE published an update stating that India´s cell and module manufacturing capacity now stands at 1,212 MW and 5,620 MW respectively .
These numbers appear respectable in the context of India´s solar power generation capacity but the average size of a cell and module manufacturing line in India is just 86 MW and 69 MW respectively. 

The Indian government is committed to support domestic manufacturing and is working on a new policy on this front. However, what a fundamentally competitive manufacturing sector needs is a thriving ecosystem, access to leading technologies, efficient infrastructure and low cost capital. None of these measures are easy to implement but strong domestic demand and a committed government can make a big difference. 

A CEO survey by Bridge to India found that while players were largely positive about the potential of domestic manufacturing in India, 60 per cent of the participants don´t expect the country to have any fully integrated manufacturing line even by 2022. Even as latest as June 2016, is India trying out multiple options to promote domestic solar manufacturing, but results elude. This is largely because India is sticking to DCR to showcase policy stability but the policy´s impact is being negated by the continuous US pressure on the subject.

A policy to provide direct incentives to new manufacturers is in the works but its legality is also questionable. It is difficult to promote local without solving the macro issues such as ease of doing business, infrastructure, cost of power, cost of finance and local ecosystem for raw materials Simply paying higher tariffs or subsidies does not help in creating globally competitive manufacturing.

Technology & Quality
The major problems here arise from low quality imports, point out most stakeholders we spoke to. ´There is no technical testing or check up of the imported modules, resulting in a flood of low quality solar modules from neighbouring countries,´ believes Shrivastava.

The solar industry is ruled by capital costs and the impact directly comes from the manufacturing. The problem with our manufacturing is that it is either outdated in terms of technology or not, big enough to compete with the cost.

´ This restricts the pricing and domestic manufacturers are unable to compete with large scale Chinese manufacturers,´ adds Krishnan Rajagopalan, Head - Solar Business, Anchor Electricals Pvt. Ltd, Panasonic Group.

´ But there is an immense potential and that is why we as an organisation invest a lot in technology, as it be a differentiator when it comes to quality,´ points out Khanna. He adds, ´ We have invested in the new technologies that are coming up and some of them are in the development stage. We feel that this will be the differentiator and help improve the quality of products coming into the country.´

There is largely a focus on technology, not just in terms of the modules design, but also energy conservation. Any energy we conserve, means that much less investments are required. So, we look at efficiency in generation, the products used and in how it reaches the consumers.

In terms of technology, hybrid solar is also being looked at as option, especially in meeting our goal for 24x7 power for all.

Points out Sanjeev Aggarwal, Managing Director & Chief Executive Officer, Amplus Solar, ´ when you talk about solar or wind generation, the intermittence is an issue wherein people start thinking about opting for a hybrid power plant. I think the ideal combination for solar hybrid plants would be gas-based plants.´

If you look at this, particularly from the Indian context, the sun provides heat during the day between 10 am to 4 pm on an average, so the morning and evening peak time requirement of power is still not addressed, which is where hybrid power comes into picture.

´ The other model is where you can add-on storage, like through large scale batteries, which is another area where lot of work is happening across the world. I think that just the way solar prices have come down, over the next 2-3 years we will see similar price reductions in batteries also, which will allow us to generate solar or wind power, store it and use it when needed,´ Aggarwal explains.

Adds Khanna, ´ various countries have different models. Hybrid can be taken up to make supply more reliable and bring stability to supply of power, and we don´t need to rediscover anything here. Also, there are possibilities where we can bundle power with coal or hydro or any other, but I think the technology level we have reached is that there is some parity between solar power and any other power. The latest developments and studies show that we can achieve grid parity for solar as early as 2017.´

Sunny skies ahead?
Yes, if the industry opinions and expectations are to be believed. While some were fully optimistic, others were cautiously soùbut they all agree, the only way ahead is up.

Shares Rajagopalan, ´We have to be optimistic. There is a majority government in place, and the good things they are talking about are the land acquisition bill, GST and economic reforms, which once completely implemented will automatically move things ahead quickly for the sector.´

´ The aggressive targets indicate a boom in the solar industry in the coming five years. Keeping this in mind, I expect 100 per cent growth in solar every year till 2018,´ adds Vikas Mathur (Head - Business Development), Rays Power Experts. ´ Indian solar manufacturing is at a critical juncture. Consolidation of the sector has already been happening at the global level and India is not going to be immune to that trend,´ believes Madhavan Nampoothiri, RESolve Energy Consultants.

Khanna states, ´ The potential is immense. But, having said that, the total manufacturing capacity in India is very less compared to the opportunities that are arising. I think that it is very important for manufacturing capacity and capabilities to invest in technology.´

´ I don´t think that the future of solar is limited to 100 GW and that too only till 2022, let us not forget that in this country there are 300 million people without power and grid connectivity, so if you look at it the potential is very high for manufacturing, distributed generation and off-grid services,´ he adds.

The policy framework needs to become consistent, stable, predictable and business friendly. Government has a key role in enabling private business models. No doubt there will be short term challenges but the sheer fundamental attractiveness of this market and first mover advantage is compelling enough, the Bridge to India report suggests.

Ends Aggarwal, ´The future of solar energy is as bright as sunshine. We are very optimistic about the growth of solar manufacturing and installation in the days to come. Also, the sooner we take up solar energy, the better it will be for our coming generations.´


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