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Cover Story | June 2018

Solar Rooftop: Answer to EPCs' Woes

Despite falling costs, the solar EPC industry in India has hit a roadblock with multiple duties and land acquisition problems, and the answer for EPC companies may be to focus on captive projects like rooftop installations and scale up from there, feels <span style="font-weight: bold;">Rahul Kamat.</span><br /> <br /> Solar EPC (engineering, procurement and construction) is witnessing a continuous evolution in India. Starting with a turnkey EPC model, the country has seen the introduction of other models like EPC Lite, Project Management Consultancy (PMC), DC/AC EPC, Electrical Balance of Payment (EBOP), Module Mounting Structure (MMS), and open book. The series of changes in the utility market have been driven primarily by the exponentially declining tariff, low cost of primary components, time overrun, delay in financial closure etc. All these make it difficult for EPC to survive because of thin margin and blockade of working capital line.<br /> <br /> <span style="font-weight: bold;">Reality check</span><br /> Solar installations in India are expected to fall by 22 per cent year-on-year to around 7.5 GW in 2018, Mercom Communications India, a subsidiary of Mercom Capital Group, said in a February 2018 report.<br /> <br /> According to <span style="font-weight: bold;">Raj Prabhu, CEO &amp; co-founder, Mercom Capital Group,</span> after a very strong year in 2017, the sector now finds itself beset with uncertainty. The industry has to now contend with three different types of duties: safeguard, anti-dumping and port. More than the duties themselves, uncertainty about the future has left the industry in a very tough spot. In his view, government agencies needed to promptly resolve these issues to maintain positive investor sentiment.<br /> <br /> This is also likely to adversely impact the solar EPC companies in India - especially when, in addition to the above concerns, EPC solution providers in India often face delays in construction and meeting completion deadlines due to bureaucratic hurdles. EPC operations require interaction and dealings with internal teams, sub-contractors, local bodies, clients, vendors, etc. Land acquisition, logistics and engineering were among some of the primary issues that affected the EPC process.<br /> &nbsp;<br /> KEC International, a major EPC player in the power sector, is planning to shift the focus of its solar power division to projects tendered in West Asia as prospects for solar projects dry up in the country on account of several issues related to applicability of Goods and Services Tax (GST) rates and problems with availability of panels, reported the Financial Express on April 7, 2018. The company is reportedly looking at countries such as Saudi Arabia, the Emirates, Jordan and Egypt, which have come out with tenders or are in the process of tendering.<br /> <br /> On the other hand, Siemens Gamesa Renewable Energy, the second-largest wind turbine maker in the world, has very recently indicated that it is looking at a strong EPC market in India as the demand for cost-efficient wind turbine generators grows. <br /> <br /> <span style="font-weight: bold;">Opportunities</span><br /> In such scenario the solar EPC players envision the commercial and industrial segment as the primary target customer. <span style="font-weight: bold;">Sunil Rathi, Director, Waaree Energies</span> tells ST that this client base in India generally pays higher tariff, which has significant contribution to the production cost of their product or system. <br /> &nbsp;<br /> Meanwhile, the solar sector has seen a sharp decline in power generation cost, and a few beneficial proposals and policies like anti-dumping benefit and waiver of electricity charges in several states has contributed to keep the levelised cost of electricity (LCOE) of solar power significantly lower than the thermal power tariff. Hence, Rathi feels most of the commercial and industrial customers share an interest in investing in captive solar power generation, either on their roof or on the ground. This model offers better opportunity to EPC players, and generates higher revenue and better margins.<br /> &nbsp;<br /> In this captive investment, large power consumers are hesitant given the challenges faced by them in securing land, necessary approvals, transmission line and right of way (ROW). The prospect of a new business model, of a solar park, is stymied by this discomfort of large-scale clients. It may be worth emulating the developer concept that is followed in Europe and the USA, wherein a developer would procure the land, arrange for power evacuation, create a pooling sub-station, and obtain all approvals. The investors in these projects would be required to only invest in order to create the asset. In India, huge opportunity lies in states like Maharashtra, Karnataka, Andhra Pradesh, Telangana, Haryana etc.<br /> <br /> That said, according to sources in the Ministry of New and Renewable Energy (MNRE), the government of India has initiated bids for 20 gigawatt solar capacity from domestic sources of which more than 3 GW of large-scale projects were tendered in December 2017 alone. This brings in new opportunities, such as the establishment of solar parks. There are plans to award contracts for 100 GW of renewables in 2018, of which 77 GW will be for solar power projects.<br /> <br /> <span style="font-weight: bold;">Rajendra Kumar Parakh, Chief Financial Officer, Vikram Solar </span>is hopeful of increasing his company's rate of contribution in India. Over 11 years, Vikram Solar has successfully handled EPC projects of different requirements and capacities in various geographical locations with ease. <br /> <br /> &quot;We have contributed to the Indian solar growth by handling utility scale projects, such as the 130 MW project for NTPC at Bhadla, Rajasthan, 80 MW for GIPCL at Charanka, Gujarat and 40 MW for IL&amp;FS at Kachaliya, Madhya Pradesh,&quot; Parakh pointed out. <br /> <br /> <span style="font-weight: bold;">Challenges</span><br /> A major bottleneck in solar projects today is module mounting structure, as it is highly dependent on site and weather conditions. Existing fabrication facilities need to be adequate and systematic to handle 2.5 lakh MT of fabricated steel, in compliance with the delivery schedule.<br /> <br /> That apart, the industry is facing challenges on various fronts. For example in solar projects more than five acre of land is needed to install 1 MW of solar power; so land is a major requirement. Besides, there are multiple parameters like soil geology, compatible topography etc that need to be checked before selecting land for solar installation.&nbsp; The challenge of finding the right land is not the only hurdle; getting a cost agreement for the land is also an issue, since in India land holdings are generally divided among several family members. Thus, discussion with all the stakeholders and getting an agreement takes time, ultimately delaying project timelines.<br /> <br /> Next is logistics. Generally, lands selected for large, ground-mounted solar installations are far away from residential areas. Since transportation in remote areas of India is still not well-developed, bringing in all the required components for solar installation to the desired spot can be challenging, time-consuming and expensive. Even if the EPC contractors take the added responsibility and risk of getting their plant-related equipment installed in a remote location, lack of adequate and safe road availability puts their precious solar plant equipment to risk of damage. If the EPC contractors opt to insure their products, added cost affects the financial and construction plans. <br /> <br /> That said, innovative engineering systems and processes can help in the rapid installation of the project. However, for an innovative engineering system to be established, EPC players need detailed reports on geotechnical information, solar resource availability and ambient conditions. However, as the Indian government does not have such important information readily, actions like maintaining stability of the installations, levelling the field, ensuring protection against wind load and minimising the cost of repairs become extremely challenging. Taking care of these issues would certainly help India in supporting the solar EPC growth.<br /> <br /> <span style="font-weight: bold;">Hope for the future</span><br /> India has achieved a milestone 20 GW in cumulative solar installations to date, which was the initial goal set up for 2022 by the National Solar Mission. Interestingly, this goal has been reached four years ahead of time. <br /> <br /> This demonstrates the commitment by the new government, which is working hard to achieve the revised target of 100 GW solar by 2022. According to Mercom's India Solar Project Tracker, the utility-scale cumulative installations total for India now stands at approximately 18.4 GW, with rooftop solar accounting for another approximately 1.6 GW.<br /> <br /> For the first time, solar was the top source of new power capacity additions in India during calendar year 2017. Official data from ministry shows that solar installations reached approximately 9.6 GW and accounted for 45 per cent of total capacity additions. <br /> <br /> The top contributing state for solar installations was Telangana, followed by Karnataka, Andhra Pradesh, and Rajasthan.<br /> <br /> India's rooftop solar sector also witnessed steady growth last year alongside the rise in grid-connected utility-scale solar. Rooftop solar accounts for around 1.6 GW of the 20 GW of capacity installed so far, and could be bolstered by a new MNRE policy designed to further its growth.<br /> <br /> <span style="font-weight: bold;">Clearly, the solar power industry has immense </span><br /> potential to bring in socio-economic change. The government must realise that if it reduces hurdles and bottlenecks including taxation and land issues, it will be a win-win scenario for all - consumers, EPC service providers and the government itself. In the solar EPC industry, the winners will likely be those which focus on short-term portfolio building but also plan for long-term scalability. This will be crucial for tapping the multi-billion dollar potential of India's solar market. <br /> <br /> The solar sector has seen a sharp decline in power generation cost, and a few beneficial proposals and policies like anti-dumping benefit and waiver of <br /> electricity charges.<br /> <br /> As rooftop solar accounts for around 1.6 GW of the 20 GW of capacity installed so far, and could be bolstered by a new MNRE policy designed to further its growth.<br />
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