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Solar Today Cover Story | October 2018

"India needs at least USD 125 billion to fund the 175 GW target"

Manoj Gupta, Vice President-Solar Business, Fortum India opines most of the financing received for the renewable energy development comes from the domestic banks. However, with the current level of fund generation, it is difficult to sustain solar energy goals.

Do you think India ever has a chance to go 100 per cent solar in the years to come?
India has contributed immensely to the energy mix when it comes to the solar segment. Prime Minister Narendra Modi's energy agenda has set an ambitious target for renewables. The aim is to increase renewable capacity on the grid to 175 GW by the end of 2022. Around 100 GW of that capacity is expected to come from solar photovoltaics (PV). It is difficult to comment as of now on India converting to 100 per cent solar in the years to come. But definitely, it can contribute largely in the energy mix, once storage becomes a reality with a viable commercial business model.

Is the current level of fund generation capable of supporting solar energy goals?
The solar sector has shown an incredible growth in the recent years. The country became the world's third biggest solar market, defeating Japan in 2017, with the help of the government's support. India needs at least USD 125 billion to fund the 175 GW renewable mission, of which 100 GW is supposed to come from solar by 2022. Most of the financing received for renewable energy development comes from the domestic banks. However, with the current level of fund generation, it is difficult to sustain solar energy goals.

According to a recent survey, indicating 65 per cent fall in corporate funding within the solar industry from Q4 2017 to Q1 2018 may indicate limitations for solar growth. The Government of India needs to take it up on a priority to support the funding to the solar project. Currently, the Indian currency is weakening to an unpredictable level, therefore, the ECB financing also became unviable for the future solar growth.

What are the key barriers and bottlenecks faced by the solar power developers in achieving the target? How has GST impacted the solar sector?
Solar power capacity addition and the development of the solar sector suffers because of a number of issues prevalent in the current policy and the environmental framework. Some of which are-
- There is no single policy statement for solar energy in the country because policies have been issued in India as and when necessary to accelerate the growth of solar power
- The other biggest issue that all the solar developers face is that the Renewable Purchase Obligation (RPO) is not legally enforceable at the federal level as well as at the state level. Developers think that there must be a common RPO for all the SERCs, which is untrue
- The solar technology in India is quite a new change and therefore, the risk associated with it is high. There is a lack of R&D facilities for setting up a large scale solar plant. India has been continuously trying to increase its manufacturing facilities but due to the lack of policies and financial support, all is in vain
- Land acquisition process is another barrier faced by the solar developers. It requires a lot of clearance from various departments like the forest department, National Green Tribunal (NGT), the Ministry of Rural Development, etc. on account of which the project gets delayed or moves to some other locations
- No commitment on evacuation infrastructure facility under ISTS scheme
- Sudden changes in policies by the MNRE with respect to the tariff cap, a timeline for commissioning the plant, etc.
- Safeguard duty and anti-dumping duty applicability and clear refund policies are other bottlenecks for the growth of this industry
After more than a year of GST coming into force, there are still uncertainties surrounding the solar sector. The bitterness among the solar companies is not only due to the delayed reimbursements but a complete lack in clarity regarding applicable GST rates. Complete clarity is essential in terms of fair costs and tariffs.

How has India achieved to attract big solar players around the world to invest in the country? What's your take on the proposed introduction to safeguard duties on imported solar panels?
India's leadership role in the International Solar Alliance, the initiative proposed by PM Modi in a speech in November 2015 was with an objective to focus on solar power utilisation, which will make the solar sector continue to receive favourable policy momentum. With this initiative, investments in the solar energy sector in the country rose to over USD 10 billion in 2017.

According to the Annual India Solar Market Update report released by Mercom Capital Group, project financing in 2017 rose to about USD 6.4 billion on the back of 9.6 GW in solar installations, compared to USD 3.5 billion and 4 GW in 2016. The alliance has been committed USD 1 trillion as an investment and for making the costs of solar power more affordable for remote and inaccessible communities. It will further help India in achieving its goal of generating 100 GW of solar energy and 175 GW of renewable energy by 2022. Different countries shall support each other in R&D as well as in other high-level activities.

Investment in the power sector in India is important to maintain economic growth and also to improve the livelihoods of large sections of the population which are still without electricity. The imposition of 25 per cent safeguard duty on solar cell imports will benefit only a small section of the domestic industry because a much larger proportion of the capacity to manufacture solar equipment in India is located inside export-oriented Special Economic Zones (SEZs) and will not be exempt from the payment of safeguard duty thus, creating a challenge for the solar sector. 80 per cent of the module demand will still be imported with extra capex to the developer, which will be inbuilt in all the future bids. Therefore, there will be an increase in tariff which needs to be paid by the DISCOM and ultimately, it will be a pass through to the consumer. It means, the final loser is the consumer and no one else.

For all the existing projects, which were bid out, the developers will approach regulatory commission for an increase in tariff, if not exempted by the Finance Ministry on the request of the MNRE and the developers. It will be a long process to get the extra tariff as a pass through from the regulators. A lot of projects will be impacted; delay in project may happen and finally, the ultimate goal of achieving 100 GW by 2022 may be affected.

What are some of the recent technology trends that you have observed in the utility scale solar segment?
Higher-rated central inverters is one such recent technology trend that has been observed in utility scale projects. They are suitable for utility-scale projects as one central inverter can support a number of module strings of solar panels to give more consistent and controlled generation. Multiple module strings are connected to a combiner box and DC power is carried from this combiner box to the central inverter, where it is converted to AC power. As each module string is not connected to the inverter directly, only a pad and a combiner box are required to connect the module strings to the central inverter, thus, reducing the number of connections.

"The bitterness among the solar companies is not only due to the delayed reimbursements but a complete lack in clarity regarding applicable GST rates."

Another trend in the solar inverter space is string inverters. The acceptance of such technologies, which are considered premium products may take a long time for them to be accepted globally for utility installations due to the large size of utility projects. As of now, it is restricted to the residential, commercial and industrial segments.

The solar power tariffs in India have fallen in nominal terms from Rs 15 /Kwh in 2009 to Rs 2.44/ Kwh in 2017. Please elaborate its impact on the sector, the government and the consumer?
2017 has been a breakthrough year as the tariffs fell significantly lower, making solar power as one of the cheapest sources of power in India. Even in 2018, in August itself, solar rooftop tariff touched lowest ever rate of Rs 1.58 a kilowatt per hour (unit). With this drop-in tariff, we will see the trend of installation of minimum 10 GW’s size of installation every year. MNRE has also announced that they will come out for around 30 GW bids in 2018 and around 30 GW in 2019 for installation, before 2022. The tariff range if Rs 2.44/kwh is one side attractive for the DISCOM’s, on the other side it is increasing the risk for the developers.

Developers now need to be very precise in their assumptions and even with one mistake, their investment may go haywire. One side DISCOM’s are happy with these tariffs, on another side, they are worried that their A-rated quality consumers may also start generating solar power and worry to lose them. This is one of the reasons that most of the states are not supporting the use of solar power through open access route and no conducive policy is existing in any of the states. In a nutshell, the reduction is tariff is good, but the industry also needs a supportive and sustainable policy without any hiccups in the project execution due to infrastructure, changes in taxes, duties, etc.

Also, will this fall in numbers leave the projects at a risk? Is this a massive solar enthusiasm or company’s sheer desperation to be not missed out?
We should not draw too many conclusions from some lower tariffs. This is because different developers and investors are at different stages of growth in terms of how much capital they have or are chasing. In case of large portfolios, one can still play with a couple of hundreds of MW capacity projects. But if one has to build a business consisting of projects which are in a single digit equity returns, then the viability is low. Sustainable businesses cannot be built on such low returns. We would be setting ourselves for failures if we presume that that is the way to do this business. It would be wrong on my part to comment on whether the tariff-related calls taken by the developers are unreasonable.

If you are very optimistic, you might land up with a high single digit IRRs. And if some risks materialise, you will be in a lower single digit IRR. So, from a project-specific perspective, one has to see if a pooled weighted IRR across the platform moves the needle. For some, I am sure that it does not, so that is fine by them. But on a holistic basis, you cannot have a business which is perpetually in a high to low single digit IRRs. That is not a business worth doing on a standalone basis.

How do you think Renewable Energy Certificate (RECs), Net Metering Incentives and assured Power Purchase Agreements are going to impact solar companies?
The government has implemented various policies and regulation to promote green energy. Some of the schemes among those are Renewable Energy Certificate (RECs), Net Metering Incentives and assured Power Purchase Agreements. As solar power has already reached to the grid parity, therefore, I don’t see any reason for continuing RECs policy. I don’t see any developer is now willing for any investment under the REC mechanism. With respect to net metering, this is very important for the success of the rooftop scheme. As I mentioned earlier, states are not supporting the open access scheme but assured PPA at least for the payback period is very Interview - Finance important to raise capital from the equity and debt market. In the absence of it, it will be very difficult to raise a loan on non-recourse basis.

The Ministry of New and Renewable Energy announced a new wind-solar hybrid policy that will see the installation of wind-solar hybrid plants. Does Hybrid Energy Policy make sense for India? If yes, why and what are the implementation challenges?
With an aim to boost India’s renewable energy industry, The Ministry of New and Renewable Energy announced the new wind-solar hybrid policy that will see the installation of wind-solar hybrid plants, where both windmills and solar panels will be on the same piece of land.

The hybrid policy definitely makes sense for India as both, solar and wind power work only when their source of energy is excellent which means when the sun shines at a particular intensity only will the solar panels convert it into electricity and similarly, a relatively high windy day is needed to rotate the blades at a meaningful speed in order to generate the current. Plant Load Factor (PLF) of solar farms are around 20 per cent levels, while wind power plants PLF can go up to 40 per cent depending upon the location.

One of the major shortcomings is the cost of land and power evacuation infrastructure. Apart from the cost of equipment, one of the biggest costs of renewable energy is land and Power evacuation. The hybrid policy intends to overcome these shortcomings as the same piece of land (the leftout land in between the wind turbines) and evacuation can be used to generate solar as well as wind power and all these factors would result in optimum utilisation of natural resources. So the basic advantage of this policy is that more energy is generated from the same land and power evacuation which would address the falling yields for the investors.

Falling equipment costs and increased domestic and foreign competition with access to cheap capital sent power tariffs crashing. Now with hybrid units, that would enable more electricity generation, and yields for investors can improve substantially.

This policy aims to encourage new technologies and methods involving the combined operation of wind and solar PV plants and the goal is to reach the wind-solar hybrid capacity of 10 GW by 2022, which makes this policy very important and relevant for India.

  • The first and foremost implementation challenges include that there should be a continuous availability of land which is suitable for both, wind and solar plant
  • Currently, for new wind projects, the land is taken on footprint basis, but for wind-solar hybrid projects, there should be a continuous land and extra land needs to be purchased for the solar plant. The existing wind projects have enough land and could be easily hybridised but when it comes to new projects, acquiring land is a bit difficult in some of the states.
  • For smooth implementation of the policy, proper guidelines from the state nodal agencies and co-operation and adherence to the commitment from the state electricity boards in line with the policy announced by the MNRE is required

  • The solar hybrid projects can perform miracles if it gets help from MNRE, Central and State Regulators as well as state nodal agencies which would result in effective and optimum utilisation of land, infrastructure and transmission facilities.

    - Rahul Kamat

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