China’s policy shift, mega tender cancellations and policies levying taxes and duties on solar industry in India, feed-in-tariff cut in Japan have made 2018 the year of uncertainty for solar. However, surveys suggest that global PV solar installations will see nearly 18% rise in 2019, finally reaching and may be surpassing 100 GW capacity addition. Although, at the end of 2019, we would still be far from ‘0’ emission future, rising PV installation growth and emergence of new markets within developing countries will get us closer to that goal.
A blanket of CO2 has enveloped the world. And continues to deteriorate our climate. Frequency of heatwaves has increased, habitats have started to shift, spread of disease, raising sea levels and other not so subtle and often violent changes in the climate are now reality due to growing CO2 emission levels. Daily Global CO2 emission levels now stand at 406.47 parts per million. It is important to note that CO2 emission levels have never risen this high in last 400,000 years. Our fossil fuel usage is the primary reason behind this rise (80% of CO2 emissions come from fossil fuel combustion) that is presenting devastating changes within the environment. Fortunately, now the world is taking initiatives towards reducing the CO2 emission. However, the damage to the climate that we have done through decades of fossil fuel usage cannot be undone instantly; therefore, what the world needs is long term strategies to reduce carbon emission by adopting green energy and reducing fossil fuel usage.
Fossil fuel reserves are limited and are very close to depletion. The continuously shrinking reserves have given rise to energy cost, which stand to deprive more people (already 1 bn people live without electricity) of energy and spewed toxic fumes that have led to environmental degradation. Facing such a scenario, the world is on its way to adopt sustainable energy that can offer release from economic and environmental binds forged by fossil fuel usage. Solar continues to win the favour of the world as the best replacement of fossil fuels. However, what it can bring is more than sustainable energy for all; it can offer a chance to build a better economy and social structure within a country, which developing countries desperately need.
Current progress in India indicates incredible growth in business and industry development, testified by the country’s acquirement of 77th position On World Bank’s Ease Of Doing Business Report from 126th rank in 2016. However, factoring in 6.1% (NSSO data) current unemployment rate it is important to note that unemployment in the country is surging faster than development and job creation. Improving functionalities and inner mechanisms through policy reformations have done a great job in India, but as a scenario indicates, the country needs a saviour to significantly increase job development.
Indian Solar industry has shown incredible growth, with an inspiring trajectory of increasing capacities from 5 GW in 2015 to 10 GW in 2016 to ~24 GW growth in 2018. Although there is growth, India still has to install more than 18 GW of solar capacity each year for the next 4 years to achieve its announced 100 GW target. Considering this scenario, we should expect an aggressive solar adoption rate. However, India’s current solar growth would not be able to realize the 2022 targets.
A myriad of projects have been cancelled in the calendar year 2018, which begs the question of whether India would be able to reach current targets. Data shows that between Jan-September 2018, ~35 GW of solar projects were tendered. However, only 13 GW of projects were auctioned. There was a 65% decline in tender activity in Q3 2018, in comparison with Q2 2018.
The results are clearly seen in project installation trajectory. Although, solar installations in Q1 2018 was higher than Q1 2017 and stood at 3.3 GW, however, in Q2 2018 Indian solar installation rate started declining and stood at 1.6 GW in and fell even lower to 1.5 GW in Q3. Although we would want the solar installation rate to rise each quarter of a year, it is normal to see a decline in a few quarters. For example, solar installation rate had fallen in 2017 as well, however, the decline in 2018 is much higher than ever before (30% Y-o-Y), which paints a threatening picture for Indian solar industry.
Reasons behind the Decline
25% safeguard duty on SEZ based solar panel manufacturers, demands of setting up a manufacturing facility to bid in projects, differential GST rates have increased solar project cost by 12-18% and produced hesitant solar developers bringing forth the decline in projects.
SECI cancelled 2.4 GW out of a 3 GW Interstate Transmission System (ISTS) connected solar auction held in July 2018.
- The Gujarat Urja Vikas Nigam Limited (GUVNL) also cancelled the auction for the development of 500 MW of grid-connected solar photovoltaic (PV) projects in March 2018.
- The Uttar Pradesh New and Renewable Energy Development Agency (UPNEDA) also cancelled 1 GW auction for grid-connected solar projects across the state held in July 2018.
The primary reason behind these cancellations is Government of India’s insistence to bring down solar tariff event further. Also, recent demands like asking developers to set up a manufacturing plant to win solar projects (e.g- SECI’s 10 GW solar project) have negative effects and produced hesitant developers.
India spent $3.8 bn on solar module import in FY 17-18, and in FY 18-19 (Apr-Oct), the country has already spent $1.1 bn, while India’s export of solar for the same years stood at a meagre $141 mn in FY 17-18 and $80 mn in FY 18-19 (Apr-Oct).
Additionally, 25% safeguard duty imposition on imported solar equipment and SEZ based solar manufacturing units have raised the equipment cost, making projects expensive while introducing low quality (imported) module usage issue and little to no demand for domestically manufactured solar equipment.
Indian solar industry still has incredible opportunity to turn around and lead the global solar revolution, while speeding up solarisation of the country. However, for that to happen, India needs to realize that maintaining investor interest in building solar projects is a must.
And although imported modules offer a cheaper option for countrywide solarisation- It is producing hesitant developers by allowing tariff fall, shrinking India’s opportunity of building solar manufacturing industry, which would have created jobs, improved industrial infrastructure, brought revenue through exports.
Additionally, India’s dependence on solar import is leading to huge forex outflows, introducing quality issues, and making projects unviable.
Therefore, focusing on manufacturing, stabilizing tariff, exempting domestic manufacturers from safeguard duty and differential taxes (GST), would be the right move to increase solar installation rate. Forecasts show that continued import, falling tariff and other policy deviations (safeguard duty, differential GST) will result in lower solar demand in Q1 2019 (approx. 3.5 GW). Therefore, it is the best time for India to make changes and solve core issues to speed up solar project installation.