Need of the hour: Solar Adoption, not Project Cancellation

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.

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Current Scenario

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.

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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.

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Way Forward

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.

How to Preserve Investor Interest?

Indian solar sector showed incredible progress in recent years by becoming a 30,000 crore industry. But, in Q1 ​​2018 corporate funding within the solar industry fell by 65%. Fortunately, the numbers have significantly increased by 15% as 2018 comes to a close. Nearly $5.3 billion was raised by the first half of 2018 in comparison to 2017. As a nascent industry, the Indian solar sector needs support and funding to grow. And, factoring in the growth of funding scene, this can be construed as a positive development for solar in India. However, to predict the outcome, we need to inspect the present scenario in depth.

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Challenges in the Path to ‘Power for All’

Government of India’s commitment to provide ‘Power for All’ and its decision to support green energy transition, marked a new beginning for the country. With solar energy transition promising to save billions ($) in fossil fuel imports, create jobs, initiate technological growth, facilitate industrial growth, and offer the opportunity to claim the export market, developing countries like India need to quickly seize the opportunity and become a solar powered country. And factoring in India’s recent initiatives towards solar growth, we can fairly assume that the country has chosen the right path to social, economic, and industrial revolution, which will illuminate the future of more than 200 million people (who currently live without electricity). Like any industry, there are multiple challenges in countrywide solarisation in India. However, recent taxes and duties levied on growing solar industry must be considered as the biggest challenge in path to India’s most important and impactful transition.

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Safeguard Duty on Solar to cause 30% Decline in Demand

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As one of the fastest growing economies, India decisively opted for solar development, understanding its potential to lift the country out of financial, social, and industrial darkness. The announcement of targeting 100 GW solar energy by 2022 evidently created an environment of urgency and brought forth a plethora of opportunities for industrial development. As a result, our country quickly became the second most attractive renewable energy market in the world. However, Government of India’s decision to impose Safeguard Duty on solar imports stands to undo the growth India accomplished through enhancing domestic solar manufacturing capacities. Many in the industry argue that the new policy is completely opposite of what our Solar mission and Make in India initially stood for.

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How Indian Solar Sector is doing under GST Regime

GST is undoubtedly one of the bold reformations that promised to change Indian economic landscape for good. It has led to standardization of indirect tax laws, thus making them business friendly and intelligible for investors. Cascading of taxation was also removed by GST, which was the biggest problem with previous tax regime. All this significantly leads to ease of doing business in India.

However, aside from offering benefits, has also presented some challenges for nascent solar industry of India. Indian solar industry made incredible strides in recent years reaching 21 GW installed solar capacity in 2018 Q1 from a meagre 10 MW in 2010. New projects are being introduced, and investor interest in Indian solar sector is growing. In this scenario, policy reformations could have opened up even bigger opportunities for growing solar industry, leading India out of energy scarcity.

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