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INDIA

SOLAR
HANDBOOK
2017
Including the
INDIA SOLAR
CEO SURVEY

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Associate sponsor

© BRIDGE TO INDIA, 2017


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Anxious times for the Indian solar
market
By many accounts, the Indian solar market is on a roll. New capacity addition
for 2017 is expected to touch 8.8 GW, a rise of 76% over 2016 and making India
the third biggest solar market worldwide. About 12.4 GW of projects have
completed auctions and are in execution stages right now. 7 developers have
built up project portfolios exceeding 1 GW mark.

But all is not as it seems. The pace of new tender announcements and
completed auctions has slowed down significantly in the last year (-68%
and -59% respectively). Southern states have frontloaded capacity buildout
– Karnataka (installed plus tendered capacity of 69% as against March 2022
target); Andhra Pradesh (74%) and Telangana (70%) – and are bound to slow
down. Amongst other large states, Maharashtra and Gujarat, like many others,
have surplus power availability and remain unenthusiastic to new solar power.

The Rewa and Kadappa tender results have jolted the policy makers, DISCOMs,
project developers and investors. Greenfield solar power at prices of M 3.00-
3.50 (approximately ¢ 5)/ kWh is very attractive and should create strong
demand pull in the medium-to-long term. But it is also leading to buyer’s
remorse for projects already built and under development. In particular, states
that have completed auctions with prices of M 4.00-5.50/kWh in the last 6-12
months (Jharkhand, Andhra Pradesh, Haryana) are refusing to sign PPA’s,
which is creating uncertainty in the market.

The slow down provides much needed breathing room to developers and
investors, who need to consolidate, focus on capital raising and execution on-
the-ground. The pace of fund raising transactions – IPO’s, bond offerings and
M&A’s – has picked up and is bound to accelerate in the coming years.

Longer term, if prices continue to fall at the same rate, solar plus storage will
be a genuine alternative to thermal base load sources in the next 3-4 years.
The carbon-free world is approaching fast and the Indian government should
commit fully to exploiting its potential to transform the shape of our economy.

I hope that you enjoy reading this report and will be grateful for your feedback.

Vinay Rustagi
Managing Director

© BRIDGE TO INDIA, 2017 7


International market review
Total global solar PV installed capacity surpassed 300 GW by the end of 2016.
77 GW was added in 2016, a year-on-year growth rate of 34%. China led with
34.5 GW, followed by the USA (14.5 GW), Japan (10.2 GW) and India (5 GW) in
fourth place.

In 2017, about 79 GW capacity is expected to be added globally, registering


marginal growth over 2016. The stagnation is mainly due to policy pullbacks
across major markets including China, Japan, the USA and most parts of
Europe. Meanwhile, India is expected to continue its rapid growth. With 8.8 GW
of projected capacity addition (growth of 76% over 2016), it is set to become the
third largest PV market in 2017, overtaking Japan.

Figure 1: Capacity addition in leading international markets

Source: BRIDGE TO INDIA, GTM research

Other key trends shaping the global solar industry include:


• Asia continues to dominate the solar industry while Europe continues to
fall in rankings.
• Auctions are gaining universal acceptance - number of countries using
auctions to allocate solar capacity has increased from 14 in 2014 to 22 in
2016.
• Solar module prices continue to fall faster than most experts had
anticipated. Prices in India fell to 32 ¢/Wp in Q1 2017 (– 29% over last
year). Such a rapid fall has made solar PV the cheapest new source
of power in most countries and provided demand boost in emerging
economies.
• Developed countries are slowly shifting towards utility scale projects
whereas in emerging markets, governments are trying to encourage more
rooftop solar growth.

In India, rooftop solar has maintained a 10-12% share of overall solar capacity.
This is much lower than other key markets such as US, Germany, China, Spain
and Australia.

© BRIDGE TO INDIA, 2017 8


Figure 2: Share of utility scale solar vis-à-vis rooftop solar

Source: BRIDGE TO INDIA research

© BRIDGE TO INDIA, 2017 9


Indian utility scale solar market
Capacity addition
As of March 31, 2017, India had installed 12.2 GW of utility scale solar PV
capacity.

Figure 3: Commissioned capacity as of March 31, 2017

Source: BRIDGE TO INDIA research

Figure 4: Capacity addition in leading states

Source: BRIDGE TO INDIA research

© BRIDGE TO INDIA, 2017 10


Tamil Nadu, Andhra Pradesh and Telangana have emerged as the fastest
growing states. In 2017, nearly 60% of total new capacity addition is expected to
come in three southern states of Telangana, Andhra Pradesh and Karnataka.

But there has been a significant slowdown in the pace of new tender
announcements mainly due to weak power demand growth in the country.

Figure 5: Tenders announced vs auctions completed

Source: BRIDGE TO INDIA research

Projections
BRIDGE TO INDIA expects 44 GW of cumulative utility scale capacity addition in
India until 2021. We expect slowdown in 2018 because of lull in recent tender
activity but demand is expected to pick up again from 2019 onwards.

Figure 6: Utility scale solar capacity projections, GW

Source: BRIDGE TO INDIA estimates

© BRIDGE TO INDIA, 2017 11


Types of policy based projects in India
Figure 7: Type of policy based projects in India

Notes
EPC – Engineering, Procurement and Construction
VGF – Viability Gap Funding, a capital subsidy provided by the Government of India
PPP – Public Private Partnership
RPO – Renewable Purchase Obligation

© BRIDGE TO INDIA, 2017 12


Project development landscape
As the Indian solar market grows and project sizes increase, international
developers and private equity funded IPPs are playing a greater role.

Figure 8: Commissioned capacity as of March 31, 2017 (12,163 MW)

Source: BRIDGE TO INDIA research

Figure 9: Capacity under development as of March 31, 2017


(12,381 MW)

Source: BRIDGE TO INDIA research

© BRIDGE TO INDIA, 2017 13


Policy update
Renewable purchase obligation (RPO)

In line with the 8% solar RPO target for the country for March 2022, MNRE has
allocated individual targets for states to set, but actual performance varies
highly across states and enforcement is poor.

Figure 10: Installed plus pipeline capacity vs RPO target for 2021-22

Source: Ministry of New and Renewable Energy, BRIDGE TO INDIA research

Financial incentives
The Government of India has been offering several financial incentives to
promote the solar sector. But as cost of solar power is coming down, these
benefits are being slowly phased out.

Viability gap funding (VGF): Solar Energy Corporation of India (SECI) has
allocated 4,835 MW of project capacity under the VGF route, whereby a
capital subsidy is provided to project developers bidding for projects at a pre-
determined tariff. As of March 31, 2017, another 785 MW of tenders under SECI
VGF scheme are under process.

Accelerated depreciation: All solar projects have been historically eligible to


avail depreciation of 80% of asset value but this rate has been reduced to 40%
from April 2017 onwards.

Ten-year corporate tax holiday: A 10-year income tax holiday has been offered
to solar projects so far, but this benefit has been withdrawn from April 2017
onwards.

© BRIDGE TO INDIA, 2017 14


UDAY scheme

27 states and union territories have joined the Government of India’s UDAY
scheme for financial and operational reform of DISCOMs. Approximately
M 2,043 billion ($ 30 billion) worth of bonds have been issued, equivalent to
nearly 50% of total outstanding debt as of March, 2016.

Figure 11: Progress on UDAY scheme

Source: UDAY website, Power Finance Corporation, Ministry of Power report on “State Distribution Utilities- Fifth Annual
Integrated Rating”

Notes
AT&C - Aggregate Technical and Commercial Losses
* There is no debt restructuring component for these states.

© BRIDGE TO INDIA, 2017 15


Development of solar parks

The Government of India has sanctioned development of 40,000 MW of solar


park infrastructure by the year 2020 with a financial support of M 81 billion (US
$ 1.2 billion). Solar projects with a total capacity of 8,900 MW have already been
allocated in 8 solar parks.

Figure 12: Implementation status of solar parks in top 10 states

© BRIDGE TO INDIA, 2017 16


BTI India Solar Price Indices
As a result of supply side surplus, both module and inverter prices have been
coming down faster than expected as shown in the charts below.

Figure 13: BTI India Solar Module Price Index

Source: BRIDGE TO INDIA research

Figure 14: BTI India Solar Inverter Price Index

Source: BRIDGE TO INDIA research

Figure 15: BTI India Solar EPC Price Index

Source: BRIDGE TO INDIA research

© BRIDGE TO INDIA, 2017 17


Rooftop solar
Installation trends
India’s total installed rooftop solar capacity is estimated at 1,247 MW as of
December 31, 2016.

Capital Expenditure (CAPEX) route accounts for nearly 84% of total installed
capacity but the Operating Expenditure (OPEX) model has been gaining ground
in the last couple of years.

Figure 16: Rooftop solar annual capacity addition

Source: BRIDGE TO INDIA research

Projections
11.9 GW of new rooftop solar capacity addition is expected in India between
2017 and 2021.

Figure 17: Rooftop solar capacity addition projections

Source: BRIDGE TO INDIA estimates

© BRIDGE TO INDIA, 2017 18


Policy update
Net metering: 29 states and 7 union terrotories have notified grid connectivity
regulations with proviison for net/gross metering but on-the-ground
implemenation remains patchy.

Subsidy for residential, institutional and government consumers: Ministry of


New and Renewable Energy has sanctioned M 50 billion ($ 750 million) funding
for 30% capital subsidy for rooftop solar for residential and institutional
consumer segments. In addition, up to 30% subsidy is also available for
government projects.

Boost in government demand: Government is expected to become a major


demand source for rooftop solar in the coming years. All building facilities
under different central government departments are being urged to adopt
rooftop solar and a potential of 6 GW capacity has been identified so far. SECI
has already announced 500 MW of tenders for such buildings.

Concessional debt financing: The Government of India, with assistance from


multilateral financial institutions such as Asian Development Bank, The World
Bank and New Development Bank, has earmarked US $ 1,470 million of
concessional credit lines for the rooftop solar market.

Building bye-laws: The Government of India has recommended mandatory


rooftop solar installations for buildings exceeding specified size and/or power
consumption threholds under the model Building Bye Laws. Fours states and
union terrotories - Uttar Pradesh, Haryana, Chandigarh and Chhattisgarh -
have adopted these regulations so far.

BTI India rooftop solar EPC price index


Figure 18: BTI India price index

Source: BRIDGE TO INDIA research

© BRIDGE TO INDIA, 2017 19


Module manufacturing
Current status
India’s total module manufacturing capacity is estimated at 5,286 MW.
However, most of this capacity is obsolete, sub-scale and uncompetitive. Total
domestic production in 2016 is estimated at only about 1,330 MW. Adani is the
biggest module manufacturer with a capacity of 1,200 MW, followed by Waaree,
Vikram and Emmvee with capacities of 500 MW each.

Import/export status
About 88% of all module requirement in India is met through imports (84%
from China). Imports have risen in line with growth in capacity addition but
exports have seen a significant downward trend.

Figure 19:
Solar module import trends

Solar module export trends

Source: Ministry of Commerce

Manufacturing incentives
The Government of India, together with state governments, is offering several
incentives for manufacturing modules in India – including capital subsidy,
operating cost subsidy and export incentives – under different policies. But
a sector specific manufacturing policy, which has been believed to be in
consideration for over a year now, has not been finalized yet.

© BRIDGE TO INDIA, 2017 20


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Our CEO survey has again got excellent response from both Indian and
multinational companies across the sector value chain.

Project developers EPC contractors Equipment


manufacturers
Acme Cleantech B-electric Dupont
Aditya Birla Group Enerparc Energy Delta Power
Emmvee 8minutes Emmvee
First Solar Emmvee First Solar
Hero Future Energies Fourth Partner Ganges International
IBC Solar Harsha Abakus GCL Systems
Jakson Engineers IBC Solar Hanwha Qcells
RattanIndia Solar Jakson Engineers Hitachi Hirel
ReNew Power Juwi India Huawei
Waaree Energies Oriano Indosolar
SunSource Energy Risen Energy
Sterling & Wilson Su-kam
Su-kam Trina
Ujaas Vikram Solar
Vikram Solar Waaree Energies
Waaree Energies

Notes:
1. Some company names are shown more than once in this table depending on range of their
business activities.
2. For multinational companies, the survey has been completed by the respective head of Indian solar
business.

Key findings are summarized below


1. The industry is more optimistic about growth prospects but more
circumspect about their individual business outlook. We interpret this as
an outcome of uncertainty from falling prices and squeezed profitability
across the value chain.
2. There is significantly more optimism about rooftop market with consensus
expectation of 13.4 GW to be added by March 2022 (as against 10 GW last
time) although there appears huge concern about poor implementation of
net metering policies.
3. Grid integration issues and poor DISCOM finances remain the most
important concerns for the industry (69%).
4. Our question on project quality and expected power output from solar
plants has yielded a more sober response – 62% participants expecting
‘Fair’ or ‘Below Fair’ options as against 48% last time. A clear majority
(55%) also feel that there is poor quality equipment being dumped in India
in response to prices coming down so sharply.

© BRIDGE TO INDIA, 2017 23


Market growth and challenges
Solar capacity addition by March 2022

The industry is more optimistic


than last year and expects India
to add a total of 60 GW solar
capacity by 2022 (+5% over last
year) but still considerably below
the government target of 100 GW.

Rooftop solar capacity addition by March 2022

We see the same positive


trend for rooftop solar capacity
addition. Average of all the
responses indicates estimated
rooftop capacity of +14 GW by
2022. Rapidly falling costs and
government efforts to boost
demand in the public sector have
improved growth prospects in
this market.

Open access solar capacity addition by March 2022

Sentiment for open access solar


capacity remains unchanged
over last year. Average response
indicates estimated open access
based capacity of 6 GW by the
end of March, 2022.

© BRIDGE TO INDIA, 2017 24


Business growth by March 2022

Contrary to greater optimism for


the overall sector, the industry
is more restrained about growth
prospects of their individual
solar businesses. Bulk of the
respondents (48%) expect a
growth of between 3-5x by 2022
(equivalent to a CAGR of 32%).

Challenges in the utility scale solar market


Biggest concern in the sector

According to the survey, the


biggest concern for the sector
is grid integration of growing
renewable capacity followed
by poor financial condition of
DISCOMs, notwithstanding the
progress made on UDAY reform
package.

Fear of poor quality equipment being dumped in India

52% of the respondents feel that


this a very high risk. 39% of the
respondents have indicated that
this is a real but manageable
risk and only 3 respondents
(10%) feel that there is no such
risk. This response should be an
alarm call for the government
and policy makers.

© BRIDGE TO INDIA, 2017 25


Overall assessment of solar project quality and expected power
output over 25 years

In view of general fears about


low tariffs having an adverse
impact on project quality
and performance, we asked
respondents to share their view
on this subject. The survey shows
a big shift over last year – only
36% feel that project quality will
exceed expectations as against
52% last year.

Challenges in the rooftop solar market

We gave three choices to


respondents and asked them
to choose the most important
challenge in growth of
rooftop solar market. 45% of
respondents have selected net
metering implementation as the
most important challenge.

Challenges in the growth of BOOT/ PPA model for rooftop solar

We gave four choices to


respondents and asked them
to choose the most important
challenge in growth of BOOT/
PPA model for rooftop solar
market. 47% of respondents
have selected poor contract
enforcement as the most
important challenge, followed
closely by poor bankability of
private clients.

© BRIDGE TO INDIA, 2017 26


Challenges in the open access solar market

We gave five choices to


respondents and asked them
to choose the most important
challenge in growth of open
access solar market. 25% of
respondents have selected
poor enforcement of RPO’s as
the most important challenge,
followed closely by uncertain
policy.

State government ratings


Ease of doing business for solar projects

We asked the industry to rate the


top 10 states on ease of doing
business in the sector. Madhya
Pradesh, Andhra Pradesh
and Gujarat are the top three
states while Uttar Pradesh,
Maharashtra and Tamil Nadu
have come at the bottom.

Attractiveness for rooftop solar projects

We asked the industry to rate the


top 10 states on attractiveness
of their rooftop solar market.
Gujarat, Karnataka and
Telangana are the top three
states although there is very little
difference between the states.

© BRIDGE TO INDIA, 2017 27


Attractiveness for open access solar projects

We asked the industry to rate the


top 7 states on attractiveness of
their open access solar market.
Karnataka, Andhra Pradesh
and Telangana are the top three
states.

Domestic manufacturing
Should domestic manufacturing be actively supported and
incentivised by the government

An overwhelming majority feel


that domestic manufacturing
should be supported and
incentivized. Popular support is
for incentives such as assured
demand, capital cost and interest
cost subsidies. In contrast, there
is no support for anti-dumping
duties.

How should domestic manufacturing be incentivised?

© BRIDGE TO INDIA, 2017 28


Glossary of terms
AT&C Aggregate technical and commercial losses
BOOT Build Own Operate Transfer
CEO Chief Executive Officer
DISCOMs Distribution Companies
EPC Engineering, Procurement and Construction
IPPs Independent Power Producers
IPO Initial Public Offering
IRR Internal Rate of Return
M&A Mergers and Acquisitions
MNRE Ministry of New and Renewable Energy
NSM National Solar Mission
NTPC National Thermal Power Corporation
PPA Power Purchase Agreement
PSU Public Sector Unit
PV Photovoltaic
RPO Renewable Purchase Obligation
SECI Solar Energy Corporation of India
UDAY Ujwal DISCOM Assurance Yojana
VGF Viability Gap Funding

© BRIDGE TO INDIA, 2017 29


About BRIDGE TO INDIA
BRIDGE TO INDIA is the leading consulting and knowledge services provider
in the Indian cleantech market. Our multi-functional experience expertise
combined with comprehensive in-house research capability enables us to
develop insightful and highly sought-after industry analyses. Our overarching
goal is to provide customised cleantech solutions and enable innovative
business models in India.

We work actively with all leading stakeholders including project developers and
investors, energy customers, equipment suppliers, regulators, policy makers
and development institutions. We have helped a number of international
top-tier cleantech companies in growing their business footprint in India by
providing them with strategic advice, business planning, risk assessment and
JV partner selection services.

Our services

© BRIDGE TO INDIA, 2017 30


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