35 new tenders with a cumulative capacity of 15.5 GW have been announced in the last year.
The Indian solar market appears in full bloom right now with key policy changes being introduced and 25 GW of projects under different stages of development. 35 new tenders with a cumulative capacity of 15.5 GW have been announced in the last year. An additional 5 GW of new tenders are awaiting release in the coming months. There is burgeoning investment interest both from Indian and international developers in the sector. This frenetic pace of activity is a big step-up in contrast to historic solar capacity addition of approximately 1 GW per annum for three straight years until 2014. But does the sector have sufficient financial capacity to deliver all these projects?
The most buzzing topic for the sector right now is the intense competition with tariffs coming down sharply to M4.34-5.00/ unit ($0.07-0.08) levels. But with many developers struggling to raise capital and banks seemingly reluctant to lend to projects at such tariffs, progress in 2017 and 2018 is not likely to be as fast as expected. In contrast to Ministry of New and Renewable Energy (MNRE) target of 12 GW of utility scale solar projects for FY 2016-17, BRIDGE TO INDIA estimates that actual capacity addition will be only about 5-6 GW in FY 2016-17.
Other key theme in our view is the likely growth trajectory for the sector over the 3-5 year horizon. The central government has taken early lead through National Thermal Power Corporation (NTPC) and Solar Energy Corporation of India (SECI) in releasing project tenders of more than 9 GW as of April, 2016. The southern states have also shown huge interest in solar power to overcome their growing power deficit. But with power demand showing slow growth and grid stability issues growing more important over time particularly in areas of high renewable penetration, we expect a slowdown in the sector after 2017 and 2018.
On the policy front, the Solar Parks Policy and UDAY scheme have been hailed largely as a successes but the broader sector policy reform through amendments in the Electricity Act 2003 is still awaiting parliamentary approval. Going forward, ensuring grid robustness and investment/lending appetite at aggressive tariff levels will be the two main challenges. Policy interventions to address these challenges together with demand growth measures will be key to sustainable growth of the sector.
One major disappointment continues to be the rooftop solar market where the 40 GW target for 2022 seems like a very remote prospect. This market needs more focused policy support to ensure effective net-metering implementation and attraction of financial investors. Overall, the growth rospects for the India solar market are very bright providing an immense opportunity for investors, developers and equipment suppliers. But a dose of caution is needed as the market will remain very price sensitive and with its share of challenges.