After a halving of the pace of solar capacity addition so far in the current fiscal year, which caused doubts if investor interest in these projects and lenders’ support to them have waned, the remainder of the year will see the sector gathering momentum again, several analysts and industry executives said.
They attributed the optimism to a moderation in solar module prices that have cut project costs, and a recent pick-up in tendering of new projects after a lull witnessed in the last two financial years. Also, among the new projects being bid out, the share of those that could address the problem of intermittency of supply characterised by renewable energy projects is likely to be high.
Policy initiatives have also helped reinvigorate the sector, they said, citing the facility to source modules from the suppliers that are not on the Approved list of Models and Manufacturers (ALMM) also, for projects to be commissioned by the end of FY24.
“Compared to FY19 and FY20, solar tendering activity dropped in FY22 and FY23. However, it has subsequently picked up in the current year. So capacity addition in solar is likely to be back-ended in the current year,” Pritesh Vinay, director-finance, JSW Energy told FE.
Solar module prices have come down to their lowest levels in the last 6-7 years and are currently being traded at 13-14 cents per watt, which should aid addition of capacity, , Vikram V, Vice-President & Sector Head, Corporate Ratings, ICRA said. Prices had touched a peak of 27 cents per watt in 2022. Vikram was quoted by PTI on Thursday, saying that capacity addition after this fiscal “is likely to be supported by the significant improvement in tendering activity in the current fiscal with over 16 giga watt (GW) projects bid out so far and another 17 GW bids underway by the central nodal agencies.”
“Module prices are at their lowest due to multiple reasons, including capacity additions, re-opening of the markets post-pandemic and a global push towards reaching net zero goals driving governments to enhance installations,” said Sharad Pungalia, MD and CEO, Amplus Solar. “However, tariff stability will be key to the continued profitability ratio for solar project developers.”
Additionally, the module manufacturing under the Production Linked Incentive (PLI) scheme is expected to catalyse the establishment of a significant number of domestic manufacturing units.
“Any plant has its own time of construction which ranges from one year to two years. If these have not started work because of module prices uncertainty, it will take 1-1.5 years to commission these from March 2023 onwards,” said a former member of the Solar Energy Corporation of India, who did not wish to be identified. “A major progress in capacity addition will come from the next financial year, but it should pick up some pace in the current financial year.”
Utility-scale solar installations in the country fell by more than 54% in the first nine months of calendar year 2023 to 4.2 GW, according to the data by Mercom India. Solar capacity addition in the same period fell by 47% to 5.6 GW compared with 10.5 GW in the corresponding period a year ago.
The delay in project development in the initial months of this year can be attributed to certain policies and regulations that were implemented last year in addition to higher costs of solar modules, developers say.
One setback for the sector had been the pending approvals from the Supreme Court-appointed Great Indian Bustard (GIB) Committee which has resulted in the suspension of the installation of newly awarded projects. “Additionally, the progress has been hindered by delays in the operationalisation of new substations developed by the government,” Deepak Thakur, MD & CEO, Mahindra Susten said.
According to Vinay, for some the tenders in the past the tariffs were too low and in a rising interest rate scenario, some of those projects may no longer be viable. He, however, noted that solar installations are plug-and-play and are one of the low hanging fruits within the renewable space. “A proven developer can install 100-150 MW per month. These small scale projects can take advantage of falling module prices and can get capacity installed before ALMM deadline kicks in next year,” he said.
“The industry continues to seek an extension on ALMM exemption beyond the March 2024 deadline. The domestic market is still evolving and till there is enough capacity available for high-efficiency modules to support the rising demand in the country, we must not limit the availability of cost-effective imported modules,” Pungalia said. “At the end of the day, if the landed cost is not competitive, there is no project viability.”
The government had introduced the ALMM in 2021, mandating that sourcing of modules must be from this list of indigenous models and manufacturers. The idea is to boost domestic manufacturing of modules. Currently, there are around 80 units on the ALMM.
Before this, India imported around 85% of its solar panel from China. The government had also imposed a 40% basic customs duty on import of modules and 25% on import of cells.
The government, on the request from developers, had exempted solar projects being commissioned by March 2024 from ALMM fiat. As a result, only 10 GW of 500-watt peak panels could be made in the country, against 70 GW of solar capacity installation that were underway, SolarQuarter had reported.
Even though solar installations are seen improving in the latter half of FY24, the industry is skeptical whether the government will extend the deadline further. This might further impact commissioning of solar projects.
“Developers want this deadline to keep on extending but that depends on the capacity that comes,” the former SECI member said. “If the capacity is not coming, then the government will have to think of an extension (in the deadline).”
“Several extensions and stretched deadlines have been granted, contributing to a perceived reduction in the urgency for solar power installations. The primary driver behind these extensions and delays is the critical factor of evacuation capacity availability, which plays a pivotal role in the timely execution of solar power projects installations,” Thakur said.
Vinay noted that original equipment manufacturers (OEMs) of wind turbines are exposed to significant volatility in raw material costs. Given the current high interest cost regime, OEMs’ capacity expansion plans may be deferred, he said.
On their part, government agencies like SECI, SJVN, and NHPC have actively been tendering out contracts for solar, wind, and hydro capacity additions in recent months . However, a key challenge that needs to be addressed is finding potential buyers for the energy.
It is crucial to tie up with states for assured intake. “If that (tying up buyers) matches with the speed of the tender. then it is good otherwise, again accumulation of tendered quantity will happen which has happened in 2021,” the former SECI official said. “Rising demand for solar and renewable energy has increased so much that it has forced states to tie up because if they don’t, there will be load shedding in summer and monsoon months.”
Industry sources say that more domestic module capacity will be added up in the next 1-1.5 years. Once it reaches a certain level, shipments from China will reduce, and import reliance of the industry will gradually vanish.