While the rising solar investments are very encouraging and reaffirm India’s position as a dynamic solar market, some stumbling blocks for certain sections in the value chain still remain.
India’s solar power capacity additions were anticipated to exceed 5.1 GW in FY 2016, which was a growth of 137 per cent over the capacity in 2015. But the solar sector performed beyond expectations and the total installed capacity crossed 10 GW by December 2016. Projections for the near future are bullish and experts expect that, henceforth, annual capacity additions will surpass 2016 achievements.
Over the past two years, complementary state and central government policies and the increasing price competitiveness of solar power have led to a surge in solar installations across India. In the process, developers and manufacturers have been able to reduce capital costs and provide solar energy at reasonable rates. The Indian solar market is maturing fast – a strong indicator is the rapidly rising investments being made by large international players and financial institutions in the Indian market. While this is very encouraging and reaffirms India’s position as one of the most dynamic solar markets in the world, some stumbling blocks for certain sections in the value chain still remain.
Although all recent initiatives seem to encourage solar development, the system integrators, and Engineering, Procurement and Construction (EPC) contractors appear to face certain concerns.
In order to get a foothold in the massive Indian solar market, international and domestic investors and developers are bidding aggressively. Today the unit prices have dropped to as low as INR 2.97/kWh in the country as can be seen in the case of the recently concluded Rewa solar park reverse bidding auctions in Madhya Pradesh.The prices of rooftop solar have dropped further to INR 3/kWh, albeit with capital subsidies from the Ministry of New and Renewable Energy (MNRE). Apart from the declining global PV module prices (because of the glut in China), there are other factors at play in India, which are leading to these drastic rate reductions. These include: FDI at lower rates of interest; and large investors and manufacturers have lower rates for India than in the rest of the world because of the market demands.
Today EPCs and system integrators – who are not vertically integrated like the bigger players – are becoming marginalized as their returns do not exceed 12%, which is considered unattractive compared to other investment options. As a result, they may find it difficult to survive in India in the long run.
The exchange rate of the rupee (INR) has a bearing on the capital costs and equity returns of the plant promoter.