How Solar Power Is Transforming India’s Energy Market [View all]

[kristopher]

How Solar Power Is Transforming India’s Energy Market (Part 1)
July 26th, 2015 by Tobias Engelmeier, Bridge To India

There is a solar transformation underway in India: record low tariffs, huge investment interest, and real growth. But stumbling blocks remain.


A year ago, the Indian government announced a goal of 100 GW of solar by 2022. Many market participants (including myself) were skeptical. In the last couple of months, however, the mood has changed. The goal appears to become more attainable by the day. This is partly due to Indian solar policies, partly due to rising overall investor confidence in India, and partly due to the dynamics of global markets — generally, and in terms of energy and solar. However, not all is good. I cover the challenges in Part 2 (coming tomorrow).

First, these are my main reasons for being optimistic:

Real growth on the ground: A key accusation often made against the Indian market in general and India’s solar plans in specific was that it is all words and no implementation. That has now been proven wrong. In the last three years, the Indian market grew by 1 GW per year. This year, India is expected to add as much as 5 GW (1.1 GW already commissioned). Until recently, our estimate was 3 GW, but now revised our projections upwards (see our India Solar Handbook). In 2016, India may add 7–10 GW of solar (the government plans to auction 10 GW this year).

Radical fall in tariffs: The most competitive bid in October 2014 was INR 6.01 kWh or US$ 0.0875 for a 40 MW plant by US-based First Solar. In Madhya Pradesh bids, opened last week, the highest winning bid was INR 5.64/kWh for a 50 MW plant by Indian developer Hero Future Energy and the lowest bid was an incredible INR 5.05/kWh or US$ 0.0795 for a 50 MW plant by Canadian developer SkyPower Solar.

Globally, the current lowest ...

http://cleantechnica.com/2015/07/26/solar-power-transforming-indias-energy-market-part-1/

How Solar Power Is Transforming India’s Energy Market (Part II)
July 27th, 2015 by Tobias Engelmeier, Bridge To India

There is great cause for being optimistic about the transformative power of India’s solar market. In the first part of this series, I outlined the drivers that currently propel the market into an entirely new dimension: real growth on the ground, highly competitive tariffs, and enormous investor interest. However, the optimism remains tapered as real challenges remain.

Here are my main concerns:

Margins: It remains difficult to earn money on solar projects in India. There is strong competitive pressure on tariffs and that percolates down through the entire value chain, leaving bare-bone equity returns of around 15% (at a debt cost of 11–13%), if at all. Many of the larger Indian corporates, by comparison, would not enter a business that does not offer an equity return of at least 20%. In many other Indian markets, such margins are attainable. Under Bridge To India’s technical and financial assumptions, for instance, SkyPower’s record low bid of INR 5 or US$0.08 per kWh yields a return of 12%. That seems hardly worth the trouble.

Why is investor interest so high, then? Leaving aside a group of players who are overoptimistic, take undue risk, or lack market information and a (relatively small) group of players who muscle into the market with strategic pricing, there is a widespread assumption that building a portfolio of projects generates value above the returns of individual projects and that there will be attractive ways of refinancing later.

Weak grids, weaker discoms: The Indian electricity grid suffers from high losses (20%+), frequent technical failures, and a lack of monitoring and maintenance. It is quite far from being a “smart grid” (although Indian load dispatch centres are probably more used to managing the grid actively and reacting to volatility than their American or European counterparts). In order to absorb much more infirm renewable power (and in order to deal with India’s future growth in energy demand), the grid has to be bolstered significantly. The trouble is, the utilities are in very bad financial shape. Their cumulative losses are around US$50 billion, with annual losses of around $10 billion. This financial situation makes utilities reluctant grid investors and non-bankable PPA counterparts.

To its credit, the government recognises the problem ...

http://cleantechnica.com/2015/07/27/solar-power-transforming-indias-energy-market-part-ii/