Thirty-five new tenders with a cumulative capacity of 15.5GW have been announced in the last year. How will the Indian solar market grow with this huge opportunity?
By Sudeshna Das
With the addition of 5.4GW of solar power generating capacity in 2016, India is going to become the fourth largest solar market globally, behind only China, USA and Japan. Moving forward, this will help the country to achieve its ambitious goal of installing 100GW of solar energy capacity under the Jawaharlal Nehru National Solar Mission (JNNSM) by 2022. India crossed 5GW of solar PV installed capacity (Figure 1) in 2015. This includes 4.7GW (more than 90 per cent of total installation) of utility-scale solar and 525MW of rooftop solar power capacity. This sector has the potential to play an important role in the country’s economy and also create employment opportunities for millions of people.
This article gives an overview of India’s solar market, and focuses on the growth drivers, opportunities and disabilities to local manufacturing.
The India advantage
Supported by some key policy revamping and increased investor interest, both from Indian and international developers, the Indian solar market seems ready to peak soon. There are some signals that point to a solar boom in the short term (Table 1). The major factors boosting current and future growth in the solar energy segment can be bracketed under the following three major categories:
1. Domestic demand
2. Better average solar irradiation
3. Policy support
Domestic demand: One of the main reasons the solar industry is growing in India is the fact that the country itself is developing. Good power supply is one of the key enablers of development. India’s power requirement is expected to grow by more than 5 per cent over the next decade, while supply is projected to fall short by 3.6 per cent. Since traditional energy sources are not enough to match the pace of growth in demand, there is a need to look for alternatives – and solar energy fits the bill.
Better average solar irradiation: India has better average solar irradiation than many of the countries that are leaders in the PV domain (Figure 2). India is blessed with good weather and sunshine. On an average, there are more than 300 sunny days in a year in India. This offers a unique opportunity to the solar industry to grow in the country. Considering the ever increasing demand-and-supply gap in the energy field, solar energy is going to play a major role in addressing shortages in the energy sector.
Policy support: On the policy front, the Solar Parks Policy (Figure 3) and the Ujwal DISCOM Assurance Yojana (UDAY) scheme are two key enablers for this sector. In addition, various other national regulations have focused on developing solar power generating capacity (Table 2). The Central government also offers several tax and financial incentives to support the rooftop solar market. The Jawaharlal Nehru National Solar Mission (JNNSM) currently gives 80 per cent accelerated depreciation for companies that offer solar power systems. Besides the Central government, various states are also coming up with attractive policy frameworks and unique financial benefit schemes to promote this sector.
However, more comprehensive policy reform in this sector, through amendments (still awaiting Parliamentary approval) in the Electricity Act 2003, can further facilitate growth. Moving forward, policy intervention will be necessary to ensure grid robustness and continued investments at highly competitive tariff levels. A proper framework to measure demand growth will also help to ensure the sustainable growth of the sector.
Growth trajectory
According to a Bridge to India report, solar projects adding up to 25GW, under different stages of development, and 35 new tenders with a cumulative capacity of 15.5GW have been announced in the last year. An additional 5GW of new tenders are awaiting release in the next few months. The release of Central government funded solar project tenders of more than 9GW early this year through the National Thermal Power Corporation (NTPC) and the Solar Energy Corporation of India (SECI) highlights the tremendous growth opportunities in this sector.
Besides the early implementer states like Rajasthan and Gujarat, others have also shown considerable interest in solar power to overcome their power deficits. Recently, we have seen a flurry of projects coming up in states like New Delhi, Tamil Nadu, Kerala and Andhra Pradesh. The numbers are expected to increase substantially in the coming months. Some states have also taken unique steps to facilitate the sector further. For example, in Maharashtra, there are zero taxes on solar power generating packs, which comprise a battery and the solar panel with an inverter.
The growth prospects in this sector, along with policy support, will definitely boost the solar manufacturing industry in the country. This, in turn, will help in creating technology hubs for manufacturing, broadly in sync with the ‘Make in India’ initiative.
Apart from local players, global solar manufacturers also have an eye on India as one of their preferred destinations for solar energy investments. According to industry sources, there are a host of global renewable energy firms that have shown interest in investing here. India has made it clear that it will encourage global as well as local solar manufacturers to ‘Make in India’, and is offering immense incentives to these firms to start production here.
Challenges to be addressed
However, numerous challenges need to be addressed to ensure ‘Make in India’ turns into a reality for solar manufacturing. Off-grid solar power systems face major challenges like high capex requirements, inefficient subsidy disbursement processes, no minimum guarantee of return on investment, etc. Moreover, it is not feasible to have one generic installation approach due to the varying consumer locations and preferences. Thus, increasing India’s solar capacity requires planning and innovation to get rid of these challenges.
The sector’s players have been impacted by the sharp lowering of tariffs (as per a Bridge to India estimate, solar tariffs have fallen by almost 33 per cent in India in the last two years). Solar energy is a capital-intensive industry. It is not easy to arrange capital as financial institutions often seem reluctant to lend to projects in an environment of such competitive tariffs. Therefore, faster progress in 2017 and 2018 will depend on how well these issues are addressed.
The lack of standardisation for off-grid systems makes it difficult to meet design and performance parameters. The government needs to establish process guidelines and enforce stringent quality standards to ensure sustainability of off-grid systems.
Multiple decentralised schemes are available from different ministries to promote the solar industry.These schemes need to be integrated or linked to provide clear directives to the industry and to users. A centralised system to disburse capital subsidies may further streamline the process. According to an industry source, the government is launching schemes but, at the same time, due to lack of knowledge, the assemblers and integrators still do not know how to pass on the maximum benefits to the customers. Highly diverse support mechanisms and tariff levels (Figure 4), with wide variations among states, also need to be streamlined through a centralised system.
Introducing an audit system to monitor the obligatory solar purchase by discoms and levying a heavy penalty for defaulters may ensure that solar purchase obligations are adhered to.
It is hardly possible to achieve the ambitious target of 100GW by floating tenders. Therefore, just like the wind energy segment, the Feed in Tariff (FIT) mechanism could be useful in the solar segment as well. The decision to drop the anti-dumping duty on imported solar cells may prove to be a big hindrance for domestic manufacturers.
The growth of the Indian solar industry opens up a huge market for poly-silicon. In the absence of domestic capacity, India is heavily dependent on imports. Poly-silicon manufacturing involves high initial investments and also needs large volumes to achieve returns on investment. Local manufacturing needs special incentives to compete with global manufacturers. These incentives may either be in the form of tax sops or even policy support that stipulates special preference for local vendors. This will benefit the solar ecosystem in terms of productivity, foreign trade, employability, etc. One piece of good news is that Adani and SunEdison have announced investments of about US$ 4 billion in Gujarat, for a vertically integrated poly-silicon refining facility.
Lack of proper knowledge among consumers and a deficit of talented manpower who can sell/install solar plants are also big hindrances in this sector. When consumers are not totally aware about the features of solar products, they go for the cheapest possible product available. This leads to quality issues and tarnishes the image of solar products, in general. The other problem with going in for non-branded solar products is that getting prompt service could be a nightmare.
Even those who are supposedly selling solar products do not understand the technology properly. So, if the dealer who is selling solar products, recommends the wrong solar solution owing to lack of knowledge, customers will tend to blame the company or solar product and not the dealer.
Efficient storage in demand
Availability and reliability are imperatives for any successful energy source. Energy storage systems (ESS) and charging mechanisms play a critical role in ensuring the reliability and efficiency of solar power sources in the country, especially during the season of low sunlight and in the hinterlands of the country that are prone to frequent power blackouts.
An efficient ESS also helps to ensure the reduction of maintenance costs by countering intermittency in off-grid systems. According to an industry source, more than 50 per cent of the cost for any off-grid solar installation is for energy storage systems. Technological innovations are required to develop cheaper and more efficient energy storage systems.
In the last decade, lithium-ion based energy storage systems helped promote off-grid solar energy facilities by ensuring a captive source for continuous power supply. This minimised the dependence on fossil fuels or on-grid systems.
Batteries alone are not sufficient to store energy from solar panels. There is a severe need for energy storage with management solutions. Concepts like smart technology and net metering will evolve in order to manage the energy reliably. The sector is expected to witness huge investments, with large numbers of foreign and domestic players entering this domain and higher levels of awareness among the customers.
Innovative storage mechanisms (such as flow batteries instead of lead-acid and lithium-ion technologies) and hybrid solar plants (with either wind, pumped hydro or biomass) can make load balancing more robust.
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The growth of solar energy creates huge opportunities across the entire value chain.
Inverters for solar systems are in great demand, given the growing number of solar power installations and continuous growth ranging from turnkey projects to solar rooftops.
The Indian market is diversifying with the introduction of solar related products and solar integrated systems. R&D has become one of the major focus areas of the power backup systems market. For the overall development of the industry, and for players to be able to increase their profitability, it has become imperative to invest in R&D activities. Making power backup equipment available in smaller sizes would ensure higher revenue, especially from the SME and SOHO segments. Players can also foray into e-commerce business models, along with doorstep delivery systems. According to our industry source, the Indian power inverter market is expected to experience double-digit growth rates till 2017 due to the increased purchasing power of Indian consumers.
Moving forward
The next few years seem to promise a golden era for the Indian solar sector, considering the overall prospects and the good intentions of the government. But this cannot turn into reality in the absence of a customer awareness mechanism. Also, the market will remain very price-sensitive. Last but not the least, sectoral skill development programmes will need to be encouraged by both the government and the industry to ensure the availability of manpower to support the production and installation of solar systems. This can lead to sustainable growth in the solar power sector due to the opportunities that already exist, and also due to the special opportunities provided by the projects mentioned below.
- Smart cities: The smart city initiative being undertaken by the government is likely to need significant investments in installing renewable energy capacity.
- Railways: Indian Railways plans to leverage solar energy by installing solar power systems on the roofs of 500 trains as a pilot project.
- Solar installations in educational institutes and places of worship.
Financial incentives to support rooftop solar market
- Capital subsidy: Thirty per cent subsidy for residential and institutional consumers
- Accelerated depreciation: Eighty per cent depreciation
- Tax holiday: Ten year tax holiday (MAT payable)
- Low cost funding: US$ 1.5 billion funding from World Bank, ADB and KFW
India’s rooftop solar energy map – 2016
- Over 525MW of rooftop solar projects have been commissioned as of October 31, 2015
- Tamil Nadu is the leading state for rooftop installations with over 76MW
- Total installed capacity in the residential segment is 143MW or 27 per cent of the total market
- The residential market is highly fragmented and dominated by local companies
- Industrial and commercial markets will lead the growth of rooftop solar installations, going forward
(Source: Bridge to India)
Steps to boost solar growth
- Faster and more efficient implementation of Renewable Energy Certificates (RECs)
- Carbon trading as a source of revenue
- Selection of the right location for on-grid applications
- Development of off-grid applications
- Establishment of localised mini-grids, especially in regions that lack grid connectivity due to physical or financial barriers
Smart solar inverters on the way
Solar power system developers such as engineering, procurement and construction (EPC) companies are looking for inverter manufacturers that offer the latest technology and robust designs, which will enable them to operate in different conditions.
Over time, solar power inverters have become smarter, more efficient and offer a number of features such as remote monitoring and touchscreen technology, which has increased the demand for them. Even micro inverters have gained importance in the global market. Compact inverters that are lighter and incur lower losses are growing in popularity. According to our industry source, green UPS systems, which offer efficiency rates of 94 to 97 per cent as against the usual 80 to 88 per cent, have become very popular in the market.
