India To Install 1.4GW in 2013 Despite Trade War
Clean Edge News
India installed about 980 MW of solar PV capacity in 2012, according to Mercom Capital Group. This was largely due to delays in Gujarat to commission 144.5 MW of PV projects; most states missed their renewable portfolio obligations (RPO) goals as enforcement is almost non-existent. Cumulative installations to date in India now stand at over 1.2 GW. In addition, there are 340 MW of PV projects due to be connected to the grid in March 2013 under the Jawaharlal Nehru National Solar Mission (JNNSM) Phase I, Batch 2 policy. Mercom forecasts India to install another 1.3 to 1.4 GW in 2013.
Indian solar appeared to have some momentum until it initiated an anti-dumping investigation against China, Malaysia, Taiwan, and the U.S. relating to the importation of solar cells. The investigation is based on alleged dumping of solar modules by these countries into India. The complaint was filed by solar manufacturers in India with the goal to protect domestic manufacturers that are struggling along with most PV manufacturers around the globe. For a solar market still in its infancy, starting a trade war could become a costly distraction when the focus should be to encourage new technologies, competition and free markets. The U.S. just announced that it has requested World Trade Organization (WTO) dispute settlement consultations with the government of India concerning domestic content requirements in India’s national solar program. The U.S. states that India’s program appears to discriminate against U.S. solar equipment manufacturers by requiring developers to use Indian-manufactured solar cells and modules by offering subsidies to developers that use domestic equipment instead of imports.
The trade dispute is sure to add unwanted uncertainty to the young Indian market where financing is already a challenge as it is, and would make investors further skittish. It is surprising that a country with approximately 300-400 million people without power, about 9 percent power deficit and about 10 percent peak power shortage, has decided to go this route instead of an “all of the above policy” to meet the power requirement goals. It was only a few months ago that India faced one of the largest blackouts ever, when 600 million people went without power for several days due in large part to insufficient power generation.
The Ministry of New and Renewable Energy (MNRE) recently proposed a draft Phase II policy and opened it up for comments. Phase II would have a target of achieving 3,000-9,000 MW of solar power through various batches as previously seen in Phase I.
The Phase II policy intends to take an aggressive approach to domestic manufacturing and “domestic content requirements”. Some of the policy proposals include: cells and modules produced in India to be used for all PV projects, price preference for domestic manufactured cells and modules, percentage of domestic content (~50 percent) for both PV and thermal technologies, percentage of cells manufactured in India, some batches with 100 percent domestic content requirement, and 50 percent of supply costs (excluding land, taxes, erection, financing, soft costs) for thermal technologies material to be manufactured in India.
The other new proposal is the Viability Gap Funding (VGF) which may end up being applied to most of the projects. Under VGF, developers will sign a Power Purchase Agreement (PPA) for 25 years to sell power at a fixed tariff, likely in the Rs.5.5-6/kWh (~$0.10-0.11/kWh range) to the utilities. The developers are supposed to determine their capital costs to set up the project, raise the necessary debt and equity, and bid for the VGF requirement to cover the gap in funding. A pretty risky approach considering how new solar is to India. According to MNRE, bids will be thoroughly inspected to discourage aggressive bidding and avoid sacrifice of project performance over the long term. MNRE has proposed a phased payout – 25 percent at the time of delivery of at least 50 percent of the major equipment at the site, which would be based on the cost of total procurement, 50 percent on successful commissioning of the full capacity of the plant, and the balance of 25 percent after one year of operation meeting the required generation. VGF could cover up to 40 percent of the project cost.
What remains to be seen, is how this will work out in the final policy. With borrowing costs in India in the 13-14 percent range and no technical requirement (anybody can bid) in India; banks consider most of these projects too risky to finance. The government now sees JNNSM as a public-private partnership. If the policy goes in this direction, solar in India will soon start to resemble other infrastructure/conventional energy projects that haven’t been so successful thus far.