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Sustainability Outlook  

The lights are back on!

After many months of almost no movement in the large-scale energy space, the announcement of Phase II Batch 1 winning allocations stimulated the market in February. Phase II will usher in solar infrastructure development at a rapid pace. However, the performance challenges associated with the solar industry, if unaddressed, will quickly leach enthusiasm from the market, and we may experience the same sorts of ‘lulls’ as seen by large scale wind and RPO/REC markets.

If we rewind a few months back to the end of 2013, the outlook for Phase II at the developers’ pre-bid meeting was grim – the likes of Welspun had stated that the VGF scheme didn’t ‘stack up’ financially due to the high cost of upfront capital. The Viability Gap Funding (VGF) capital subsidy could only be disbursed post commissioning whereas developers needed capital support upfront. The likes of Punj Lloyd, KVK Energies, Aditya Birla gave a lukewarm forecast for Phase II. In addition to high capital costs, unavailability of land and substation capacity, questionable quality and low capacity of the Indian solar manufacturing sector to produce affordable solar equipment, and volatile state policies were cited as key operational risks. However, this grim outlook was swiftly disproved when both Open and DCR categories were bid multiple times over.

So were these initial concerns still valid? Or had the underlying logic changed?

Phase II winners has seen mostly new faces compared to Phase I. Of the developers who won allocations under Phase I solar mission, only Azure Power , SEI Group, Solaire Direct have emerged strongly again under Phase II (see: full list of winners). As per the graph below, the capital subsidy requirement for DCR projects (where equipment is sourced domestically) is almost twice of projects in the ‘Open’ category (with no sourcing restrictions). This difference in capital requirement seems to be independent of the actual size of the proposed project or the location. The data is aligned with developer concerns around DCR requirements and India’s capacity to meet them in a cost friendly and resource efficient way. Indeed, enabling manufacturing capacity, putting in place technical quality and efficiency standards, and support for training programs will be required if the Indian solar manufacturing structure is to meet infrastructure demands from the National Solar Mission in a sustainable way.

FIG 1 (click to enlarge)
Source: cKinetics Analysis
Note that in the data above only, each marker represents a bid, and only bids of selected companies have been illustrated.

While most have chosen to bid multiple times using small plant sizes in order to strategically make the most of the tender process, it is interesting to note that cost dispersion of bids is significant. There is approximately Rs.10 million/MW capital requirement difference between lowest and highest bids within each category, and between categories. It is unclear if capital or location-specific costs and risks are responsible for driving this, or whether the solar market is struggling to triangulate price-points which work.

So far, the market has natural gravitated to the development of large scale solar parks and clusters. The focus on growing existing solar clusters, rather than spreading solar to new sites, makes business sense for small developers too - land parcels / surrounding wastelands exist, local village stakeholders are accustomed to solar technology, and distribution, supply & maintenance ecosystems already exist to help support a competitive bid. Further, power is injected directly into grid, for national use. Some of the hotspots under the National Solar Mission are listed below, though a range of other hotspots have emerged out of state-specific programs, large scale PPPs and private infrastructure projects.

FIG 2 (click to enlarge)

Note that the data above only captures capacities allocated under Phase 1 and Phase 2 of the central National Solar Mission and excludes the proliferation of state-wise allocations and large solar parks which have emerged since 2011.

Of the developers we spoke to, many are still finalizing options for locations and land: Jodhpur and Jaisalmer continue to be favored in Rajasthan, while others are looking to confirm plants in Gujarat and Tamil Nadu. One MW of power typically requires 15,000m2 of land area. Land procurement currently occurs through converting wastelands / sand land into solar parks.

However, it will be interesting to monitor if Gujarat and Rajasthan continue to be the focus of development or whether the focus will shift to greenfield sites in Madhya Pradesh, Tamil Nadu and Andhra Pradesh as part of the next wave of solar clusters. The increased risk on individual developers in scoping out new sites is significant, and one can see that the impact of NSM can be broadened with proactive government support in land acquisition, community engagement and infrastructure.

Overall, large scale solar has received a significant boost. Clean energy headlines dominated February and have spilled over to March - with the upcoming US-India Energy Dialogue and an MNRE announcement yesterday that they will invest INR 3 billion into solar pumps. On-grid rooftop solar and offshore-wind are other sectors that are gaining momentum. Clean energy appears to be retaining policy momentum as we inch forward towards elections, and we look forward to many more policy innovations to reinvigorate the sector.

Upendra Bhatt & Riddhi Gupta

Key news and developments

Renewable Energy Certificate trading volumes doubled in February: Indian Energy Exchange  
The traded volume of renewable energy certificates more than doubled this month on the Indian Energy Exchange (IEX). Prices of these certificates both in solar and non-solar segments, however, remained flat on a month-on-month basis. The total traded volume of RECs, during yesterday's session, touched 1,83,923. In January, the same was at 84,472.
Full Story »   

Rooftop PV bids for India’s national solar mission published  
The Solar Energy Corporation India (SECI) has revealed the successful bidders for on-grid rooftop PV tenders, to count towards the country's national solar mission. The published results are for successful bids for tenders to develop rooftop PV in selected Indian cities and states.
Full Story »   

India’s largest solar plant in MP, Modi calls it ‘saffron revolution’  
Gujarat Chief Minister Narendra Modi launched a 130-MW solar power plant at Bhagwanpur in Neemuch, about 400 km from here, on Wednesday. Madhya Pradesh Chief Minister Shivraj Singh Chouhan was present. The Welspun Solar MP project, the largest solar power plant in India set up at a cost of Rs. 1,100 crore on 305 hectares of land, will supply power at Rs. 8.05 a kWh.
Full Story »   

MNRE and MoP&NG sign MoU for energy security  
The aim is to enhance energy security along with clean energy development through investments in Solar, Wind and other renewable energy projects. Two Special Purpose Vehicles (SPVs) are proposed to be set up for promoting the deployment of technologies to supplement conventional fossil fuel based power generation that will give boost to the development of large scale grid connected renewable energy projects and implementing off-grid applications.
Full Story »   

Five Bangalore companies join hands for solar project  
In an effort to reduce their excessive dependence on grid power, five companies in Bangalore - Infosys, Cognizant, Coke, Philips and Bangalore International Exhibition Center - have come together to set up an aggregate solar power project. The project, implemented by World Resources Institute under its Green Power Market Development Group, was launched in January 2013 and received four bids from suppliers . With two finalists now, the project has reached negotiations with individual companies, sources said.
Full Story »   

Other top stories
Solidaridad, HUF launch water efficiency programmes        
Green Tribunal proposes heavy fine for illegal dumping of garbage        
India Power to invest Rs 150 Crore in Gaya        
Solar power systems in government buildings        
Assistance for power projects        
Tata Power completes acquisition of 39.2 Mw wind farm in Gujarat        
Missing links in solar metering system a barrier to boost output        
India says it is WTO-compliant on Solar Mission        
ACME Solar commissions 25 MW solar plant in Madhya Pradesh        
EIB to give €200 m for renewable energy projects        
Bangalore to get quick charging stations for electric cars        
CLP Wind Farms makes fresh attempt to raise up to Rs 1,200 crore from PEs        
18 MW solar park reaps financial benefits of utility-scale solar        

Market Outlook

Food and agri-business set to undergo unprecedented transformation   
Despite compelling growth prospects, the food processing sector is structurally inefficient at present. Food processors and retailers are simplifying supply chains to help reduce resource inefficiencies. Read the rest here>

Commercial element to drive large clean energy opportunities in India  
There is a large opportunity for clean energy which will be realised through equity, debt, VC and public markets, according to data shared by Bloomberg with Indian entrepreneurs. Read the rest here>

Lessons from the frontline on rural marketing for DRE products   
Manufacturers and distributors of DRE products still find it difficult to break even in these market. However, the growth of branded distributors in rural markets may change the game on the demand pull and financial viability of DRE products. Read the rest here>


Infosys, ACC support national efforts for Green Power Market Development   
Green Power Market Development Group (GPMDG) was nationally launched this month. As a platform to aggregate corporate demand for renewable energy, the Group seeks to create a 'demand pull' for clean energy developers. Read the rest here>

Offshore wind, green bonds opportunities grab attention   
As part of DSDS 2014, Tulsi Tanti, Chairman Suzlon Group pointed to offshore wind as an untapped opportunity where 1000-5000 MW of energy could be generated for India's coastal cities. HBSC board member, Naina Lal Kidwai, remarked that the green bonds market could grow to a billion dollars in India. Read the rest here>

Finance not the key challenge in catalyzing MSME energy efficiency   
The MSME sector is reported to have a total of US$51 billion in total credit lines and available funding, however, only 36% of this credit has been utilized. Addressing non-financial barriers appears more important for government and development institutions to catalyze the uptake of the energy efficiency equipment and programmes. Read the rest here>

Two years on: electronic waste continues to choke metro cities   
Private entrepreneurs continue to experiment with different business models for clean recycling to help un-choke Indian metro cities. New Delhi reflects on e-waste management and mitigation actions taken to date, and the emergence of exciting new opportunities in this sector. Read the rest here>

Strong call for resource pricing, stable policies by Indian officials and world leaders   
Policy makers B K Chaturvedi, Vivek Rae and others reflect on energy security issues in India in the presence of international development and finance institutions and Former UN Secretary-General, Kofi Annan, in New Delhi. Read the rest here>

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