Solar power is the fastest growing new energy source in India as new installations stood at 2.2 GW during the first five months of 2016, according to a report by Mercom Capital, a global clean energy communications and consulting firm.

“Cumulative solar installations in India crossed the 7.5 GW mark as of May 2016 with about 2.2 GW installed so far this year, more than all of the solar installations in 2015. India’s solar project pipeline has now surpassed 22 GW with about 13 GW under construction and about 9 GW in the request for proposal (RfP) process,” it said.

Capacity addition guidance

Mercom has revised its annual capacity addition guidance upwards. Now it expects new installations at about 5 GW for the calendar year 2016 as against its earlier guidance of 4 GW.

It said the government has shown a strong commitment to renewables and its push towards solar has begun to show results, as solar represented 2.5 per cent of the net installed capacity in India at the end of 2015-16, up from 1.4 per cent a year ago. Also, it was the fastest growing new energy source in the country.

Solar energy

Solar accounted for 17.4 per cent of all renewable energy generation in FY2015-16 compared with 10.5 per cent in FY2014-15.

“The Indian solar market is growing in size but the question is: is it too much too fast, as infrastructure and systems have not kept pace with auction announcements. For the sector to move from 2 GW to a 10 GW a year market, work still needs to be done,” said Raj Prabhu, CEO and Co-Founder of Mercom Capital Group.

Low bidding levels

Low bidding levels through reverse auctions have been a major concern at a time when the Indian banking sector is going through its own challenges, which could make borrowing much more difficult in the short-term.

According to Reserve Bank of India (RBI) data, bank loans worth ₹ 7 lakh crore ( about $103 billion) were under stress as of the end of 2015. Currently, 19 developers have bid for 2.9 GW of solar projects below ₹ 5 (about $0.0735). About 1.2 GW of these projects have signed power purchase agreements (PPAs).

Lowest tariff

On a slightly positive note, the lowest tariff of ₹ 4.34 (about $0.0638) seems to have been an outlier with all subsequent auctions coming in at ₹ 4.66 (about $0.0685) or more.

“There is no set rule which says tariffs below ₹ 5 (~$0.0735) cannot be financed. Some banks are seriously looking at projects in the ₹ 4.5-5 (about $0.0662-0.0735) tariff range, but financing depends on sound project economics, borrowers credibility, a strong balance sheet and the developer's ability to service debt,” added Prabhu.

Clean Environment Cess

Of the estimated $8 billion (about ₹ 54,400 crore) collected under the Clean Environment Cess to date, only about $3 billion (about ₹ 20,400 crore) is expected to be transferred to the National Clean Energy Fund (NCEF).

The Ministry of New and Renewable Energy (MNRE) is likely to be allocated only 23 pe rcent of the total amount collected so far under the Clean Environment Cess.

With late tariff payment problems and rooftop subsidy delays, creation of a ‘reserve backstop fund’ against non-payments or delayed payments by Discoms using NCEF funds could have an immediate positive impact, eliminating the offtaker risk, reducing interest rates and increasing the lending, the report said.

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