Dark cloud gather over solar energy

A 700 mw solar tender floated by Gujarat Urja Vikas Nigam has triggered widespread responses from a host of global as well as local players aggregating 1,750 mw, which would well be a sign of renewal of interests among investors amid some severe headwinds affecting domestic solar energy sector.

Investor like SB Energy, the renewable energy arm of Japan's SoftBank, Engie of France, Tata Power Renewables and Adani Green are the key bidders, according to Mercom Capital.

SoftBank backed SB Energy, which has so far won bids for 1,400 mw of projects in the country, has recently tied up with Essel Group for joint development of a 500 mw solar park.

Aggressive responses from a host of global and local renewable energy majors belie the state of the industry besieged by falling tariff, lack of finance globally, disinterest of producers as well as the threat of rising tariff on low cost imports on components have put the future of solar energy development under question.

"A sense of cautious optimism is spreading across renewable projects, with bidders and lenders going circumspect around low margin of error owing to the steep fall in tariffs since the start of auction regime," said India Ratings and Research in a recent report.

The scrapping of some of the solar auctions around tariff concerns can derail the Ministry of New and Renewable Energy target to achieve 100GW of solar capacity by FY22, it said.

"The solar auction target for FY19 may be missed on account of the frequent changes in the implementation of safeguard duty, apprehensions about grid connectivity and land acquisition-related bottlenecks. Also, a depreciating rupee compared to US currency poses a threat to economical solar tariffs," the Indian arm of Fitch Ratings said.

The recent industry growth story bears it out.

Installed solar energy in India fell to 1,589 mw in the third quarter of 2018, down 4% from 1,659 mw in the previous quarter.

What is worrisome is that Installations are down significantly from 2,278 mw installed in the corresponding quarter in the previous year, according to Mercom's quarterly India solar market update.

"Lower installation levels were not a surprise due to a slowdown in tender and auction activity last year. The safeguard duty, lack of clarity around GST rates and land and transmission issues have all sapped the momentum from the solar market," Raj Prabhu, chief executive officer of Mercom Capital Group said.

"The Indian solar industry is trying to recover from the safeguard duty announcement. An acceptable tariff for both project developers and government agencies has been an ongoing challenge since the inception of India's solar programme," Prabhu said.

Topping the sectoral crisis, Fitch Ratings has just downgraded Indian Renewable Energy Development Agency's long term rating to 'BB+' from 'BBB- (just above the default grade) and short-term senior unsecured rating to 'B' from 'F3'.

"The downgrade follows a downgrade of Fitch's internal assessment of Ireda's standalone credit profile to due to elevated risk in India's renewable-energy sector," the global rating agency said.

While tariffs have already hit a low Rs 2.44 a kiloWattHour, domestic manufacturers have now approached the Supreme Court against the duty which would push up costs.

With an intent to protect domestic manufacturing solar cell industry from the injury caused by the sudden surge in import of solar cell and panels, the government on the recommendations of Director General of Trade Remedies imposed 25% safeguard duty for a period of two years on import of solar photovoltaic cells and modules.

The imposition of duty on one end did not help generate demand for domestic solar modules; on other hand, it put additional burden in the form of increased project cost and significant additional cash outflow to developers. The biggest concern raised by the solar industry on levy of safeguard duty was its impact on the projects already auctioned out before July 30, 2018, as the bidders did not factor in the additional duty at the time of bidding.

Standard bidding guidelines for solar power projects allows solar developers to pass on any new levy under change in law clause to the power purchaser under the power purchase agreement. But recovery of new levy under the change in law provisions has to go through the legal and regulatory process making it challenging and time consuming.

"In order to mitigate this situation power ministry issued a direction to Central Electricity Regulatory Commission (CERC) under Section 107 of the Electricity Act, 2003 to determine per unit impact of the safeguard duty on power tariff. But the state governments are yet to issue similar instructions under Section 108 of the Electricity Act," R K Gupta, Ex-DIG, Safeguards, said. There should be also be a seamless process in place to pass on the safeguard duty to the contractors under the EPC contracts, added.

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• 100 GW – Solar capacity by 2022 target of the central government
   
• 1,589 mw – Installed solar energy capacity in India in the third quarter of 2018
   
• 1,659 mw – the capacity in the previous quarter.
   
• Rs 2.44 a kiloWattHour – Low solar tariffs have touched
   
• 25% – safeguard duty imposed on photovoltaic cells and equipment