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India’s rapid solar PV installations not meeting govt. pledge

14 April 2022 Kevin Adler

Despite rapid expansion of solar capacity in the last two years, India is projected to fall well short of its target for having 100 GW of solar in operation and connected to the grid by the end of 2022, according to a report by the Institute for Energy Economics and Financial Analysis (IEEFA) and JMK Research.

As of December 2021, India's installed solar capacity was 55 GW, the fifth-largest total in the world behind China, the US, Japan, and Germany. The country is on track to add another 19 GW by the end of this year, for a cumulative total of 74 GW, IEEFA and JMK said, or at roughly three-fourths of its goal.

Trade barriers, inadequate domestic manufacturing capacity, and delays for siting solar farms and connecting new projects to the grid are among the biggest impediments the industry has faced, according to the report. These were exacerbated by COVID-related supply chain problems.

S&P Global Commodity Insights forecasts slower growth in India's solar PV installations than does IEEFA. "We think 60-62 GW will be installed by the end of 2022," said Ankita Chauhan, principal research analyst, power, in comments to Net-Zero Business Daily.

For 2022, S&P Global is anticipating 17.8 GW of new solar capacity, and it's expecting about 18 GW in 2023.

It's a mixed picture, said Chauhan. "The progress in solar capacity additions has been phenomenal," she said. "There have been regular tenders [by utilities] to invite bids from developers and high competition in the market to bid for the projects. A significant pipeline has been built up that will come online in the next three to four years.

"But despite the growth, there are several execution challenges that have been worsened by policies and then by COVID … that created disruption," she added.

Trade barriers

Trade barriers are arguably at the top of the list of difficulties. These were set up to both ensure that purchasers of solar equipment received high-quality technology, but also to protect a domestic manufacturing industry that India hoped to jumpstart.

It hasn't always worked as intended, said Chauhan. In one example, a duty on solar modules that's been in place since 2017 has raised the cost of imports from China, but Indian-made products still can't compete on price, she said. In another case, incentives to international manufacturers to set up PV operations in special economic zones were undermined by a rule that they would still be subject to the import duty. As a result, an industry able to produce the latest generation of PV technology has not developed, she said.

The IEEFA-JMK report identified the new basic customs duty on imported cells (25%) and modules (40%) that went into effect on 1 April as yet another barrier that developers will face. It recommended delaying the duty.

The new duty ends a period of duty-free imports of solar modules that ran from August 2021 through March 2022. "The estimated solar capacity additions in 2022 will be largely driven by projects installed using the modules that have been purchased in these timeframes," the IEEFA-JMK report stated.

The Approved List of Models and Manufacturers (ALMM) is another policy that's causing heartburn for solar PV developers. This is a list of approved domestic and foreign manufacturers who have been reviewed by the Bureau of Indian Standards (BIS), and it's been described as another quality-check that also protects the domestic industry. Only companies on the ALMM list can sell solar PV products to Indian developers.

First published last year and updated quarterly, compliance with the ALMM became effective on 1 April. As of that date, government solar projects can only purchase from ALMM-approved companies, and this will be extended to the private sector on 1 October.

The problem, Chauhan explained, is that COVID interfered with the ability of BIS to conduct facility reviews outside India. "For a country that imports 80% of its capacity, this is a problem … if the suppliers are barred," she said.

Utility-scale PV leads the way

India's vision of 100 GW of solar capacity this year included a split of 60 GW of utility-scale power and 40 GW of rooftop solar. Utility-scale development has been much more successful to date.

Currently, grid-connected utility-scale projects account for 77% of the country's solar capacity, followed by grid-connected rooftop solar (20%), and mini or micro off-grid projects (3%), according to the IEEFA-JMK analysis.

The future for utility-scale solar PV looks bright as well, pointed out S&P Global Commodity Insights in a report in April. "The Indian government has identified tracts of land in different states for the installation of solar PV … named as 'solar parks,' wherein infrastructure and transmission facilities will be provided by the government. As per the new circular dated 16 December 2021, 52 solar parks have been planned in 22 states. These solar parks together will add 38 GW of PV capacity," it said.

It's a different story for the rooftop solar segment, said JMK founder Jyoti Gulia in a statement. Only 15 GW of the 40 GW rooftop solar target will be achieved by the end of 2022. "This makes it imperative to have a more concerted effort towards expanding rooftop solar," he said.

The challenges for rooftop solar run the gamut from a lack of consumer awareness and financing hurdles to inconsistent government policies, according to the report. Getting at "deeply rooted policy restrictions" on rooftop solar is key to the sector's growth, Gulia said.

Unlike utility projects, which typically have 25-year power purchase agreements backing them up, industrial and commercial rooftop solar prospects can't tap into a steady income stream to fund the projects, the report's authors explained.

But the growth of rooftop solar in the state of Gujarat shows one way in which this can be solved, they said, as the state provided subsidies of 20%-40%, depending on the size of the installation. The state also allows consumers to sell surplus electricity for 2.25 rupees/kWh, a higher rate than in other Indian states.

Chauhan agreed that individual states heavily influence where solar PV is being built. "If a state is progressive … it will be easier for utility and rooftop solar to meet their targets," Chauhan said.

Rajasthan, which has a great deal of desert land that's not good for agriculture, has supported solar sufficiently enough that some operators are now exporting power to other states, she said.

More recommendations

In addition to eliminating, reducing, or delaying duties and other trade barriers, the IEEFA-JMK report makes other recommendations, including:

  • Eliminate net metering limits. As the report explained, most states in India currently limit net metering—the supply of power back to the grid by rooftop renewable operations—to 1 MW of capacity. "[This] significantly lowers the potential savings, especially for large and medium industrial consumers," the report said.
  • Remove or reduce restrictions on the "banking" of renewable energy. When excess energy is produced, such as from an industrial rooftop unit, the energy producer can bank the contribution against later withdrawals from the energy authority. Without adequate banking, the financial incentive to install rooftop solar is reduced.
  • Make energy banking more attractive. The government could encourage utilities to accept more banked energy if it allowed that energy to count towards a utility's annual renewable purchase obligation (RPO). This can be done in conjunction with better enforcement of RPOs, the report said.
  • Subsidize battery energy storage systems, which the report said "can be a game-changing situation" because they help integrate renewables into the grid and balance supply and demand over the course of days and seasons.

Long path to net-zero

India is the world's third largest GHG emitter, producing more than 3.5 gigatons per year, or about 7% of the global inventory, according to the International Energy Agency. At COP26, Prime Minister Narendra Modi committed to net-zero by 2070, or a decade later than China and two decades later than the countries aligned with the Paris Agreement.

Shifting away from coal-fired power to solar and wind is a key part of the nation's net-zero plan. Solar and wind combined are about 10% of the nation's capacity, today, according to S&P Global Commodity Insights.

For 2030, India's goal is at least 280 GW of solar capacity, announced as part of its Atmanirbhar Bharat economic plan in 2021 for post-COVID recovery. This includes new funding in the current budget year for the Solar Energy Corporation of India and the Indian Renewable Energy Development Agency, as well as a push to build a domestic solar module manufacturing base.

Along those lines, the government awarded a combined $603 million to Reliance New Energy Solar, Shirdi Sai Electricals, and Jindal India Solar Energy in March to develop full value chain module manufacturing capability of 12 GW by 2025.

This is another ambitious goal that will be hard to meet, Chauhan explained. Of the three companies, only Jindal has any current solar PV manufacturing experience, with about 2.5 GW of capacity in operation and another facility under proposal. Reliance has acquired solar PV technology companies that it says will form the baseline of its new operations.

In looking at the full supply chain, she said India has no polysilicon manufacturing nor wafer capacity now—and those are the first two parts of the value chain. As for the other two parts—cell manufacturing and modules—nationwide, India can make about 5 GW/year of cells and 11 GW/year of modules. But even those are typically not able to produce high-wattage modules that have now become the global standard.

If all the policies and investments work as intended, Chauhan said India could eventually close the gap towards it domestic needs and even compete with many exporting nations on the global market, though it probably can't match China's prices. "But in the short term, we see a lot of uncertainty," she said.

Posted 14 April 2022 by Kevin Adler, Chief Editor

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.


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