Trends driving the sector in 2019
India’s enthusiasm as a key proponent of the historic Paris Agreement created an ambitious target of ‘100 GW solar power generation’ for the country. The trends in renewable energy and specifically the solar energy, over the last few years have been driven majorly by this target.
In the Utility sector, which translates to about 60% of the target, many market forces as well as government intervention are playing crucial roles in shaping the trends. However, going forward we expect the following to shape the trends in the coming years:
Project delivery: A lot of larger wind and solar utility projects have been facing delays on account of project development delays, delays due to land acquisitions and delays due to transmission availability. This commissioning of new utility scale projects has been significantly subdued in the recent past.
The low tariffs: The falling tariffs have created an unrealistic tariff expectation among state-owned utilities the past year with tariffs as low as Rs 2.5 per unit. In the opinion of the investors and the lending community, tariff caps, reverse bidding and consequently, the dropping tariffs has led to a situation that has raised questions on the basic viability of a project.
The quality issue: With low tariffs, there may be a compromise in the quality of the products used in setting up of the plants. An increase of scepticism in terms of quality would be an alarming trend.
Investment sentiments: Falling tariffs, poor collection efficiency from DISCOMs and unstable regulatory environment like post bidding GST imposition and anti-dumping duty are affecting the overall sentiments amongst international investors. Secondly, the postponement of a couple of large renewable IPOs has resulted in investors becoming more circumspect and cautious on valuations and consequently investments in the sector have been slower than estimated.
Debt financing challenge: The recent liquidity crunch in the debt markets has affected the NBFCs, who had largely picked up financing post the slowdown by the public sector banks, resulting in higher cost of funds and sometimes even no-availability of funds for the smaller renewable developers.
In the rooftop sector, which accounts for 40 per cent of the government’s target, similar market forces as well as regulatory challenges are present. However, the impact on this segment is not as significant as is being observed in the utility segment:
Adoption among Commercial & Industrial (C&I) consumers: Over the last few years, C&I segment consumers have been looking at solar power plants to adopt renewable energy. In recent times, increase in awareness, better solutions like OPEX Solar by Amplus and global corporate campaigns such as RE100, have increased the adoption of solar power multi-fold. This will continue to be an upward trend. More number of commercial and industrial organisations will continue to opt for OPEX solar. This has resulted in strong investor interest and sometimes even investments in captive projects by the C&I customers themselves.
‘Solar Plus’ trend: With increase in adoption of pure solar PV systems today, consumers are now looking to improve their renewable energy consumption or managing their load during peak hours through improved solutions. Developers are thus catching the ‘Solar Plus’ trend which includes R&D in solar plus battery storage and Hybrid models such as solar plus wind.
Open Access in new states: On the regulatory front, many states are now following Karnataka by facilitating their industries adopt renewable energy under open access regulations. Recently Haryana and UP have released their Open-Access regulations. This will further open the distributed solar market with more C&I players adopting solar.
Residential not far behind: In the recent past, there has been an upward momentum in the residential space. Many household consumers being early adopters of the same and with many more players jumping in, the coming year would see a growth of residential solar. However, with regulatory challenges such as untimely disbursements of subsidies and net-metering challenges, it may take a more than just 2019 to have this market warm and opened to smooth functioning.
Indeed a lot of work still remains for us to make India a real sunshine country.