After four years of sunny outlook, solar sector struggles to keep growth intact

pollution on solar panel

India’s solar sector, one of the top three markets globally, witnessed a slowdown in growth of installations during the current year as it struggled, on the back of policy and execution challenges, to sustain the spectacular rise it had experienced in the last four years, experts said.

“We expect 2018 to end with total solar installation of about 8.2 gigawatt (GW). This capacity includes 1.5 GW of rooftop solar. Compared to the Ministry of New and Renewable Energy’s (MNRE) annual target of 16 GW for the current fiscal, we are really far below the expected rate,” Vinay Rustagi, Managing Director of consulting firm Bridge To India, told IANS.

As per the firm’s latest report, total solar capacity reached 27.4 GW by the end of September, including 23.2 GW utility scale solar, 3.4 GW rooftop solar and 0.8 GW off-grid solar.

“The Indian solar market has grown spectacularly over last four years but was struggling to sustain because of policy and execution challenges,” he said.

India has so far installed only 26 per cent of 100 GW solar installation target set for 2022 and of this, large-scale projects accounted for approximately 89 per cent and rooftop installation made up about 11 percent, said Raj Prabhu, CEO of consulting firm Mercom Capital Group.

Amid increasing volatility in the issue of tendes, auctions and issues related to GST and safeguard duty, India’s solar installations had slowed down in the July to September period of the current year.

“After a year-and-a-half, the solar industry is still not clear as to what the actual GST rates are. Worse still, states began to interpret GST rates differently adding to the confusion. Uncertainty around GST is one of the major causes for the slowdown in solar installations in 2018,” Prabhu told IANS.

Expanding on this, Rustagi said: “Despite the announcement of a 5 per cent rate by the central government, administering authorities have levied different rates and as a result, the capital costs have gone up by 7-9 per cent. The main impact has been delay in implementation and deterioration in project profitability.”

The small contractors and installers have been the “worst hit”.

The sector has faced multiple challenges related to a mix of policy level issues and macro-economic factors. Safeguard duty was finally imposed in July after a lot of uncertainty in the first half of the year.

Together with GST, it has resulted in capital costs going-up by about 25 per cent, Rustagi said, adding that the government’s tariff expectations have also been unrealistic, resulting in many tenders being undersubscribed and/or cancelled.

“Auctions have been cancelled and/or postponed on a consistent basis. Approximately 4 GW of solar auctions have been cancelled by multiple agencies in 2018. Investors have become extremely concerned after the retroactive cancellation of auctions as the government agencies did not accept the tariff levels,” Prabhu said.

“Arbitrary ceiling tariffs and poor tender design have resulted in tenders routinely getting cancelled and/or undersubscribed. As a result, the gap between the tenders issued and auctions completed has been widening in the last year. Our revised best-case estimate for solar capacity by March 2022 is 67 gigawatt, well short of the 100 GW yarget unless decisive remedial steps are taken immediately,” Rustagi warned.

At the same time, the rupee depreciated significantly during the year and interest rates also crept up, hitting the viability of projects, the experts said.

According to them, the industry needs stability in policy and tender design.

“Constant tinkering and change of rules is undesirable and leads to confusion. There is too much focus on reducing costs, which is going to prove counterproductive and expensive in the long run because quality is being compromised under financial pressure and investors are being discouraged,” Rustagi said.

Prabhu also said the government needs to be in tune with ground realities of the industry and address it in consultation with the stakeholders on an ongoing basis.

“Retroactive changes to policies are a killer and needs to stop immediately. Lack of clarity when it comes policies is something that can be easily fixed instead of taking months to do so,” he said.

The experts, however, said any major policy announcements are not expected due to general elections in mid-2019.

The MNRE’s plans to speed up issuing tenders for something like 30,000 MW in the year but experts “do not believe that such a plan is tenable keeping in view power demand and operational constraints.”

Source: IANS