What is the issue?
- India has set an ambitious goal of reaching 100 Gigawatt (GW) of solar energy capacity by 2022.
- However, various tariff and market factors make achieving the target uncertain.
How is solar capacity addition in India?
- With regard to solar capacity addition in India, real volumes have started to come.
- Evidently, FY18 has been a good year as far as the installation of large-scale projects and focus towards solar pumps is concerned.
- Last year, India was in third place in terms of solar market growth over the year.
- The trajectory towards capacity addition is accelerating too.
- If this trajectory is to continue over the next few years, it will certainly be possible to achieve the target of 100GW.
- However, the momentum is slowed down by various factors.
What are the concerns?
- In the last few months, investor sentiments have been dampened due to various factors.
- Safeguard duty - The Director General (Safeguards) had earlier recommended imposing a 70% safeguard duty. Click here to know more.
- This applied to imported solar cells, panels and modules, for a minimum period of 200 days.
- No decision has yet been taken on this.
- But the proposal is causing a lot of uncertainty in the industry.
- This is because the proposed 70% safeguard duty would also inflate the project costs by 25%.
- It would also push the viable tariff to Rs. 3.75 per unit from Rs. 3 estimated earlier.
- All these eventually make solar power less attractive to discoms.
- Tariff complications, added with protectionism are big concerns.
- GST - In the pre-GST regime, there was zero tax on solar panels.
- However, the case now is 5% GST.
- Moreover, there is a lot of confusion surrounding the GST on project execution, which needs clarity.
- Uncertainty - In the case of bids, certain tariffs are decided upon.
- But there is uncertainty over the incidence of future taxes and how they would affect the tariffs.
- Developers cannot mitigate that risk by keeping a margin in the bid.
- Power purchase Agreements - Another issue is State governments renegotiating past power purchase agreements.
- This is due to lower tariffs being discovered subsequent to the signing of their PPAs. Click here to know more.
- There have been instances of lower-than-contracted payments or grid curtailments.
- India thus lacks an effective ecosystem to make solar capacity addition happen in a speedy and time-bound manner.
- Rooftop solar component - Another aspect holding up the 100 GW target, is the rooftop solar component within this target.
- Out of the total, utility scale capacity is to make up 60% of the target.
- Rooftop solar is to make up the remaining 40%.
- Out of the total achievement of 20 GW (out of 100GW) at present, about 18 GW is probably from utility scale.
- The volume installed on the rooftop side is modest at less than 2 GW.
- The utility scale segment has thus achieved 30% of the 2022 target with four years to go.
- On the other hand, the rooftop segment has achieved less than 4%.
What should be done?
- The installation base in solar in India has touched 20 GW. Notably, in the last 10-12 years, it has come from 10 MW to 20 GW.
- But with 2022 as the target, India needs to make 20 GW every year in the coming 4 years.
- Imposing import duties on the primary materials of these projects could work against the goal.
- In a VUCA [volatility, uncertainty, complexity and ambiguity] environment, what investors and financiers need is certainty.
Source: The Hindu
