Tag: Solar


Gujarat’s New Budget Emphasizes on the Growth of Rooftop Solar Sector

Author: Saumy Prateek

Targets 30 GW of renewable capacity by 2022

In the Gujarat state’s budget announced for the current financial year (FY) 2019-2020, a recalibrated target of 30 GW of renewable capacity by 2022 has been announced.

This target includes both solar and wind, and out of this targeted capacity, 20 GW will be specifically for the state while 10 GW will be for projects tendered by the national implementing agencies, a state official told Mercom.

The state government has renewed its focus on distributed generation solar projects in the state with the new budget having a provision of ₹10 billion (~$144.9 million) for a new rooftop solar photovoltaic (PV) program.

Under the proposed rooftop solar PV program, 200,000 families will be covered during the year and the beneficiaries will be given a subsidy of up to 40% of the capital cost for rooftop solar projects of capacity 3 kW and a subsidy of 20% on the system cost for rooftop solar projects in the range of 3 kW to 10 kW.

This will be an added incentive on the subsidy already being provided by the central government and expected to help in faster adoption of rooftop solar PV by the residential customers.

The new target will help the state entities meet their renewable purchase obligation (RPO) in the coming financial years. Gujarat has its RPO set at 14.30% for FY 2019-2020; 15.65% for FY 2020-2021 and 17% for FY 2021-2022.

This is in line with the modification of land laws for the development of wind and hybrid (wind and solar) parks in Gujarat by the state government. The land has been earmarked for wind and wind+solar hybrid projects auctioned by the Gujarat state agencies as well as the central agencies.

According to Mercom’s India Solar Project Tracker, Gujarat has an installed solar capacity of ~2.1 GW with nearly ~1.1 GW of solar projects under various stages of development.

An increasing number of states with limited land availability are opting for rooftop solar and have been allocating portions of their budget specifically for the growth of this fledgling sector. For instance, in February 2019, the Kerala state government had announced its budget, which put the impetus on setting up rooftop solar projects in the state while also pushing for the development of the electric vehicle sector.

Image credit: Council on Foreign Relations


Payment Delays in Andhra Pradesh, Telangana, Tamil Nadu Hit Solar and Wind Developers

Author: Saumy Prateek

While the situation in the industry had improved for the better briefly, things seem to have deteriorated again

Payment delays are becoming a problem again for solar and wind project developers in India especially in Andhra Pradesh, Tamil Nadu, and Telangana. Some instances in Madhya Pradesh and a DISCOM in Karnataka are also being blamed for long payment delays to developers.

Payment delays were a persistent problem a couple of years ago, and Mercom reported on this topic in March of 2017. The situation improved briefly but has now deteriorated again.

States with payment delay problems – Andhra Pradesh, Tamil Nadu, and Telangana are major solar markets which have about 9 GW of large-scale operating solar projects between them according to Mercom’s 2018 Q4 & Annual India Solar Market Update.

Solar and wind tariffs are well below the ₹3/kWh mark with the lowest solar tariff in India reaching ₹2.44 (~$0.038)/kWh and wind tariffs touching the lowest-ever mark of ₹2.43 (~$0.037)/kWh. Government agencies are benefitting from low tariffs and procuring power at record low prices. However, for developers, these extremely low tariffs mean no margin for error.

In this scenario, payment delays are a huge risk for developers. The chance of default in the case of a long payment delay increases dramatically when a developer is unable to service the bank interest, and in the long-term, this could lead to non-performing assets.

A top executive at one of the major private renewable energy conglomerates said, “All of us, both big and small players, are facing payment delay problems and this issue is escalating day by day. Andhra Pradesh, Tamil Nadu, and Telangana are the main culprits. In Tamil Nadu, there has been a delay of about more than a year. In Telangana, the delay has been about ten months, and in Andhra Pradesh, the delay is about seven to eight months. These delays are for payments of both solar and wind power projects.”

Mercom reported on curtailment issues in Karnataka, Andhra Pradesh and, Tamil Nadu back in November.

A mid-sized developer told Mercom last month that they haven’t received payments for their Madhya Pradesh projects over the previous 4 to 6 months.

Even the country’s largest power generator, the National Thermal Power Corporation (NTPC) has been affected by this issue. Mercom recentlyreported that DISCOMs in Andhra Pradesh, Telangana, and Karnataka owe NTPC ₹18.84 billion (~$262.6 million) in dues for solar power supplied by projects under the National Solar Mission.

Talking to Mercom, an NTPC official said, “Payment delays are a big setback as capital gets stuck and it affects the workings of our companies. If it is for one or two months, it is understandable, but here the delays are for months upon months, and one has to approach higher authorities and do a lot of arm twisting to make these DISCOMs pay. We supply thermal power along with renewable energy, so we (at NTPC) have a better leverage point when it comes to making DISCOMs clear dues, but for other firms that are only involved in the renewable energy segment it is a tough ask, as they are dependent on the whims of DISCOMs and even the process of relief through CERC or SERC is time-consuming, putting projects and profits in danger.”

The Ujwal DISCOM Assurance Yojana (UDAY) program was supposed to help some DISCOMs stuck in a debt-rut. However, looking at the non-payment of dues, it does not look like UDAY has helped the financial situation of DISCOMs. When asked about the reason behind payment delays in the light of implementation of the UDAY program, the top executive at a the major private renewable energy conglomerates said, “UDAY has been a failure as plans were not put into operation in time; the regulatory body did not implement tariff changes on time, and now this has led to the current backlog of dues by DISCOMs.”

When contacted over the issue, Manoj Gupta of Fortum said, “Our company doesn’t have any power purchase agreements with state-owned DISCOMs, so we aren’t facing any payment delays. But the issue exists in the sector and is a huge bother for generators that have entered into PPAs with state-owned DISCOMs.”

When contacted to shed some light on the issue, an executive at a large solar firm said, “The largest project developers in the country – including NTPC – have been facing payment delays for over a year now. They have the wherewithal to survive and keep on executing new projects, but the smaller fish will die. They will have to sell their projects in order to survive and to execute new projects as banks charge higher interest rates in India due to this being a high-risk sector known for payment issues amongst others.”

A top executive at another large private green company in India said, “In Tamil Nadu, the payment has been pending since July 2018. Karnataka is a bit irregular in payments at times; the only exception being HESCOM that is a known defaulter. On top of all this, curtailment is not helping. In Tamil Nadu, we are facing curtailment. In Karnataka too, there was some curtailment in the past.”

Recently, the  Ministry of Power constituted a new committee to study and submit recommendations into the issue of delayed payments by DISCOMs to power generating companies and independent power producers. The final results are yet to be published.

Addressing the financial woes and payment issues in Andhra Pradesh and Telangana, India Ratings and Research in its note said,“ The increasing dependence on the subsidy has rendered Andhra Pradesh DISCOMs vulnerable to the finances of the state. A significant part of the subsidy for FY19 was supposed to be raised through bonds guaranteed by the government of Andhra Pradesh and was raised on April 23, 2019. It is likely that a large quantum of pending dues to generation companies, including renewable projects, will be cleared from the proceeds of these bonds. However, the lack of clarity about timely funding of the subsidy continues to pose uncertainty over the cash flow position of the DISCOMs in Andhra Pradesh, as well as of projects that sell power to the DISCOMs in the state.”

If the payment issue continues or gets worse the ability of solar developers to bid for new projects will decrease. Already many developers are already reluctant to bid for projects in auctions that have aggressive tariff caps where the margins are very tight. Add payment uncertainty to it and projects become a very risky bet.

“There are already a plethora of challenges that face developers like import duties, GST, land and transmission issues in the country. Long payment delays on top of this are devastating to many companies that have taken risks to invest and generate clean power in India, especially smaller developers. A payment guarantee mechanism for solar and wind developers is a must and cannot wait,” said Raj Prabhu, CEO of Mercom Capital Group. “Clean power generators should be encouraged and incentivized not pushed to financial distress.”


Tariff a Bone of Contention Between Indian Wind Stakeholders and Government Agencies

Author: Saumy Prateek

Wind is now the cheapest source of energy in India

India’s wind energy sector has come a long way since the introduction of reverse auctions. In 2016, the Solar Energy Corporation of India (SECI) carried out the first-ever wind auction in India. The sector has benefitted immensely ever since. To date, 10.6 GW of wind projects has been auctioned and awarded in India.

The reverse auction mechanism was introduced in the sector after witnessing solar bids plummet in its reverse auctions. Before reverse auctions were introduced, wind projects were mostly developed by private companies for captive consumption or for sale to the state; the process was not transparent. But all of this changed in 2016 when the reverse auction was introduced.

The first batch of the auctioned interstate transmission system (ISTS)-connected wind energy projects were commissioned in India in August 2018.

Wind is now one of the cheapest sources of energy in India. In December 2017, wind power tariffs dropped to a record-low level of ₹2.43 (~$0.038)/kWh quoted in the Gujarat Urja Vikas Nigam Ltd. (GUVNL) 500 MW auction in Gujarat. This is lower than the lowest solar tariff of ₹2.44 (~$0.037)/kWh quoted in the Bhadla Solar auction in May 2017.

Reverse auctions have caused tariffs to plummet and tariffs have remained at levels below ₹3 (~$0.043)/kWh. An increasing number of state agencies have even introduced wind tenders to meet their non-solar renewable purchase obligations (RPOs).

Government support in the form of wind resource assessment and identification of potential sites through the National Institute of Wind Energy, the waiver of interstate transmission charges, and concessional customs duty exemption on certain components of wind electric generators have all helped.

As wind tariffs fell below solar, it also enabled the government to come up with wind+solar hybrid policies and regulations. Recently, a tariff of ₹2.67 (~$0.03794)/kWh was quoted in India’s first-ever wind+solar hybrid auction conducted by SECI.

After the decline in wind tariffs, the government began exploring the possibilities of offshore wind as India has one of the longest coastlines in the world. Recently, the MNRE issued draft offshore wind energy lease rules which are aimed at spurring activity in offshore wind, which has until now remained dormant. In June 2018, the MNRE established a short-term installation target of 5 GW of offshore wind capacity by 2022 and a long-term installation target of 30 GW of offshore wind projects by 2030.

However, not everyone is thrilled with reverse auctions and the direction of tariffs especially after the introduction of tariff caps.

When contacted, a top executive at one of the leaders in the Indian wind energy sector said, “Yes, we have come a long way since 2016 and the commissioning of the first batch of auctioned wind projects marks the completion of a circle that the sector has turned. Tariffs have gone down and there are tenders galore, but all’s not well.”

“As it happened with solar, the low tariff bug has bit the implementing agencies in the wind energy sector too. Once the tariff went to ₹2.43 (~$0.038)/kWh in a GUVNL auction, implementing agencies started fixing upper tariff ceilings way below the ₹3 (~$0.043)/kWh mark in tenders. This is a huge negative as the same tariff cannot be achieved in other locations. Implementing agencies need to understand the potential of the areas they are tendering for, as the height of windmills plays a huge role in the cost of projects,” added the executive.

An executive at a wind project development firm said, “As of now, everything is fine, but the mad dash for low tariffs can ruin the progress made in the past three years. Another issue that is being faced is curtailment in windy states.”

Speaking about the tariff issue, a government official told Mercom, “Our aim is to provide cheap, green power to Indian citizens. Technologies are getting cheaper, and that’s why we are reducing upper tariff caps. We are not just doing it on a whim but after due diligence. Firms always keep profit paramount, even they must change their attitude a bit and work for the betterment of India, not just filling their coffers. Tariffs around the ₹2.60 (~$0.038)/kWh mark will still be profitable for them if we look at the low of ₹2.43 (~$0.038)/kWh.”

Low tariffs are a bone of contention between the stakeholders, and the government agencies.

“The reverse auction procurement system in solar and wind was designed to award the projects to the lowest bidder. What we have now is a reverse auction where opening bids are set and can only go in one direction – down. Government agencies need to consult with developers and investors and strike a balance between tariff, project quality and profits,” said Raj Prabhu, CEO of Mercom Capital Group.