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Renewable Energy - A Snapshot on the India Solar Industry

Summary:

• India is the third largest country for Solar Installation with an addition of 9.1 GW of capacity and the 6th largest

country in the world with installed capacity of 18.3 GW.

• With the advent of Chinese companies bringing the cost down to Rs. 2.44kWh, there is a slowdown in executing

of the PPAs where the price is between Rs. 4.0-5.5 kWh in the last 6-12 months.

• Two major factors can be: (a) market undercutting by Chinese suppliers; and (b) reluctance of purchasers

(which remain largely the governments – a form of state monopsony) to pay what is a sustainable market price

– both of this have led to a market situation tuned towards increasing consumer surplus artificially (myopic

focus) across almost all Indian suppliers.

• The profitability of the solar industry is questionable but there is inadequate data to make a quantified

assessment, but all other data seems to point in this direction. It is unclear if the coal lobby is also playing a

role in the current situation.

• A sustainable environment needs to be quickly put in place if the fledgling solar energy has to survive in the

short term and deliver on the promise of this industry.

• Long terms players need to invest in Research & Development to enhance their technology to attain market

differentiator because competing on the cost of manufacturing in not sustainable option for the future.

Introduction: Today, we import over 80 percent of oil & 20 percent of coal to meet our energy needs. India is targeting

GDP growth of 7-8 percent and to achieve it our energy demands are also expected to go up. (Maini 2016 ). India has a

huge potential to move into a fully renewable electricity system by 2050, (Praveer Sinha n.d.). If we achieve the target.

It will provide the right platform for sustainable growth for the next 25 years. It will increase our energy security, reduce

our dependence on fossil fuels, combat climatic change, besides creating a new industry and a significant number of

new jobs. (Maini 2016 ). Geographically, India is an ideal country for solar energy with 300 days of sunshine, with the

power demand being in the evening driven by cooling requirements matching the solar peak season in the summer.

(Maini 2016).

Authors: Sarah Quadri | Vidyuth Rajagopal | Om Ahuja | Lokho John | Abdul Rahman
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Solar Industry Analysis: Thermal power (coal) is currently the highest source of power generation in India accounting

for ~58% of power generation. (Mercom Communication India 2017) Renewable energy constitutes for >18% of energy

generation in India. Solar energy accounts for overall 4.5% of energy generation and 25% of installed capacity. In FY

2018, the country's cumulative solar capacity grew to 24.4GW. Solar capacity addition in 2017-18 was higher than that

of all other energy sources, both conventional and renewable, combined. However, this is still far short of the government

target of a 100GW target set in 2015, as part of an overall renewable energy target of 175GW for 2022. (Praveer Sinha

n.d.) Solar power projects with an investment of

about Rs. 90,000 cr. would be developed using the

bundling method with thermal power. Further,

investment will come from large Public Sector

Undertakings (PSU) and Independent Power

Producers (IPPs).

Government Regulations & Framework: The Government of India is providing Rs. 15,050 cr. subsidy to promote

solar capacity addition in the country. The Electricity Act 2003 promotes electricity generation from co-generation and

renewable energy sources have accelerated the process of renewable energy development in the country enabling to

dictate that prices are set by an auction and not by the market. The market demand is controlled by a single large

customer, which is the Indian Government through the various Transmission (TRANSCO) & Distribution (DISCOM)

companies. Private Power Distributors are looking to Solar as an opportunity, however, apart from one or two integrated

players such as Tata Solar, the majority are yet to enter the market. Based on the above we can conclude that since that

price is set by the government through a competitive bidding process, all firms in the industry are price takers. Demand

is largely inelastic as firms sign up for long-term power projects at a fixed rate, thereby removing their ability to influence

price and demand. The decision of the firms are based around the quantum of production i.e. capacity related decisions.

At present, there are many firms working to build

significant competitive advantage by building

significant scale through giant energy harvesting

sites giving them a better capability to supply

power at a given price and optimizing their cost

structures.

Authors: Sarah Quadri | Vidyuth Rajagopal | Om Ahuja | Lokho John | Abdul Rahman
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One can liken the present solar energy market to the Stackelberg version of industry competition. The basis of the above

is a situation where one firm acts as a capacity leader, with all other firms acting as followers. Capacity decisions are

made sequentially by firms. Profits for the Stackelberg leader are greater and followers are lower. The advantage of

being a Stackelberg leader is that of the first mover advantage, however, that is not a barrier to entry in of itself, hence

not being as powerful as the Monopoly market. (EFM Class Notes) . In June 2015, India announced that it would develop

175 gigawatts (GW) of renewable energy capacity by 2022. To this end, federal and state governments introduced several

tax and financial incentives to make India’s nascent solar and wind sectors appealing for investors, which helped attract

about US$2.05 billion (Rs 13,000 crores) in investments in India’s renewable energy sector between April 2014 and

December 2016. (Gonsalves 2018 ) The pace of new tender announcements and completed auctions has slowed down

significantly in the last year. Southern states have frontloaded capacity buildout – Karnataka (installed plus tendered

capacity of 69% as against March 2022 target); Andhra Pradesh (74%) and Telangana (70%) – and are bound to slow

down. Amongst other large states, Maharashtra and Gujarat, like many others, have surplus power availability and

remain unenthusiastic to new solar power. (Bridge to India 2017)

Recent tender results have jolted the policymakers, DISCOMSs, project developers and investors. Greenfield solar

power at prices of Rs 3 to 3.5/KWH is very attractive and should create strong demand pull in the medium to long-term.

But it is also leading to buyer's remorse for projects already built and under development. States that have completed

auctions with prices of Rs 4-5.5/kWh in the last 6-12 months (Jharkhand, Andhra Pradesh, Hyderabad) are refusing to

sign PPA's which is creating uncertainty in the market. (Bridge to India 2017) .The cost of solar panels and the inability

of state power distribution companies to purchase solar electricity has eaten into profits as well. In 2017, India added

about 9.6 GW solar power capacity, with Telangana and Karnataka installing over 2 GW each. According to industry

experts, while falling prices and government support have helped in boosting demand, supply-side factors like land and

transmission remains a concern. (Praveer Sinha n.d.) The government's strong resolve to heightened quality standards

for imported solar photovoltaic (PV) modules, enforced through inspections will further help procurers get over 25 years

of module life. (Praveer Sinha n.d.)

Opportunities: Every company needs to have access to cheap capital, as the capital-intensive nature of the products

requires significant capital expenditure. Only by getting bigger, and thus having more collateral in the form of projects,

can they bolster their financial positions and scale up. Solar companies must, therefore, find new ways to attract long-

Authors: Sarah Quadri | Vidyuth Rajagopal | Om Ahuja | Lokho John | Abdul Rahman
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term capital from institutional investors (either through public markets or private placements), to improve capital

efficiency, and to forge prudent growth strategies. (David Frankel 2016 ) . The slow down provides much-needed

breathing room to developers and investors, who need to consolidate, focus on capital raising and execution on the-

ground. The pace of fundraising transactions – IPO's, bond offerings and M&A's – has picked up and is bound to

accelerate in the coming years. (India Solar Handbook 2017). Solar players need to bring the pieces together and

aggressively manage costs in each area. A detailed cost roadmap can help to reduce costs and develop a realistic

forward cost curve against which developers and sales teams can bid for future projects. An effective cost analysis

begins with setting goals, based on the levelled cost of energy for each market. (David Frankel 2016 ). Lessons from

Germany: German companies retain an edge when it comes to research on the modules’ system integration and the

implementation of innovative applications while competing against low-cost Chinese products. Companies like

Solarwatt or Sonnen offer integrated solutions that allow for storing surplus solar energy at home and also sharing or

trading it with neighbors and other prosumers around the clock. Companies like British-German joint venture Oxford

PV offer alternatives that challenge the dominant silicon-based solar panels. They specialize in panels made with the

material perovskite, which are believed to have a much greater efficiency potential than silicon models. In 2018, Oxford

PV secured funding by the German government to move to large-scale production. (Germany Factsheet: Clean Energy

Wire)

Future Potential: India : The Solar industry remains a key focal point of interest for the Modi Government.

Having set an ambitious target to generate 100 GW of Solar power by 2022, industry bodies must focus on

removing industry-wide concerns related to falling prices, grid integration and PV dumping by Chinese

competitors & invest in innovation. Globally: A very hot area in solar R&D is Screening-engineered field-

effect photovoltaics (SFPV) – it has the potential to enable low-cost, high-efficiency solar cells to be made

from virtually any semiconductor material. The first goal for SFPV is to use it to further improve the

performance of existing high-efficiency solar cells. Another intriguing near-term prospect being worked on

by NREL is a SolarWindow that opens up a new niche market for organic solar cells (OSC). The work is being

conducted by Creative Research & Development Agreement (CRADA) with New Energy Technology Inc

(NET). (Renewable Energy Solar PV R&D)

Authors: Sarah Quadri | Vidyuth Rajagopal | Om Ahuja | Lokho John | Abdul Rahman
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Bibliography

Bridge to India. 2017. "India Solar Handbook ."

David Frankel, Aaron Perine & Dickon Pinner. 2016. "Mckinsey ." Mckinsey. October.
https://www.mckinsey.com/business-functions/sustainability-and-resource-productivity/our-insights/how-
solar-energy-can-finally-create-value.

Gonsalves, Oliver. 2018. "IndiaBriefing.com." IndiaBriefing.com. March 15 . https://www.india-

briefing.com/news/india-solar-wind-industry-scope-investors-16346.html/.

Maini, Chetan. 2016. "Business Today ." BT Anniversary 2016, January 17: 72-76.

Mercom Communication India. 2017. Indian Solar Market - Market Drivers & Challenges. Market Research, Mercom
Communication India.

Panda, Subrata. 2018. ThePrint.in. March. https://theprint.in/governance/india-may-leading-solar-charge-domestic-

industry-clouded/42876/.

Praveer Sinha . n.d. Economic Times . https://energy.economictimes.indiatimes.com/energy-speak/the-future-of-

renewable-energy-in-india/3016.

Solar power in Germany – output, business & perspectives (Link)

Solar PV R&D: what are researchers working on? (Link)

Authors: Sarah Quadri | Vidyuth Rajagopal | Om Ahuja | Lokho John | Abdul Rahman