How Solar Energy Industry is Faring in The Light of New Policy Reforms in India

Policy reforms in India have helped the country to rank higher in the list of Business ready countries. Jumping 32 places up from 2016 and acquiring 100th place in the list has huge implications for the growing solar industry. This has impacted the budding solar industry in India, bringing in more investment opportunities within the country. Policy reforms have helped the Government of India to focus on bringing new solar plant projects as well. The new plans to award 100 GW of contracts in 2020, of which 77 GW will be solar power projects. Alongside, announcing plans for 2 GW of floating solar power projects auctioning in 2018 identifies success of policy reforms. Considering this, we can easily acknowledge that reforming policies and omitting hurdles are showing a bright future for solar industry in India.

Cancellation of Tenders

However, we must highlight that a total of 1,456 MW of solar power project was tendered and 1,232 MW of solar was auctioned in the third quarter of Financial Year 2017-18. This is a considerable decrease from the second quarter of 2017 when 3,408 MW of solar projects were tendered and 2,505 MW projects were auctioned. Solar tender and auction activity also declined steeply in India during November by 25% (tendered) and 98% (auctioned) from October.

Additionally, some tenders have also been cancelled such as- 250 MW solar project by NTPC (auctioned in Oct 2017), due to it breaching the WTO regulation of not selling power to state DISCOMs if the project has a DCR clause. Increasing tenders, and awarding more projects without cancellation has to be considered if India has to achieve its solar target.

Import Quandary

India aggressively invested in solar because solar could power the farthest corners of the country, reduce energy bills, and its globally growing market would help India to earn profit- satisfying energy and economy of our country. Policy reformations to boost India’s compatibility to nurture business is expected to turn solar into the best solution for socio-economic growth.

However, imported modules, presenting a bill of $3 bn in Financial Year 2017-18, have met more than 80% of the module demand in the country. This has been going on for years, and it has pushed the domestic manufacturers out of the Indian market allowing foreign suppliers ~80% of industry share. Low quality module usage in domestic projects and having no control over the solar module prices are few of the many issues that started to surface indicating the threat of allowing foreign suppliers to control our solar energy future.

Threat of blanket safeguard duty on SEZ based solar manufacturers in India has also created confusion in the sector and scaring off the investors.

Area Based Tariff Caps in Bidding

A benchmark tariff of INR 2.97 was agreed upon during 750 MW Rewa Solar Park projects. And the tariff has been falling ever since. Domestic module manufacturers of India have approached the Government trying to explain that falling tariff will only scare off investors and lead to more PPA re-negotiation issues.

Although, Government of India has brought area based tariff caps to help solar growth, it cannot be the answer to this problem as it will lead to centralization of solar projects in specific states where tariff is higher. Government of India needs to rethink and commission a study on efficacy of reverse auction mechanism. Although, fall in tariff is often identified by the Government of India as best way to make process transparent and make solar energy affordable. However, we need to understand that if prices fall below a certain level, it will lead to deployment of inferior quality goods and will hamper the long-term growth of the solar sector.

Other Issues That Require Policy Reform

Besides including the above challenges in the policy reformation agenda, India also needs to focus on-

  • Renegotiation of PPAs by state DISCOMS
  • Lack of R&D incentives for manufacturers
  • Delays in refunding input tax credit under GST
  • States failing to reach RPO obligation
  • Lack of DCR category projects after WTO decision
  • Lack of access to cheap finance
  • Lack of uniform policies across the states

With ISA and Make in India initiatives opening up export and investor channels, future of Indian solar sector seems bright. However, the country needs to focus on restructuring existing and implementing new policies that create a conducive environment for solar. Need of the hour is to progress domestic manufacturing capacity and green energy usage framework for better and quicker adoption of solar.