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1213GWsolarcapacitytobeaddedover201618

CRISILResearchexpectssolarpowercapacityadditionstorampupto1213GWoverthenext3years
(201618)ascomparedto2.8GWoverthelast3years(20122015).Thestronggrowthincapacity
additionswillbedrivenbythefollowing:

NSMPhaseII:Weexpectcloseto~5,600MW(includingBatchI,II,IIIandV)tocommission
underthisscheme,over201618,ledbycommissioningof~600MWofprojectsunderBatchI,
2800MWofcapacitiesunderBatchII,1200MWunderBatchIIIand~1000MWunderBatchV.
CapacityadditionsunderNSMisexpectedtobestrongowingtohighpaymentsecurity(asPPAs
areenteredintowithSECI/NVVN)andbundlingofconventionalpower(whichwillkeepsolar
powerpurchasecostslow)
Statesolarpolicies:Weexpectcommissioningof4,500MWundervariousstatepolicies
Karnataka,Telangana,AndhraPradesh,Punjab,UttarPradeshandTamilNadu.Thiswillbeledby
attractivetariffsintherangeofRs.6.5to7perunitfor~2GWofprojectsaswellasalready
identifiedlandparcelsandtransmissioncapacityinmostcases.However,executionfor2,100MW
ofprojectsrecentlybidunderthestatepoliciesofTelangana,MadhyaPradeshandPunjab,with
averagetariffofRs.5.6/unit,couldwitnesssomeslippage.
RPOandRECprojects:Weexpect800MWofRPOandRECbasedprojectstocommissionby
FY2018ledbyhighindustrialandcommercialtariffs.

Landacquisition,transmissioninfrastructureandfund
availabilitycriticaltosuccessfulimplementationofsolarprojects

Althoughthepotentialofsolarenergyishigh,thereexistfewchallengesrelatedtolandacquisition,
transmissioninfrastructure,fundavailability,whicharecriticaltoachieverapidgrowthofsolarpower.In
fact,inthepast,manysolarprojectsweredelayedascontiguousparcelsoflandandadequate
transmissioncapacitywereunavailable.Further,unavailabilityofcheapfundinghamperedrapidgrowth
incapacityadditions.Toaddresstheseissues,someofthemeasuresthatthecentralandstategovernment
hasannouncedareasfollows:

1.Centralgovernmentaimstodeveloplandbanksfor20GWin25statesunderitsultramegasolar
plantpolicybydesignatingworktostatenodalagenciesandSECI.Subsequently21states
includingAndhraPradesh,MadhyaPradesh,Gujarat,Rajasthan,UttarPradesh,Karnataka,Punjab,
Telangana,WestBengal,Chattisgarh,TamilNadu,JammuandKashmirandfewnortheastern
stateshavestartedpreparinglandbanksintheirstate.Outofthem,RajasthanandAndhraPradesh
 havealreadyacquired~20,000acresofland,whichcansupport~4GWofsolarcapacities.While
theremaining19stateshaveidentified~50,000acresofland,whichcansupport~10GW,andis
underdifferentstagesofacquisition.
2.CentralgovernmentunderitsGreenCorridorschemehasenvisagedconstructionofultrahigh
voltage(UHV)ISTSlineforevacuationofpower.Ithastenderedtwotransmissionlines(in
GujaratandRajasthan)withanaggregateevacuationcapacityof5,000MW,whichwould
commissionin1218monthsfromthedateofawardtothesuccessfulbidderin201516.
Moreover,tofacilitatecapacityadditions,stateslikeAndhraPradeshandTelanganaareproviding
capacityavailableatsubstationspriortoawardingcapacities.
3.GovernmenthasincreasedthebudgetaryallocationtorenewableenergysectortoRs.61billionin
201415.Also,SBIhascommittedRs.750billionindebtfunding(whichwillsupport~15GW)
overthenextfiveyears,whilemanygovernmentfinancialinstitutionslikePTCIndiaLtd,REC
andIREDAarealsoplanningtoincreasefundingtorenewableenergyprojects.Infactason
September2015,thecumulativedebtsanctionedbyPFStorenewableenergyprojectstandsatRs.
64billion,whichis79percentriseoverSeptember2014.Moreover,playersinthesolarpower
sectorarealsoexpectedtocontinuetoreceivePEandmultilateralinstitutionfundingledby
stronggrowthpotential.

Whilethesearesomepositivestepstakenbythegovernment,timelyimplementationofthesewouldbe
criticaltosupportrapidgrowthincapacityadditions.Moreover,otherrisksassociatedwithupcoming
solarprojectsincluderiseinthecapitalcostowingtorupeedepreciationleadingtoexpensiveimported
equipmentcosts,furtherdeteriorationinthefinancialprofileofdistributionutilitiesinIndiaresultingin
offtakeissuesandpaymentdefaults,decliningpowerdeficitandaggressivebiddingledbyforayoflarge
conglomerates.

RPOcompliancetoimproveto7580percentin201617ledby
healthycapacityadditions
AsperCRISILResearchestimates,theoverallsolarrenewablepurchaseobligation(RPO)compliance
was6570percentin201415.Gujarat,Rajasthan,MadhyaPradeshandAndhraPradeshandPunjab
werethefewstatestomeettheirsolarRPOobligationastogethertheyaccountforclosetotwothirdof
thetotalinstalledbaseasonMarch2015.Despitecontinuingnoncompliancebymoststates,therehave
beennoinstancesofpenaltybeingimposedonobligatedentitiesleadingtolowcompliance.

Overthenext2years,weexpectsolarRPOcompliancetoimproveswiftlyto7580percent,assuming
solarRPOtargetof1.2percent(from0.6percentin201415)oftotalconsumption.Thiswillbedriven
bycapacityadditionsof1213GW(FY16FY18)undervariouscentralandstategovernmentpolicies.
However,webelievethatthesolarRPOcompliancewillcontinuetobelargelyconcentratedinfew
states.WhilestateslikeRajasthan,GujaratandMadhyaPradeshareexpectedtoexceedtheirRPO
obligations,stateslikeAndhraPradeshandMaharashtraareexpectedtoentirelymeettheirobligations.
Formostotherstates,RPOcomplianceisexpectedtobeminimalowingtoweakfinancialhealthof
distributionutilities.

Aggressivebiddinginsolarallocationstoadverselyaffectproject
viability
Therecentallocationsunderthenationalsolarmissionforopencategoryprojectshavewitnessedbid
pricesfallingaslowasRs.4.63/unit(for500MWprojectinAndhraPradesh)fromanaverageofRs.
6.8/unit(500MWinKarnataka,509MWinTelanganaand619MWinAndhraPradesh)bidsplacedin
projectsawardedin201415.Suchaggressivebidding(asperourestimate,Rs5.4/unitisrequiredto
achieve16percentequityIRR)couldbeexplainedasbelow:

1.Largesizeofprojects,providesbargainingpowertodevelopersforsupplyofequipmentsandEPC
contracts.
2.Thesebidsareplacedforprojectstobesetupinsolarparks,whichreducestheconstructionlife
cycleofprojectsby68months(timetakenforlandacquisitionandevacuationinfrastructure)and
therebyallowingdeveloperstotakeadvantageoffallingmoduleprices.
3.Mostforeignplayers,participatinginbidshaveaccesstolowcostforeignfunding,and
lowerexpectationsonequityreturnsasprevalentforprojectsinglobalmarkets.
4.ThePPAsfortheseprojectswillbesignedbetweenthedeveloperandNVVN,whichincreasesthe
paymentsecuritytherebyreducingtheprojectriskconsiderablyandmakingitmorebankable.

Goingforward,weexpectthebidpricesfornewerallocations(underCentrallevelallocationinsolar
parks)toremainlessthanRs.5/unitinthenearterm,howeverwithfewplayersbuildingasizeable
portfolioandnearingtheirtargetedadditionsinthesolarsectorcoupledwithstabilizationofmodule
prices,theaggressioninthebidswouldbelesseroverthemediumterm.

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