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Market Brief- Indian Renewable SectorKey trends, challenges and way forward
September 2019
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Copyright (c) JMK Research & Analytics 2019
Unless otherwise indicated, the material in this publication may be used freely, shared or reprinted, as long as JMK Research & Analytics is acknowledged as the source.
About JMK Research & Analytics
We are a boutique consulting firm providing research and advisory services across three key focus areas– Renewables, Electric mobility and Storage. We employ our interdisciplinary team, strong industry network, existing databases as well as vast project experience in the Indian power sector to create substantive business value for our clients. We help our clients in developing successful business models and market strategies. Our subscribers include, equipment suppliers, investment agencies, multi-lateral and bilateral agencies, project developers, government authorities.
Jyoti Gulia, JMK Research & AnalyticsShilpi Jain, JMK Research & Analytics
For questions or further information about this report, please contact us at Email: [email protected].
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Disclaimer:The presentation of the materials contained in this report is of a general nature and is notintended to address the requirements of any particular individual segment or entity. JMK Research & Analytics aims to provide accurate information, but does not guarantee the accuracy or completeness of such information nor does it accept responsibility for the consequence of its use.
JMK Research & Analytics
27/ 2C, Palam Vihar, Gurugram, Haryana- 1220170124-4069921www.jmkresearch.com
Authors
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AEML
BHEL
BOS
C&I
CAPEX
CEA
CSS
DISCOM
HVPNL
L&T
MNRE
MSEDCL
MSME
NTPC
OA
OPEX
PLF
PPA
PV
RE
REIL
REMCL
RESCO
S&W
SECI
SME
Abbreviations
Adani Electricity Mumbai Limited
Bharat Heavy Electricals Limited
Balance of System
Commercial and Industrial
Capital Expenditure
Central Electricity Authority
Cross subsidy surcharge
Distribution Company
Haryana Vidyut Prasaran Nigam Limited
Larsen & Toubro
Ministry of New and Renewable Energy
Maharashtra State Electricity Distribution Company Limited
Micro, Small & Medium Enterprises
National Thermal Power Corporation
Open Access
Operating Expenditure
Plant Load Factor
Power Purchase Agreement
Photovoltaic
Renewable Energy
Rajasthan Electronics and Instruments Limited
Railway Energy Management Company Limited
Renewable Energy Service Company
Sterling & Wilson
Solar Energy Corporation of India
Small and Medium Enterprise
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In last one year, several central and state agencies issued more than 3.2 GW of wind-solar hybrid tenders. Although, auctions for 2.4 GW of tenders have been materialized, only 1.6 GW is allotted (~35% under subscription). Only a handful of developers participated including Adani, Softbank and ReNew.
Because of tepid response from the industry, Solar Energy Corporation of India (SECI) has scaled down the capacity of one of the tenders from 2.5 GW to 1.2 GW. Two other wind-solar hybrid tenders got cancelled- NTPC, 174 MW tender in Karnataka issued in Oct 2018 and another 600 MW tender in Andhra Pradesh with storage. Clearly, certain issues are subjugating the benefits of wind-solar hybrid model. Some of them are:
• Low ceiling tariffs of INR 2.7 per unit set by SECI• Minimum CUF expected of 38% in the tenders, which means most of the capacity has to be wind-
based. However, installing new wind capacities is a challenge in itself as most of the good high windpotential sites with grid access are already saturated. For the same reasons, even the last three windauctions were nearly 60% under-subscribed.
• Technical challenges to integrate both wind and solar with the grid on the DC side. As per the MNREpolicy, till the time the DC metering framework is not in place, only AC integration is permitted. Thisreduces the cost benefits associated with DC integration in terms of utilisation of Balance of system(BOS).
Figure 1.1: Wind-Solar Hybrid tender details, as of Sep 2019
Wind-solar hybrid model struggling to take off in India
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Source: JMK Research*This is an EPC tender with storage option
To overcome the above challenges, a wind-solar hybrid model along with battery storage makes a good business case. At present, an optimal combination of solar, wind, and storage can provide stable round the clock power at a price of INR 6-7/ unit. With falling prices of solar modules as well as lithium-ion batteries, this cost is expected to go down further substantially, making storage a financially attractive and feasible option.
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The share of wind energy sector, in overall renewable portfolio of India, has lately seen a sharp fall. This is mainly attributed to sluggish growth of sector and rise in share of solar projects. As of July 31, 2019, the total wind capacity in India stands at 37 GW, contributing 45% share in total renewables’ portfolio. Compared to last year, this is a fall of more than ten percentage points.
Further analysis of wind capacity addition trends shows a Y-o-Y reduction in growth by 17% from 1.8 GW in FY2018 to 1.5 GW in FY2019. This fall in capacity addition is attributed to the following factors:
• Policies that favoured growth reaching end of term. Until Mar 31, 2018, Karnataka provided a10-year exemption on wheeling charges and Cross subsidy surcharge (CSS) for third party sale/ openaccess renewables projects. Post withdrawal of waivers, the wind market has contracted in size from905 MW in FY2018 to only 87 MW in FY2019.
• Delay in the commissioning of projects tendered under SECI auctions held in 2017. The reasonsfor this delay are the lack of transmission and land availability. Also, there was reluctance by stateauthorities to lease land for wind projects auctioned by the central agencies.
Figure 2.1: Wind Installation trends in India, as of Jul 31, 2019
Slump in wind sector: Falling capacity addition, rising tender under-subscription
Source: MNRE, IWTMA, JMK Research
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100%=81GW
Solar power 37%
Wind 45%
Bio power 12%
Small hydro 6%
FY2018 FY2019
For similar reasons, the project developers are showing lack of interest even for new wind auctions. Last three auctions saw nearly 60% under-subscriptions. Out of 4 GW tendered capacity, bids for only 1.7 GW were received. Before these three auctions, there had never been a case of under subscription in wind tenders.
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Tenders under subscribed by ~60%
New tenders issued (3 GW)
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Over the years, wind energy has been a huge contributor to the renewable sector. The policies were also designed to facilitate its growth. However, end of term of these favourable policies along with lack of suitable sites and supporting infrastructure, are impacting growth of this sector. Though in the long run, with technological advancements in wind turbines, we can expect an increase in plant PLF and a possibility to harness wind energy even from low wind potential sites. The evolution of the wind-solar hybrid model could also create interesting dynamics and can be the key growth driver for the sector.
Source: JMK Research*Wind-solar hybrid tenders are not included
Figure 2.2: Wind capacity allotted through tenders, as of Aug 31, 2019, MW
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In August 2019, Uttar Pradesh Cabinet cleared 150 MW floating solar plant on Rihand dam. It will be the biggest floating solar plant in India and is expected to be commissioned by May 2020. ReNew got 100 MW while Shapoorji Pallonji got 50 MW at a tariff of INR 3.36/ unit. With increasing land acquisition problems for utility-scale solar, floating solar plants make a good business case for developers.At about 300 GW, the potential of floating solar plants is huge in India, which can be achieved by utilizing just 10-15% of water bodies in states such as Kerala, Assam, Odisha, and West Bengal.
By 2020-21, the government of India has set a target to add 10 GW of floating solar capacity. As of July 31, 2019, about 2.72 MW of floating solar plants are already commissioned while another 971 MW are under the tendering phase. Additionally, about 4,255 MW of floating solar plants have been announced by various agencies where tenders are not yet released. Together, this will contribute to nearly 52% of the total target planned by the government. However, as per the current situation, achieving 10 GW target in the next two years is highly ambitious.
Figure 3.1: Status of floating solar projects in India (MW), as of July 31, 2019
5.3 GW of floating solar projects under pipeline in India
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Under tendering Pipeline
Source: JMK Research
Majority of these floating solar plants are planned in the states of Maharashtra, Uttar Pradesh, Jharkhand, Telangana, Tamil Nadu, and Andhra Pradesh. Active players participating in these tenders are ReNew, Shapoorji & Pallonji, S&W, Mahindra, Waaree and BHEL.
Despite being land neutral, the development cost of the floating systems including anchoring, installation, maintenance, and transmission is about 30-50% higher than the ground-based systems. However, the
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generation from floating solar plants is higher as the panels’ efficiency is higher (about 6% to 7%) due to the cooling effects of water.
For successful tenders, the tariff range for floating solar plants is INR 3.29- 3.36 per unit. Whereas, for tenders with low ceiling tariffs (INR 3/ unit), like MSEDCL 1,000 MW in Maharashtra, they have failed to attract any bidders.
In price-sensitive markets like India, higher costs of floating solar plants will remain a big challenge. Other challenges such as rusting, corrosion, long term impact of moisture on modules, cables, non-availability of floats in India, etc. still need to be addressed to increase large scale adoption of floating solar power projects in India.
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Government of India expects to achieve a renewable energy capacity target of 260 GW by 2024. To support this growing share of renewables in the country, according to CEA, we require at least 136 GWh of energy storage systems by 2030. However, the current commissioned capacity of solar energy storage is only about 10.75 MWh in India.
In last one year, about 169 MWh of storage tenders with 246.7 MW of solar PV (including floating and hybrid technology) capacity has been issued. Most of the small scale tenders are issued across Jammu & Kashmir, Lakshadweep, Himachal Pradesh and Andaman & Nicobar Islands mainly to reduce the dependency on diesel in these remote locations. A big project of 160 MW of wind solar hybrid technology with storage capacity in range of 30-40 MWh is expected to come up in Andhra Pradesh. This project is funded by World Bank and bids are already submitted for this.
Storage tenders of 169 MWh capacity issued in last one year in India
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Tenderingauthority
Location Capacity Tender scope
Currentstatus
Winner Date of tender issuance
REIL Andaman &Nicobar Islands
1.7 MW solar, 1 MWh storage
160 MW windsolar hybrid with
30-40 MWh storage
3 MW solar, 3.2 MWh storage
14 MW solar, 42MWh storage
20 MW floatingsolar, 60 MWh
storage
20 MW solar,8 MWh storage
3 MW solar, 5MWh storage
17 MW solar, 6.8 MWh storage
8 MW solar, 3.2 MWh storage
EPC
EPC
EPC
EPC
EPC
EPC
EPC
EPC
BOO
RFS issued
RFS issued
Bids submitted
Bids submitted
Resultsannounced
Sunsource
L & T
BHEL (INR 98 million/MW)
BHEL
Resultsannounced
Resultsannounced
Resultsannounced
Resultsannounced
Apr 2019
Apr 2019
Mar 2019
Mar 2019
Feb 2019
Apr 2018
Jul 2018
Mar 2018
Mar 2018
Andaman &Nicobar Islands
Andaman &Nicobar Islands
Andaman &Nicobar Islands
Andhra Pradesh
Leh
Leh
Leh & Kargil
Lakshadweep
SECI
SECI
SECI
SECI
SECI
NTPC
NTPC
NLC
Table 4.1: Details of storage tenders in India, as of July 2019
Source: SECI, JMK Research
Apart from the above mentioned tenders, SECI has also issued two NIT’s for another 1,600 MW solar along with 3,900 MWh of storage capacity tenders. Players who are actively bidding so far in these tenders are- Mahindra Susten, L&T, BHEL, Hero, Sterling & Wilson, IBC Solar, Greenko, Sterlite and Exide. As of July 2019, results are already announced for about 48 MW of solar along with 21.2 MWh of storage tenders.
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Figure 4.1: Winners of storage projects in India, as of July 2019
BHEL
L&T
Sunsource
0 105
3 3.2
20 8
25 10
15 20 25 30 35 40
Solar capacity (MW) Storage capacity (MWh)
Source: JMK Research
This growth spurt in storage tenders is related to few main factors- falling costs of storage technologies, rising share of renewables making it imperative to have storage for balancing and improving stability of grid and lastly the government push. Some of the recent initiatives taken by the government to bring momentum in this sector are:
• In July 2019, in the budget, government has reduced custom duties on cobalt mattes – a key ingredient for advanced lithium-ion batteries – from 5% to 2.5%
• In March 2019, cabinet approved National Mission of Transformative Mobility and Battery Storage, under which phased Manufacturing Programmes, valid till 2024, are approved to support e-mobility and battery storage
• Government’s new Wind-Solar hybrid policy (May 2018) permits any kind of energy storage technology for hybrid projects
Even though the market is moving at a slow pace, however with all the steps in right direction, the future of storage market in India looks bright.
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Government of India expects to achieve a renewable energy capacity target of 260 GW by 2024. To As of March 31, 2019, OPEX model based projects hold more than 37% share of cumulative onsite[1] solar installations in India. Under the OPEX model, a Renewable Energy Service Company (RESCO) invests, builds and maintains a rooftop/ onsite solar plant. The end consumer pays for the power generated under a long-term power purchase agreement (PPA) at an agreed tariff for a fixed tenure.
Figure 5.1: OPEX model based onsite solar installation trends
In FY2019, OPEX model based onsite solar installations doubled in size
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Source: Bridge to India Rooftop Map
In FY2019, growth for OPEX projects is 109% while for CAPEX projects it is 60%. Reasons for such growth in OPEX installations are:
• Most government/ public sector onsite solar installations are based on the OPEX model only. In FY2019, this segment has grown by 54% on a YoY basis.
• The market has evolved in the last few years and lenders, developers, as well as end consumers, are much more aware of the benefits of this model.
• Most big C&I consumers have accelerated their plans to reduce carbon footprints and as part of their internal green mandates, they have started adopting rooftop solar.
In India, OPEX is a preferred model for a lot of companies that do not want to invest in non-core operations. It’s also convenient for them to manage these assets through a third-party player. Only a few cash-rich companies such as ITC, Pepsico, Coke, etc. are building these assets on the CAPEX model.With rising liquidity issues and market slowdown, the OPEX model is a preferred choice for a lot of C&I consumers.
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[1] Onsite installations include open ground spaces, roof, parking lot or any other area within the premises.[2] Report by Deloitte and CIF: Scaling up of rooftop solar in the SME sector in India
However, in the next 2-3years, the OPEX installations might not see the same growth because of market saturation of good creditworthy C&I companies. Other segments such as SMEs, MSMEs, housing societies and residential customers with lower credit ratings could be the key contributors to the future growth of this market. However, most of these market segments are still not explored by RESCO players. To enhance bankability and risk profile for these consumers, some key developers have started exploring options such as partial risk guarantee facility to lenders[2], EMI model-based financing, asset buy back in case of customer default. The viability of these new financing models will be seen in the next 2-3 years.
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Commercial and Industrial (C&I) segment holds about 70% of all rooftop solar installations (nearly 3 GW) in India while in the utility-scale solar market it has about 13% share (>3.5 GW) under third party sale/ Open access/ captive model. In total, as of March 31, 2019, C&I segment has about 6.5 GW of solar capacity installed which is nearly 22% of all solar installations[1].
Earlier, most third-party sale/ Open Access (OA) solar projects in India were installed by mid-size regional players focused only on specific states where they have easier access to land and have favourable open access policies. Ujaas, Enrich, and Rays Experts are such players which from the last 4-5 years are developing projects under this model only.
ReNew, CleanMax, Avaada, AMP Solar and Amplus are new additions to this list which have started building OA solar projects in the last two years only. In Karnataka alone, Renew has built about 160 MW, Amplus has a portfolio of 220 MW, Avaada built 145 MW and Rays Power Infra built 130 MW. CleanMax has also constructed about 224 MW OA projects in Karnataka and 22 MW in Tamil Nadu.
Karnataka was instrumental in accelerating the growth of OA solar projects as it has offered waivers on most open access charges in the state. However, the local government has not extended these waivers beyond the deadline of 31st March 2018.
After Karnataka, the next key state which has now picked up momentum in OA market is Haryana. In July 2019, Haryana Vidyut Prasaran Nigam Limited (HVPNL) has approved more than 500 MW of projects under the Group Captive model which is a preferred power procurement model for C&I consumers now a days. Under this model, a power consumer holds at least 26% of the equity ownership and projects are completely exempted from Cross Subsidy Surcharge (CSS) charges- the biggest component of OA charges. For this scheme, more than 1,916 MW of applications were received.
Key players which have announced substantial capacities to be built under the OA/ Group captive model in the last few months are:
• Avaada plans to build a 100 MW OA project in Haryana. In recent news, it also announced to add about 2 GW of OA projects across Maharashtra, Tamil Nadu, Haryana, Karnataka, and Odisha
• Amplus plans to have 150 MW OA project in Haryana and another 100 MW in Uttar Pradesh • CleanMax plans to build a 150 MW in Haryana under group captive model• Rays Experts to build 100 MW in Haryana
C&I segment holds about 22% share of total solar installations in India
[1] BRIDGE TO INDIA Map- June 2019
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Figure 6.1: Key players installations under Open access/ Group captive model, as of June 30, 2019
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Source: JMK Research
The third-party sale model is fast picking up as C&I segment needs cheaper power. However, approvals, from DISCOMs, for OA projects remain the biggest hurdle as C&I segment is the biggest contributor to DISCOM revenue. Any shift towards other sources of power will lead to a loss for DISCOMs. Other than this, there is also complete uncertainty about the future of OA charges (including transmission and distribution charges, additional surcharge, etc). All these hurdles still question the long term viability of these projects.
Copyright (c) JMK Research & Analytics 2019
JMK Research & Analytics27/ 2C, Palam Vihar, Gurugram, Haryana- 122017
0124-4069921www.jmkresearch.com
