Solar capacity addition to fall by 40% to about 4-4.5 GW in FY19: ICRA
Mumbai: The country’s capacity addition in generating solar power will fall by 40% to about 4-4.5 GW in FY19 from about 7.5 GW in FY18, credit rating agency ICRA has estimated in a report, attributing this to fewer tenders by state governments and uncertainty in the industry over the impact of import duty on cells on tariffs.
“A solar power plant requires a gestation period of 12-15 months,” explained Girishkumar Kadam, sector head and vice president, ICRA Ratings. “For this, project awards and bidding patterns matter. Last year, till December 2017, a lot happened that affected the sector– the new Goods and Services Tax regime was rolled out in July 2017, prices of photovoltaic module prices went up internationally and the industry was uncertain about the government imposing safeguard duty and anti-dumping duty. All this led to concerns especially for projects with tariff below ₹ 3/unit.”
So several tenders got postponed, Kadam added, with tenders in Karnataka and Maharashtra not finding a single bidder. “This poor bidding trend last year has lowered work on capacity addition this year.”
Maharashtra, for example, introduced a tender for 1 gigawatt (GW) of grid-connected solar photovoltaic power projects in the state to meet its renewable purchase obligation in December 2017. It didn’t receive a single bid.
Ritu Saurabha, director – project and structured finance, YES Bank, agreed with ICRA’s estimates. “States haven’t been coming out with large bids,” he said, “as investors now perceive the Solar Energy Corporation of India as a more reliable counterparty. SECI does power sale agreements with state discoms (distribution companies) and if SECI tenders fall in a certain year, capacity addition is hit.”
According to data by Bridge to India, a renewable energy consultant, as of September 2017, solar projects worth 16 GW have been commissioned, with projects of another 10 GW in the pipeline.
Last year, the Directorate General of Safeguards recommended that the central government impose a 70% safeguard duty on solar panels imported from China and Malaysia, which warned off solar companies from bidding for new projects. Bidding guidelines have now been changed, and any additional safeguard duty that is imposed after a bid has been rewarded can be passed on to the discom.
This change has been welcomed. The Maharashtra’s State Electricity Distribution Co. Ltd reintroduced its 1 GW tender this month inserting a clause that allows winning bidders to revise tariffs and recover safeguard duty. Mint reported on 15 April that Tata Power was interested in bidding for 400 MW under the new rules.
However, how long it will take for power companies to be able to claim back this duty through tariffs remains to be seen. “Companies will still have to approach each state electricity commission to implement this pass-through condition,” Kadam of ICRA said. “A similar provision led to significant delays in thermal power. Companies need to know the exact quantum of setback duty that can be claimed and when. Timeliness is key.”
The ICRA report also said that the viability of tariffs critically hinges on structuring of debt with longer tenures, competitive funding costs and the ability of project developers to keep the cost of modules within the budgeted levels.
The pipeline is slowly increasing, though, and capacity addition in FY20 is expected to bounce back. A report by Bridge to Solar (which maintains data on a calendar year basis) estimated that in 2019, capacity addition will be about at least 8 GW.
Source: Live Mint