The Indian PV market – One of the most promising in the world
In the last three years, Asia has dominated the photovoltaics (PV) world with three countries among the TOP 4 – China, Japan and India. India is one of the most promising PV markets as the country receives over 300 days of sunshine per year. The total amount of installed solar power generation reached a capacity of 15.6 Gigawatt (GW) on 30th June 2017. The Indian government is trying to achieve 100 GW before 2022.
India is the country with the second highest population on earth. The country's energy requirements are rising rapidly and fossil fuels are becoming scarcer and more expensive. With a high amount of sun exposure, it makes complete sense to use the sun energy. India started to focus on using solar energy in 2008 and the Indian PV market is expected to continue its growth. It is set to become the third largest PV market in 2017, overtaking Japan. However, India is also considered to be a topographically challenging country with highly cost-competitive market conditions.
Solar tenders have brought the prices to a minimum
The government has launched various funding programs for solar projects at federal and state level. For large solar parks, India relies on public tender procedures to achieve competitive prices for solar power. The pace of solar tenders has been increasingly rapid, with 15.9 GW allocated from July 2015 to December 2016. Recent Indian solar tenders have resulted in very low tariffs. Analyses show energy prices which are more competitive with traditional electricity generating sources. One of the last tenders yielded a price per kilowatt hour (kWh) of 2.44 Rupees, equivalent to 3.20 Eurocents. In comparison to Germany, the average value of the last open space bidding procedure was 5.66 Eurocents per kWh.
These very low prices in India are mainly due to the sharp decline of system prices and in particular PV solar module prices. The other reason is the reduction in the cost of capital. The cost of financial loans is progressively coming down and the ability to raise capital for renewable energy projects is easing up. Nonetheless, this environment opens new uncertainties for most of the stakeholders in this industry. Developers, who have won projects with ultra-low costs, might face difficulties in raising capital, if the system price does not correspond to initial expected set up cost. Especially concerning are changes driven by the Indian Government in the tax regime, which have been introduced (Good and Services Tax), or are under assessment (imposition of Anti-Dumping Duties to Modules), causing unplanned increases in capital cost. The market is becoming increasingly utility-orientated with ultra-high project sizes in which, for small and mid-size developers, raising debt and equity might become a challenge.
All in all, India is a world-open market in terms of photovoltaics. There are no special bureaucratic obstacles for foreign companies. Tendering procedures are complex but very carefully regulated. PPA (power purchase agreement) allocation process in India is done through a transparent reverse auction process, which is open to any local or international project developer. This is one of the reasons why we have been active in the Indian market for just under ten years.
Project development, EPC and O&M services
IBC SOLAR first entered the Indian market as a technology provider in 2008. IBC SOLAR is a leading global specialist in photovoltaic systems, offering complete solutions for power production from solar energy. The family-owned and operated German company covers the entire project realisation process, from planning to the handover of photovoltaic installations to their clients. In its role as a technology provider in India, the company offers engineering, procurement and supervision know-how. The subsidiary IBC SOLAR Projects Private Ltd. was founded in Mumbai in 2012 in order to provide full economic power control (EPC) as well as operations and maintenance services (O&M). As a direct result of the foundation of the new subsidiary, the company became able to react more flexibly to local changes and to comply with local content regulation. IBC SOLAR is recognised worldwide as a reliable and financially strong project developer. The company is able to cover the entire value chain, including project development and financial services, through to plant sales and downstream technical management and maintenance. With more than 35 years of extensive expertise, IBC SOLAR is able to maximise the performance ratio of PV installations. Further, the PV expert also ensures continuous quality control. To date, IBC SOLAR is the contracted O&M service provider for approximately 250 MW in over 95 PV power plants.
German engineering expertise with highest quality for best results
Only high quality PV plants yield the best return for investors. With our extensive expertise along the entire value chain, we can guarantee the maximum performance ratio of PV installations, thus giving customers peace of mind. Our goal is not only to deliver the highest German engineering standards, but also to ensure an effective transfer of knowledge, especially in emerging markets like India. For this reason, we are involving as many local workers and specialists as possible in construction projects. When we talk about quality for a solar project, we must keep in mind that we are looking way into the future – up to 20-25 years. Hence, while the projects might meet performance standards over a limited period of 5-10 years, the long term performance is still questionable. In the absence of long term historical performance data, it would depend on the provisions/reserves allocated for replacement or modification of equipment when determining the initial tariff.
The key to ensure quality is to allow the EPCs to have the necessary scope /freedom to procure, design and construct the plant as per global standards. As a rule of thumb, falling prices lead to lower margins. As a result, care should be taken to understand the quality we choose, the compromises we make and the margin sacrifice we undertake while deciding the project boundaries. This can be ensured by transparent business practices and lowering expectations at every step of the value chain.
Promising, but challenging
Unfortunately, at the moment there are also some setbacks at the energy transition in India. Tariff reduction has resulted in several ongoing tenders being scrapped as states and other agencies are redesigning their procurement schemes. More concerning is that some states are cancelling previously allocated projects (at higher tariffs). It is a testing time for developers, investors and lenders. In late August, the Indian Ministry of Finance imposed an anti-dumping duty on tempered glass imported from China, which is used in solar photovoltaic products. Anti-dumping measures always end in trade barriers. They usually harm the photovoltaic market and should also be abolished in India.
IBC SOLAR Projects in India
IBC SOLAR has implemented more than 50 MWp projects in India and has ensured quality through a transparent dialogue process with developers. Often, more than the price pressure, the timeline pressure to implement the project (within 12 months from PPA) puts added strain on developers and EPCs making them take shortcuts and skip protocols. Our aim as a project developer and EPC contractor in India is, therefore, to keep system costs low, while ensuring the highest quality standards by delivering customised solutions which meet investors’ targets. As an example, in May we put the 22.5 MWp Phalodi project in Rajasthan into operation on time and handed it over to the investor. Engineers and construction crew had to contend with unstable sand and temperatures as high as 45 degrees Celsius. Despite all the challenges, the project was finished on schedule. We are currently working on further projects ranging between 20 to 100 MW in the Indian market. We are convinced that solar energy in India will cover a significant proportion of the steadily growing demand for low-cost electricity.