Bridge to India_india Solar Compass January 2013

© BRIDGE TO INDIA, 2013Photograph courtesy Istock photo

INDIA SOLAR

COMPASSJanuary 2013 Edition

Market DashboardA snapshot of the market’s

fundamentals

Latest Market In-sightsAn analysis of the policies,

projects, industry and finance

A Key Question AnsweredWhat will be the impact of anti-

dumping duties in India?

OutlookQuarterly projections for the

Indian solar PV market

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CONTENTS1. Overview 01

2. Market Dashboard 03

2.1. Market Compass 03

2.2. Indian Solar Market Prices 03

2.3. Installed Capacity in India 04

3. Key Findings 05

4. Policies 07

4.1. Jawaharlal Nehru National Solar Mission: Draft of Phase II guidelines

07

4.2. Tamil Nadu Solar Policy: 3 GW by 2015 09

4.3. Rajasthan Solar Policy: Re-release of the request for proposal

11

4.4. Andhra Pradesh solar policy: Request for selection for 1,000 MW

12

4.5. Chhattisgarh Solar Policy: up to 1,000 MW by March 2017 13

5. Projects 15

5.1. New Installations – Grid Connected 15

5.2. Status of on-going projects (PV) 15

5.3. Status of On-going Projects – CSP 18

6. Financing 20

7. Upstream Industry Analysis 22

7.1. PV Manufacturing in India 22

7.2. International Module Supply Analysis 22

7.3. Inverter Supply Analysis 23

8. Key Question: What will be the impact of anti-dumping duties in India?

25

8.1. Background 25

8.2. Impact on international manufacturers 28

8.3. Impact on the Indian manufacturers 29

8.4. Impact on project developers 29

8.5. Our take 30

9. Outlook 32

9.1. Current Quarter 32

9.2. Long-term Outlook 33

10. Guest Article: Leoni 34

11. Annexure 36

10.1. Glossary of terms 36


LIST OF FIGURES

Figure 4-1: Targeted capacity addition through central schemes in phase two of the NSM

07

Figure 4-2: Specifications of the 1,000 MW tender by Tamil Nadu 10

Figure 4-3: Specifications of the RfP under the Rajasthan solar policy 2011

12

Figure 4-4: Specifications of the Andhra Pradesh RfS 13

Figure 5-1: Grid connected solar projects installed in the previous quarter – October 1st to December 20th 2012

15

Figure 5-2: Details for NSM batch two phase one projects that are leading in construction timelines (by December 2012)

16

Figure 5-3: List of allocated projects that have not yet been commissioned in Gujarat

17

Figure 5-4: Grading of solar project development proposals made to BREDA

18

Figure 7-1: Tentative list of inverter supplies to ongoing projects under batch two of phase one of the NSM

23

Figure 8-1: List of ‘interested parties’ as part of the anti-dumping investigation

26

Figure 8-2: Indicative module prices for various module types before and after anti-dumping duties

27

Figure 9-1: Projected quarterly PV installations in India 32

© BRIDGE TO INDIA, 2013 01

1. OVERVIEWThe previous quarter (October to December 2012) has seen a flurry of new solar policy announcements. The states of Tamil Nadu, Andhra Pradesh and Chhattisgarh have announced policies targeting a cumulative 5 GW of solar photovoltaic (PV) installations over the coming years. In addition, the National Solar Mission (NSM) has proposed a target of 6.3 GW of PV installations as part of its phase two draft guidelines until 2017. The announcements totalling 11.3 GW of PV by 2017 mark a significant departure from the state of the market in 2011 and the first three quarters of 2012. There was a slump in project opportunities in the Indian market after close to 1.1 GW had been allocated before December 2010.

With the new announcements, government sponsored PV in India appears to be set for maturity. This is crucial for component suppliers and Engineering, Procurement and Construction (EPC) players looking for new project opportunities, especially in the face of a significant fall in demand in Europe. It is also important for a large pool of project developers and investors who have built their capacities in the early stages of the market and are now ready to expand their portfolios towards achieving scale.

However, the market needs to be approached with measured optimism. Up to 5.3 GW of the announced capacity relies on the Renewable Purchase Obligation (RPO) targets set by states. Further, the policies of Chhattisgarh and Tamil Nadu specifically target the Renewable Energy Certificate (REC) mechanism as an off-take. With no clear RPO enforcement mechanisms at the state level yet and challenges with the bankability of REC projects, there is a significant question mark on how much of the planned capacity addition will actually translate into projects. Further, Feed-in-Tariff (FiT) based projects under the Tamil Nadu and Rajasthan solar policies are

expected to rely on the respective state distribution utilities for the off-take. The utilities of both these states are mired with large financial losses that will challenge the bankability of their Power Purchase Agreements (PPA). In addition, up to 1.5 GW worth of projects under the NSM may be offered Viability Gap Funding (VGF) under which they will have to find alternatives to the payment security backed PPA that was offered by the NTPC Vidyut Vyapar Nigam (NVVN) in the first phase. Such projects too might face bankability issues in the absence of a secured PPA.

Another key development in the last quarter has been the launch of an investigation into the alleged dumping of cells and modules into India by manufacturers from China, the US, Taiwan and Malaysia. If conclusive evidence of dumping is found in the next six months, it could result in the imposition of anti-dumping duties of up to 20% on imports from the countries under investigation.

Manufacturers from the countries under investigation have supplied up to 70% of the modules used in the Indian market so far. If imposed, anti-dumping duties are bound to decrease their competitiveness vis-à-vis manufacturers from India and those from countries outside the scope of the investigation. Project developers will face higher system costs as they will no longer be able to import cheaper modules from abroad. This in turn will dent their ability to offer solar energy at prices that can compete with commercial and industrial prices of electricity across some states in India.

While anti-dumping duties are largely perceived as a necessity for the survival of Indian manufacturing, their benefit will be limited to a handful of Indian cell manufacturers. A majority of Indian module manufacturers rely on imported cells. They will face an increase in the prices of their modules as they will have to bear the

The National Solar Mission (NSM) has

proposed a target of 6.3 GW of PV installations

as part of its phase two draft guidelines until

2017.

While anti-dumping duties are largely

perceived as a necessity for the

survival of Indian manufacturing, their

benefit will be limited to a handful of Indian

cell manufacturers.


import duty on cells. Anti-dumping duties are likely to create a distorted market where certain Indian players will enjoy exceptional advantages. Indian cell manufacturers justify this as a move needed to correct the alleged advantage that international manufacturers have enjoyed in India so far. However, BRIDGE TO INDIA’s opinion is that some international manufacturers have been able to

sell at prices lower than their Indian competitors because of their scale and technology advantages under conditions of global over-supply. Anti-dumping duties will restrict Indian projects from capitalizing on cheaper international imports while doing little to improve the fundamental competitiveness of Indian manufacturers.


2. MARKET DASHBOARD

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2.1 INDIA MARKET COMPASS

2.2 INDIAN SOLAR MARKET PRICES

PVLowest FiT ` 7/kWhInterest Rate 13%Average Capex ` 68/Wc-Si modules (China, Taiwan) $ 0.63/W*Thin Film modules (US and Malaysia) $ 0.57/W*c-Si modules (Japan, Europe) $ 0.70/W*Thin Film modules (Japan) $ 0.65/W**$ rate has been used to avoid effect of currency fluctuationsAll prices are for a reference 10MW projectAll prices are without duties and taxes

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Source: BRIDGE TO INDIA

Key drivers for the direction of the market

Regulatory EnvironmentExecution Challenges

FinancingViability

GROW

ING EMERGING

MAT

URE NASCENT


2.3 INSTALLED CAPACITY IN INDIA


PV19.2 MW

GUJARAT

CHHATTISGARH

ANDHRAPRADESH

UTTARPRADESH

TAMILNADU

WESTBENGAL

HARYANA

ODISHA

MADHYA PRADESH

DELHI

MAHARASHTRA

KARNATAKA

KEY

PUNJAB

ALL INDIA

PV14 MW

12%25%

41%

2%1%1%

3%4%

4%

8%

PV8 MW

PV22.5 MW

Gujarat Solar Policy Phase 1 Gujarat Solar Policy Phase 2

Demo Project

Generation Based Incentive

Migration RPSSGP REC Mechanism

NSM Batch 2, Phase 1

Direct RPO Project NSM Batch 1, Phase 1

25%

16%

1%

61%38%

5%

5%

5%

10%

18%

46%

75%

44%

33%

9%

47%

58%

72%

28%

42%

33%

33%

64%

36%

26%

58%

16%

RAJASTHAN

CSP3 MW

CSP2.5 MW

PV7.25 MW

PV2 MW

PV2 MW

PV16 MW

PV4 MW

PV5 MW

PV7.8MW

PV219.5 MW

UTTARAKHAND

JHARKHAND

42%

58%

55%

45%

CSP5.5 MW

PV730.31 MW

PV15 MW

PV1,096.5 MW

PV12 MW

PV12 MW


Note: Circle sizes are only indicative and do not represent the actual difference in installed capacity.


3. KEY FINDINGS

3.1 POLICY1. The draft guidelines for phase two

of the NSM were published by the Ministry of New and Renewable Energy (MNRE) on December 3rd 2012.

2. The MNRE is aiming to add 6,300 MW of PV and 2,700 MW of Concentrated Solar Power (CSP) to the energy mix in India between April 2013 and March 2017.

3. The MNRE will be conducting the bidding for both the 800 MW of projects receiving a FiT and the initial 750 MW receiving a VGF simultaneously under phase two batch one - this may lead to a lack of interest in the bidding for projects receiving VGF.

4. The south Indian state of Tamil Nadu announced its solar energy policy in October 2012 - it targets 3 GW of solar power by 2015. 500 MW of this target is to be achieved through the fulfilment of newly instated Solar Purchase Obligations (SPOs).

5. BRIDGE TO INDIA expects that only around half of the targeted capacity addition through the SPO mechanism will be fulfilled.

6. Project developers might find it difficult to obtain financing under a PPA with TANGEDCO as the utility has been suffering financial losses in the past.

7. On November 20th 2012, Rajasthan re-released its RfP for 200 MW of PV and CSP projects under phase one of the state solar policy - the new RfP includes an amendment, which states that the Rajasthan Renewable Energy Corporation Limited (RRECL), the nodal agency, will be the PPA signing authority.

8. The change in the PPA signing authority from the state DISCOMS to the nodal agency for the solar policy has not translated into a strong payment security scheme, backed by a pool of funds dedicated to paying project developers.

9. The southern Indian state of

Andhra Pradesh also released its solar power policy on September 26th 2012.

10. The central Indian state of Chhattisgarh is the eighth Indian state to have published a solar power policy - Project developers have the option of either utilizing the REC mechanism as an off-take or waiting until the state DISCOM releases a competitive bidding based tender for the purchase of solar power.

3.2 PROJECTS (PV)1. In the last quarter (October to

December 2012), only 46 MW of solar PV capacity has been added.

2. The capacity addition of 46 MW in the last quarter is significantly lower than the first two quarters of the year, i.e., 315.8 MW in the first quarter of 2012 and 360.42 MW in the second quarter of 2012.

3. In Gujarat, 21.5 MW of capacity has been commissioned last quarter, taking the state’s total installed capacity to 730.31 MW.

4. If we look at projects in Gujarat that are currently under execution, we estimate that out of the

968.5 MW capacity that was originally allocated in two phases, around 850 MW will ultimately be installed in Gujarat and the remaining capacity of around

118.5 MW is likely to be cancelled.5. Odisha has allocated 25 MW in

December 2012 through a bidding process.

6. The state of Bihar is looking to allocate projects based on a grading mechanism - the Bihar Renewable Energy Development Agency (BREDA) had received applications for 776 MW and completed its final evaluation on December 10th 2012.

3.3 PROJECTS (CSP)1. Of the 500 MW of CSP projects due

to be completed in February and


May 2013, only a third may be ready on time.

2. According to the MNRE, three of the 10 projects are unlikely to be built.

3.4 FINANCING1. Delayed financial closures have

strained execution timelines for numerous PV projects in India in the past two years.

2. In such a scenario, bridge financing for the construction period has become a norm in the market.

3.5 UPSTREAM ANALYSIS1. In the last quarter (October

- December 2012), Indian manufacturers continued to struggle with the oversupply in the global market.

2. Most Indian developers are expecting unreasonable prices at which suppliers are unable to make any profits.

3. Due to low margins and the looming possibility of anti-dumping duties, many international module suppliers are currently pessimistic about their opportunities in India.

3.6 KEY QUESTION: VIABILITY GAP FUNDING1. The Indian Solar (PV)

Manufacturers’ Association on behalf of three Indian cell manufacturers, namely, Indosolar, Websol Energy Systems and Jupiter Solar has filed a dumping complaint against cell and module

imports from China, the US, Malaysia and Taiwan.

2. The margin of dumping will depend on the price differential that existed for a period of 18 months starting January 1st 2011.

3. Based on the information submitted by the complainants, they are expecting anti-dumping duties of more than 20%.

4. Developers are generally against the duties as it will make modules more expensive, increase the LCOE of solar in India.

5. Indian manufacturers will profit the most.

6. Contract manufacturing for cells and modules in India can help international suppliers to avoid duties and also allow them to sell into projects under DCR restrictions (e.g. NSM).

7. International module suppliers can also look to circumvent the duties by procuring cells from any country outside of the countries in question or supply from any such facility that might be their own or contracted.

8. According to BRIDGE TO INDIA, trade barriers such as anti-dumping duties create insulated zones of limited competition, allowing higher-cost manufacturers to survive, driving up the cost of solar power.

3.7 OUTLOOK1. The coming quarter is expected to

see up to 290 MW of projects being commissioned.

2. The year 2013 is going to see around 4,400 MW PV capacity allocated in India.


4. POLICIES4.1 NATIONAL SOLAR MISSION: EXPECTATIONS FOR PHASE TWOThe draft guidelines for phase two of the NSM were published by the Ministry of New and Renewable Energy (MNRE) on December 3rd 20121. Comments and recommendations on the draft were accepted by it till December 15th 2012. BRIDGE TO INDIA expects the final version of the guidelines for phase two of the NSM to be published in January 2013.

As a part of this phase, the MNRE is aiming to add 6,300 MW of PV and 2,700 MW of Concentrated Solar Power (CSP) to the energy mix in India between April 2013 and March 2017. Of the 9,000 MW of total capacity addition, 3,600 MW will be allocated under central schemes, and will receive monetary aid from the central government in the form of FiTs, Generation Based Incentives (GBI) or VGF. The remaining 5,400 MW is to be added through state schemes and initiatives, driven by the RPO requirements of every state. The solar policies of states like Tamil Nadu, Andhra Pradesh, Chhattisgarh and others could potentially contribute to this capacity addition.

Of the 3,600 MW under the central government, the MNRE will be allocating 3,400 MW of utility scale solar power projects, both PV and CSP (see table below for split), in two batches through a reverse bidding process. The remaining 200 MW will be in the rooftop and small solar installations space, supported by schemes such as the Rooftop PV and Small Solar Power Generation Programme (RPSSGP).

In phase two, 76% of the solar projects allocated by the MNRE will receive VGF. In the October 2012 edition of the INDIA SOLAR COMPASS,BRIDGE TO INDIA had already predicted that a significant portion of the capacity addition incentivized by the central government would receive VGF2. FiTs will be offered to only 800MW of solar power projects (24% of all utility scale projects). In phase one of the NSM, solar power has been bundled with power from conventional sources of energy in order to reduce the gap between the cost of solar power and the Average Pooled Purchase Cost (APPC). In phase two, however, the Ministry of Power (MoP) is only able to provide adequate unallocated power3 to the MNRE to bundle 800 MW of solar power in the ratio of 1:24.

---------------------1 Draft guidelines for phase two of the NSM2 Please refer to October 2012, INDIA SOLAR COMPASS by BRIDGE TO INDIA for further analysis3 Unallocated power is the reserve set aside by the central government for various uses, such asallocating a part of it to a state with a power deficit4 Please refer to October 2012, INDIA SOLAR COMPASS by BRIDGE TO INDIA for further analysis

Figure 4-1: Targeted capacity addition through central schemes in phase two of the NSM 2013-14 2014-15 TotalRooftop and small solar PV 100 MW 100 MW 200 MW

Utility scaleBundling (FiT) PV 800 MW 0 MW 800 MW

VGFPV 750 MW 770 MW 1,520 MWCSP 0 MW 1,080 MW 1,080 MW

TotalPV 1,650 MW 870 MW 2,520 MWCSP 0 MW 1,080 MW 1,080 MW

Source: MNRE

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As a part of this phase, the MNRE is aiming to add 6,300 MW of

PV and 2,700 MW of Concentrated Solar Power (CSP) to the energy mix in India

between April 2013 and March 2017.

In phase two, 76% of the solar projects

allocated by the MNRE will receive VGF.


As per the current draft of the NSM, the MNRE will be conducting the bidding for both the 800 MW of projects receiving a FiT and the initial 750 MW receiving a VGF simultaneously under phase two batch one. This may lead to a lack of interest in the bidding for projects receiving VGF. The primary reason for this is that under the FiT scheme the project developer sells the power produced form its solar plant under the NSM to the NVVN through a PPA signed directly with them. Under the VGF, the project developer will be required to sign a PPA for sale of power directly with a state distribution company (DISCOM).

NVVN is considered a strong (read: bankable) PPA partner as it is a wholly owned subsidiary of the government owned National Thermal Power Corporation (NTPC) and because it is a stably profitable business5. On the other hand all the state utilities barring seven (those of Andhra Pradesh, West Bengal, Gujarat, Maharashtra, Goa, Meghalaya and Chhattisgarh) suffered losses in FY 2009-10 (more recent data unavailable)6.

The total RPO of the seven profitable state DISCOMS is 1,089 MW. These states cumulatively have already allocated 1,564 MW of solar power projects, of which 769 MW has already been commissioned7. Gujarat has the maximum commissioned projects amongst all states with 708 MW by the first half of 2012. Thus, in phase two batch one of the NSM, it will primarily be the loss making state DISCOMS that will be looking to sign a PPA with solar project developers for the 750 MW of VGF based projects to fulfil their RPOs.

In order to counter the lack of interest that can be expected for VGF-based projects, the MNRE could allow the project developers to choose an off-taker other than a state DISCOM. In such a case, project developers can sign PPAs with other obligated entities such as captive consumers and open access consumers of conventional power, as well as commercial consumers whose tariff is already higher than the price of solar power. Potential off-takers could also include telecom towers and other users of diesel power.The levelized cost of energy (LCOE) for diesel is between ` 8 (€ 0.12) to ` 20 (€ 0.31)/kWh8 (and in some cases significantly higher), whereas that for solar power is between ` 7 (€ 0.11) to ` 9 (€ 0.14)/kWh9. This would allow project developers to choose from a larger pool of prospective off-takers.

Additionally, developers can reduce their PPA risk by signing an agreement for sale of power with a profit making entity with no record of delayed or deferred payments. They have the option of choosing a company as an off-taker that has a triple “A” financial rating internationally from rating companies such as Moody’s or Standard & Poor.

Finally, the tariff that a captive consumer, open access consumer and especially commercial consumers and telecom towers who are primarily consumers of diesel power will be willing to pay for solar power will be much higher than that paid by a DISCOM. This is because the cost of procurement of conventional power for a DISCOM can be as low as ` 2.3 (€ 0.03)/kWh10 while commercial power tariffs that private consumers pay can be between ` 4.7 (€ 0.07) and ` 10.45

---------------------5 The NVVN had a profit of ` 295 m (€ 4.53 m) between April 2009 and March 2010 (FY 2009-10), which went up to ` 301 m (€ 4.62 m) between April 2010 and March 2011 (FY 2010-11) and then to ` 1 billion (€ 15 m) between April 2011 and March 2012 (FY 2011-12). This can be accessed here.6 Planning Commission, Government of India; Annual Report 2011-12; The working of state power utilities and electricity departments.7 Annual Report 2010-2011, Central Electricity Authority; BRIDGE TO INDIA analysis8 BRIDGE TO INDIA analysis9 Ibid10 Average of long term Average Pooled Purchased Costs (APPC), which are between ` 1.9 (€ 0.03) and ` 2.7 (€ 0.04)/kWh.

As per the current draft of the NSM, the MNRE will be

conducting the bidding for both the 800 MW

of projects receiving a FiT and the initial 750

MW receiving a VGF simultaneously under phase two batch one.

In order to counter the lack of interest that can be expected for

VGF-based projects, the MNRE could allow

the project developers to choose an off-taker

other than a state DISCOM.


(€ 0.16)/kWh, where several states, such as Tamil Nadu, Maharashtra, Kerala and others are already paying a higher price for power than the average current cost of solar power. Also, the LCOE of diesel is already much higher than that of solar power without storage.

4.2 TAMIL NADU SOLAR POLICY: 3 GW BY 2015The south Indian state of Tamil Nadu announced its solar energy policy in October 2012. It targets 3 GW of solar power by 2015. 500 MW of this target is to be achieved through the fulfilment of newly instated Solar Purchase Obligations (SPOs).

As per the SPO mechanism11, solar power has to comprise of 3% of the energy mix of obligated entities by December 31st 2013 and 6% from January 1st 2014 onwards. Obligated entities under this mechanism differ from those under the national RPO mechanism. They include all consumers who receive power from a DISCOM at more than 11kV through high tension lines (HT). HT consumers in the state are: Special Economic Zones (SEZ), telecom towers, all consumers paying commercial tariffs for power, residential schools and all colleges (both private and government-owned), factories registered under the Indian Factories Act (1984), government owned hospitals, IT parks, places of worship, textile factories, tea estates, railway traction, all industries guaranteed with 24/7 power, lift irrigation12 cooperative societies and all buildings with a built-up space of 20,000 square meters or more.

For these solar projects, the state is not bearing any financial burden. It

has limited the obligation of adding solar power capacity to those entities that are already paying a high tariff for conventional power. All HT consumers pay a tariff of between ` 4.5 (€ 0.07) and ` 9.5 (€ 0.15)/kWh, of which approximately 52% of the consumers pay a high commercial tariff of ` 7 (€ 0.11)/kWh, which is close to the LCOE of solar power in India. By 2015, the LCOE of solar power is expected to fall by a further 40% to almost ` 4.2 (€ 0.06)/kWh13. This means that purchasing solar power would be commercially viable for all HT consumers by 2015. The SPO thus merely pre-empts and accelerates the commercial case.

BRIDGE TO INDIA expects that only around half of the targeted capacity addition through the SPO mechanism will be fulfilled. This is because the state policy does not yet mention any penalty structure that will be followed in case an entity fails to fulfil its SPO. As a result, obligated entities whose power tariffs are yet to reach parity with the LCOE of solar will avoid the purchase of solar power. In order to ensure close to a 100% success rate in the implementation of the SPO the policy needs to be accompanied by a strictly enforced penalty for defaulters.

In addition to the SPO scheme, Tamil Nadu floated a tender for 1,000 MW of solar projects on December 5th 2012. This is the largest tender floated by any state for solar projects in India so far. The off-taker for the solar power under the policy is the state DISCOM, the Tamil Nadu Generation and Distribution Company (TANGEDCO).

The Tamil Nadu tender has no cap on the maximum plant size that a single entity can bid for. The size is, however, limited by the ability of local substations to evacuate the solar power. Depending on the district,

---------------------11 ‘RPOs v/s SPOs in Tamil Nadu – Whose obligations are they anyway?’ from the BRIDGE TO INDIA blog.12 Lift irrigation is a method by which water for irrigation is lifted with the help of pumps or other such means which use electricity.13 BRIDGE TO INDIA’s INDIA SOLAR DECISION BRIEF on ‘The REC Mechanism: Viability of Solar Projects in India’.

As per the SPO mechanism, solar

power has to comprise of 3% of the energy mix

of obligated entities by December 31st 2013

and 6% from January 1st 2014 onwards.

BRIDGE TO INDIA expects that only

around half of the targeted capacity

addition through the SPO mechanism will be

fulfilled.


---------------------14 The list can be accessed here.15 “Up in the air”, Business world.16 Ibid.

Figure 4-2: Specifications of the 1,000 MW tender by Tamil NaduCommencement of sale of tender December 5th 2012 at 11:00 HoursDate of Pre-bid meeting December 19th 2012 at 16:00 hoursVenue of Pre-bid meeting TANGEDCO headquarters in ChennaiLast date for submission of bid January 4th 2012 at 14:00 hoursOpening of bid January 4th 2012 at 14:30 hoursValidity of offer 90 days from the date of openingMethod of submission of tender Open tender- two part systemCost of tender specification (delivered in person)

` 10,000 (€ 153.84)

Cost of tender specification (delivered by post)

` 10,500 (€ 161.544)

Earnest Money Deposit ` 700,000 (€ 10,769)Minimum project capacity 1 MWValidity of PPA 20 yearsIssuance of LOI February 4th 2013Commissioning of project December 1st 2013

Source: TANGEDCO; BRIDGE TO INDIA analysis

this ranges typically from 10-50 MW. TANGEDCO has made available a list of substations and the evacuation capacity14.

Project developers might find it difficult to obtain financing under a PPA with TANGEDCO as the utility has been suffering financial losses in the past. Its net internal loss was estimated to be as high as ` 500 billion (€ 7.7 billion) up to the financial year ending in March 201215. It also has a history of delaying and defaulting on its payments to wind farm operators in the state. It currently owes approximately ` 35 billion (€ 538m) to 400 members of the Indian Wind Turbine Manufacturing Association (IWTMA)16. The policy currently does not have a payment security scheme to counter this risk and boost the bankability of a PPA with the state DISCOM.

On November 23rd 2012,the Tamil Nadu Energy Development Authority (TEDA) held a consultation meeting with all the prospective bidders and stakeholders under the policy. One of the primary topics of contention at this meeting was the uncertainty of

receiving payments from TANGEDCO. TANGEDCO offered the standard one year, Letter of Credit (LoC), which has also been issued to all wind power plant owners in the state. This payment security is insufficient for most promoters and lenders.

In the rooftop space, Tamil Nadu allows net metering at voltage levels of 240 V, 415 V and 11 KV. Net metering is a mechanism by which the owner of a rooftop installs two power meters along with a solar system, one which calculates the units of conventional power consumed by the owner of the system from the grid and another which calculates the units of solar power fed back into the grid from the rooftop PV system. The owner of the rooftop system ultimately only pays for the differential in the power consumed by him that is the net of the energy consumed minus that which is fed back into the grid by him.

The policy targets to add 300 MW on the rooftops of government buildings and 50 MW on the rooftops of private buildings. In addition to being allowed to install a net metering system, private rooftops also receive a GBI for

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Project developers might find it difficult to obtain financing under a PPA with TANGEDCO as the utility has been

suffering financial losses in the past.

The policy targets to add 300 MW on the

rooftops of government buildings and 50 MW on

the rooftops of private buildings.


six years from the day of installation of the solar system as long as their system is installed before March 31st 2014 and is a part of the first 50 MW of domestic rooftop solar systems installed in the state. In the first two years they receive a GBI of ` 2 (€ 0.03)/kWh, which then reduces to ` 1 (€ 0.02)/KWh for the next two years and finally to ` 0.50 (€ 0.01)/kWh for the last two years of the GBI.

4.3 RAJASTHAN SOLAR POLICY: RE-RELEASE OF THE REQUEST FOR PROPOSALThe state of Rajasthan had already published its solar policy as far back as April 2011, through which it had planned to install 100 MW of ground mounted solar PV projects, 100 MW of CSP projects and 50 MW of small solar power plants of 1 MW capacity each by March 2013. Since April 2012 however, the state has postponed its Request for Proposal (RfP). In our July 2012 edition of the INDIA SOLAR COMPASS, BRIDGE TO INDIA had suggested that the reason behind the delay would likely be the high losses of ` 112 billion (€ 1,724 m) incurred by the state utilities, who, as per the initial RfP were also the off-takers and the PPA signing authorities for the projects under the state solar policy.

On November 20th 2012, the state re-released its RfP for 200 MW of PV and CSP projects under phase one of the state solar policy. The new RfP includes an amendment, which states that the Rajasthan Renewable Energy Corporation Limited (RRECL), the nodal agency, will be the PPA signing authority. Projects are to be allocated through reverse bidding. The RRECL will in turn be signing a Power Sale Agreement (PSA) with the DISCOMS of Rajasthan for the sale of solar power generated from the plants set up under the policy. Thus, the DISCOMS as per the amended RfP will not have

any direct legal obligations to pay a tariff to the project developers for the sale of solar power.

The change in the PPA signing authority from the state DISCOMS to the nodal agency for the solar policy has not translated into a strong payment security scheme, backed by a pool of funds dedicated to paying project developers. With the RRECL as the new PPA signing authority, the only payment security a project developer has is a LoC and a default escrow account to back the PPA in the case of a default in payment. There is no mention of a payment security fund or any grant that will contribute towards the payments to project developers. The DISCOMS will pay a tariff and a trading bonus of ` 0.2 (€ 0.003)/kWh to the RRECL as per the PPA between them for every kWh of solar power supplied. This tariff along with ` 0.15 (€ 0.002)/kWh from the trading bonus17 paid to the RRECL forms the fund from which project developers are paid their tariffs as per the PPA signed by them with the RRECL. Therefore, even though the project developers will no longer be signing a PPA directly with the state DISCOMS for the sale of power, their payment depends indirectly on the timely payments made to the RRECL by the loss making state DISCOMS.

However, the role of the RRECL as the sole PPA signing authority makes it easier for the project developers to take legal action in the eventuality of their payments not being met. As per the earlier RfP, there were three joint signatories for a single PPA, namely the Jaipur, Jodhpur and Ajmer DISCOMS. A legal notice for the delay of payment to be made to the project developer would have to be served to all three DISCOMS in their different jurisdictions. With the RRECL as the only PPA signing authority, the project developer has to serve a legal notice only to one entity under a single jurisdiction, if payments are not made on time or terms of the PPAs are violated.

---------------------17 ` 0.05 (€ 0.0007)/kWh from the trading bonus is fed into the Energy Conservation Fund of the state.

On November 20th 2012, the state re-released its RfP for 200 MW of PV and CSP projects

under phase one of the state solar policy.

The change in the PPA signing authority from

the state DISCOMS to the nodal agency for

the solar policy has not translated into a strong

payment security scheme.


Figure 4-3: Specifications of the RfP under the Rajasthan solar policy 2011Notice for RfP November 20th 2012Response on RfP December 5th 2012Pre-bid meeting December 7th 2012Clarification on issued RfP and issue of revised RfP

December 12th 2012

Date of downloading of RfP November 20th 2012 (10:00 hours) to January 11th 2013 (11:00 hours)

Last date and time of submission of electronic bid

January 11th 2013 (11:00 hours)

Opening of non-financial bid January 11th 2013 (15:00 hours)Evaluation of RfP January 31st 2013Approval of SLSC foe opening of financial bid

February 4th 2013

Opening of financial bid February 11th 2013 (11:00 hours)Issue of Letter of Intent March 11th 2013PPA signing date and submission of bid bond amount

March 15th 2013

commissioning of 5/10 MW projects March 15th 2014Cost of RfP ` 5,000 (€ 76.92)Processing fee of RISL ` 1,000 (€ 15.38)Processing fee of RRECL ` 10,000 (€ 153.85)/MWEarnest money deposit ` 2 m (€ 30,769)Validity 180 days after opening of RfPDeposit of cost of RfP, processing fee for RISL and RRECL and earnest money deposit

January 11th 2013 (11:00 hours)

Benchmark tariff ` 8.42 (€ 0.13)/kWhSource: RRECL; BRIDGE TO INDIA analysis

4.4 ANDHRA PRADESH SOLAR POLICY: REQUEST FOR SELECTION FOR 1,000 MWThe southern Indian state of Andhra Pradesh also released its solar power policy on September 26th 2012. The state which has a solar RPO of 314 MW by 2017, has released a request for selection for 1,000 MW of ground mounted solar projects. There is no break-up given for PV and CSP project allocations. The policy included incentives in the form of exemption from wheeling and transmission charges, exemption from cross subsidy charges and electricity duty and a refund on Value Added Tax (VAT) on

plant components, stamp duty and registration charges for all projects commissioned by June 2014. In addition to these incentives, a solar plant was also eligible to receive RECs under the policy. However, as per the Central Electricity Regulatory Commission (CERC) regulations for the REC mechanism, a plant which avails of benefits such as electricity duty exception, or concessions on wheeling and transmission charges cannot be issued with RECs.

The PPA signing authority for the RfS for 1,000 MW of utility scale projects is the Andhra Pradesh Transmission Company (APTRANSCO). The state’s utility had the highest internal net profits of all Indian state utilities with ` 11,260 m (€ 173 m). This would make projects under the state policy more

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Andhra Pradesh, which has a solar RPO of

314 MW by 2017, has released a request for

selection for 1,000 MW of ground mounted

solar projects.

The PPA signing authority for the

RfS for 1,000 MW of utility scale projects

is the Andhra Pradesh Transmission Company

(APTRANSCO).


bankable than in most other states, as payments to generators can be expected in a time bound manner.

However, the plants which can be of a maximum size of 20 MW have to be commissioned within six months of signing the PPA or eight months of issuance of the LoI, whichever date is earlier. These deadlines will make it very difficult to commission plants on time. A 20 MW plant in India requires a minimum of three months for the acquisition of land. An EPC company requires at least two months after the land has been identified to test the site and design the plant. After this, a bank may take two months or more to sanction a loan to a project. Finally, the construction of a 20 MW plant takes at least three months after accounting for minor delays. This suggests that even if the land has been identified by the project developer before signing the PPA, the commissioning of a 20 MW plant within a six month time frame will be challenging.

4.5 CHHATTISGARH SOLAR POLICY:UP TO 1,000 MW BY MARCH 2017The central Indian state of Chhattisgarh is the eighth Indian state to have published a solar power policy. It is aiming to encourage grid connected solar power plants. Previously, the Chhattisgarh State Renewable Energy Development Agency (CREDA), with the aid of the subsidy offered by the MNRE through its Remote Village Electrification Scheme (RVE), installed mini grid systems that electrified 500 villages. With the new solar policy it is attempting to add up to 1 GW of grid-connected solar power in the state. The exact timelines and targets for the execution of the policy, however, have not been finalized, nor has the state released an RfS or tender for the bidding of projects.

Figure 4-4: Specifications of Andhra Pradesh RfSNotice for RfS December 5th 2012Pre-bid meeting December 14th 2012Last date of submission of bid

January 19th 2013

Opening of non-financial bid January 21th 2013 Opening of financial bid January 21th 2013 Evaluation of bidders February 5th 2013Issue of Letter of Intent February 20th 2013Communication of acceptance of LOI by successful bidders

March 2nd 2013

PPA signing date March 18th 2013Financial closure May 14th 2013Commissioning of PV projects

6 Months from PPA signing date or 8 months from date of signing LOI, whichever is earlier

Commissioning of CSP projects

13 Months from PPA signing date or 15 months from date of signing LOI, whichever is earlier

PPA duration 25 yearsMaximum capacity an entity can bid for

20 MW

Processing fee ` 200,000 (€ 3,077)Earnest money deposit ` 200,000 (€ 3,077)/MWNet worth ` 10 m (€ 153,846)/MW

Source: BRIDGE TO INDIA analysis; Transmission Corporation of Andhra Pradesh limited.

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Plants which can be of a maximum size

of 20 MW have to be commissioned within six months of signing

the PPA or eight months of issuance of

the LoI, whichever date is earlier.

Even if the land has been identified by

the project developer before signing the PPA,

the commissioning of a 20 MW plant within a six month time frame

will be challenging.


As per the policy, the state will not be bearing any financial obligation in the form of financial incentives such a FiTs, GBIs, VGF or capital subsidies paid to the project developers for setting up projects. The only incentives offered by the state are exemption of the VAT paid on all inputs used in a solar power plant and cross-subsidy charges. Apart from this, wheeling charges, transmission and open access charges have not been waived or discounted.

Project developers looking to take advantage of this policy have the option of either utilizing the REC mechanism as an off-take or waiting until the state DISCOM releases a competitive bidding based tender for the purchase of solar power. In the absence of an enforcement mechanism for the RPO, it is unclear if and when the DISCOM will seek to purchase solar power from large MW scale projects or if the REC mechanism will prove to be a viable off-take.


5. PROJECTS5.1 NEW INSTALLATIONS – GRID CONNECTED


F

GUJARAT RAJASTHAN

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Size - 5 MWTechnology - PVOff-take - Gujarat Phase 2Developer - APCA Power

Size - 5 MWTechnology - PVOff-take - Gujarat Phase 2Developer -

Taxus Infrastructure

& Power Project

Size - 2.5 MWTechnology - PVOff-take - REC MechanismDeveloper - Kanoria Chemicals Ltd.

Size - 17 MWTechnology - PVOff-take - NSM Phase 1, Batch 2Developer -

Green Infra

Size - 5 MWTechnology - PVOff-take - NSM Phase 1, Batch 2Developer -

onroche

Figure 5-1: Grid connected solar projects installed in the previ-ous quarter – October 1st to December 20th 2012

In the last quarter (October to De-cember 2012),only 46 MW of solar PV capacity has been added. The largest capacity addition of 24.5 MW took place in Rajasthan, of which 22 MW is under batch two of phase one of the NSM and 2.5 MW is under the REC mechanism. The remaining capacity of 21.5 MW has been added by delayed projects in Gujarat.

The capacity addition of 46 MW in the last quarter is significantly lower than the first two quarters of the year, i.e., 315.8 MW in the first quarter of 2012 and 360.42 MW in the second quarter of 2012 (refer to the April 2012, July 2012 and October 2012 editions of the INDIA SOLAR COMPASS for more details).

5.2 STATUS OF ON-GOING PROJECTS (PV)

NSM phase oneThe deadline for commissioning of most projects under batch two of phase one of the NSM is March 5th

2013 (the date for commissioning may vary depending on the date of signing of the PPA). On most project sites, the civil work is under way and structures are being erected. Only the projects by Essel Infrastructure (20 MW project, using NexPower modules and with an EPC contract shared between Visa Ecotech and Belectric) and Enfield Infrastructure (10MW project by Sonthalia Group, using modules and

The capacity addition of 46 MW in the last

quarter is significantly lower than the first two

quarters of the year, i.e., 315.8 MW in the first quarter of 2012

and 360.42 MW in the second quarter of 2012.

The deadline for commissioning of most

projects under batch two of phase one of the NSM is March 5th 2013.


EPC services of its own group company with Lahmeyer as technical consul-tant) are known to be behind schedule as of Decemeber 2012. Projects by developers such as Fonroche, Green Infra and SolaireDirect are among the frontrunners for commissioning. As of December 12th 2012, Fonroche (5 MW project out of the two projects of 5 MW and 15 MW allocated), Green Infra (17 MW out of the total 25 MW allocated)have already notified NVVN for partial commissioning. The remaining ca-pacity for these projects is expected to come up by January 2013, which continues to place them well ahead of schedule. The construction for these projects has been completed in less than four months. EPC for the 5MW project by Fonroche has been under-taken by Mahindra EPC. With over 50 MW under contract, Mahindra EPC has emerged as the largest player by orders under batch two of phase one of the NSM (to read more about the contracts for batch two projects, refer to the October 2012 edition of the India Solar Compass). Green Infra, which was one of the first developers to com-mission their projects in Gujarat, has again chosen Juwi as the EPC partner for their project.

Gujarat

In Gujarat, 21.5 MW of capacity has

been commissioned last quarter, tak-ing the state’s total installed capacity to 730.31 MW. This capacity addition is running behind schedule by almost a year and was originally scheduled to be commissioned by December 31st 2011. Three projects in Gujarat have been commissioned this quarter: TaxusIn-frastructure & Power Projects (5 MW), APCA Power (5 MW) andAstonfield So-lar (11.5 MW). A capacity of 238.1 MW is still not commissioned. The projects that are yet to be commissioned are supposed to pay daily fines of ` 10,000 (€ 154) per MW for the first 60 days and ` 15,000 (€ 231) per MW thereafter until commissioning. Project develop-ers have submitted bank guarantees worth ` 5,000,000 (€ 76,923) per MW that will be en-cashed if the projects are not installed. As an example, a 1 MW project that is commissioned after January 1st 2013 will have to pay at least ` 4,710,000 (€ 72,461) as fines.

As per the PPA, the transfer of majority shareholding is not permitted for five years from the date of commission-ing. Many project developers in Gujarat have either sold minority stakes to investors and/or sold majority shares through Compulsory Convertible De-bentures (CCD) or agreements that al-low for the future transfer of a majority shareholding.

Figure 5-2: Details for NSM batch two phase one projects that are leading in construction timelines (by December 2012)18

Developer Capacity constructed

EPC Module Inverter

Green Infra (two projects were allocated: 5 MW and 20 MW)

17 MW Juwi First Solar SMA

Fonroche Energie Group (two projects were allocated: 5 MW and 15 MW)

5 MW Mahindra EPC

First Solar Schneider Electric

SolaireDirect (one project was allocated: 5 MW)

5 MW SolaireDirect Webel Solar (contract manufactured for SolaireDirect)

Schneider Electric

Source: BRIDGE TO INDIA---------------------18 The projects had only completed construction at the time that this section of the report was written. Commissioning of the projects is expected by the end of 2012.

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As of December 12th 2012, Fonroche (5 MW project out of the two

projects of 5 MW and 15 MW allocated), Green

Infra (17 MW out of the total 25 MW allocated)

have already notified NVVN for partial commissioning.

In Gujarat, a capacity of 238.1 MW is still not

commissioned.


If the delayed projects are commis-sioned before March 31st 2013, they will get a tariff of ` 11.25 (€ 0.17)/kWh for the first 12 years and ` 7.5 (€ 0.12)/kWh for the subsequent 13 years as opposed to ` 15 (€ 0.23)/kWh for the first 12 years and ` 5 (€ 0.07)/kWh for the subsequent 13 years that they were initially offered. Beyond March 31st 2013, they will get a tariff of ` 10.30 (€ 0.15)/kWh for the first 12 years and ` 7.5 (€ 0.12)/kWh for the subsequent 13 years. Despite the lower tariffs and lost security, some of the projects are still expected to be completed. These projects will mostly be backed by new investors, where the original share-holders have agreed to carry a large part of the loss incurred on fines.

If we look at projects in Gujarat that are currently under execution, we

estimate that out of the 968.5 MW capacity that was originally allocated in two phases, around 850 MW will ultimately be installed in Gujarat and the remaining capacity of around 118.5 MW is likely to be cancelled. However, it is important to note that the status of most left over projects is largely unknown. For example, one of the projects that is yet to be commissioned is by Tatith Energy. The project was earlier reported to have agreed to buy SolarWorld modules and secured a soft approval for financing from the US Exim bank. The application for availing the Clean Development Mechanism (CDM) benefits was also filed in Janu-ary 2012. However, the project is not yet commissioned. On being contacted, the company declined to comment on the status of the project.

Figure 5-3: List of allocated projects that have not yet been commissioned in Gujarat19

Organisation/Project/Bidder Size (MW)

Aatash Power Pvt. Ltd. 5

Ambit Advisory services Private Limited 5

Avatar Solar 5

Cargo Motors 25

Claris LifeScience Ltd 2

Common Wealth Business Technologies (UK) 10

Corner Stone Energy Private Limited 5

Driesatz My Solar 15

Euro Solar Private Ltd 5

India Solar Ray Power Private Limited 10

Inspira Solar 15

Mi My Solar 15

Monnet Ispat & Energy Limited 25

Responsive Sutip Limited 25

S J Green Park Energy Private Limited 5

Saumya Construction Pvt. Limited 2

Tatith Energy 5

Toss Financial Services Pvt. Limited 2

Ujjawala Power Private Limited 25

Yantra eSolarIndia Private Limited 5

Zeba Solar Gujarat Pvt Ltd 10

Total 221Source: BRIDGE TO INDIA

---------------------19 This information is not comprehensive. It is the result of our industry interactions. To add to or cor-rect this information, please contact us on [email protected]

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Despite the lower tariffs and lost

security, some of the projects are

still expected to be completed.


OdishaOdisha has allocated 25 MW in Decem-ber 2012 through a bidding process. Quoting a tariff of ` 7.28 (€ 0.11)/kWh, ACME Bikaner Solar Power Pvt Ltd has emerged the winner. Among the other bidders were Welspun Renewable (with a bid of ` 9.40 (€ 0.15)/kWh) and Essel Mining and Industries Ltd (Aditya Birla Group venture in solar with a bid of ` 9.50 (€ 0.15)/kWh).

In the previous bidding that took place in early 2012, Alex Solar had accepted 5 MW from the 25 MW bidding that took place in Odisha. Alex Solar is a part of the Shree Ganesh Jewellery House (SGJH) from Kolkata that is backed by Credit Suisse PE Asia. Apart from the 5 MW project in Odisha, their project portfolio includes a 5 MW project un-der batch one of phase one of the NSM and a 25 MW project under phase two allocations in Gujarat. They have also signed Memorandums of Understand-ing (MoU) for 125 MW in the states of Uttar Pradesh and Bihar. Recently, the board of SGJH has decided that the group is not looking for any further investments in solar power20.

Out of the 25 MW that was allocated in early 2012, 20 MW was allocated to Seashore Group. The license for Seashore Group was alleged to have misrepresentation of facts21. With an individual petition in the ‘Standing Committee’ of the Odisha Assembly,placing the project under litigation, there is a significant chance of cancellation of this project.

BiharThe state of Bihar is looking to allocate projects based on a grading mecha-nism. Under this mechanism, projects are graded based on aspects such as technical criteria, financial criteria, possession of land, distance from sub-station and the obtaining of a No Objection Certificate (NOC) from the pollution board, etc. The Bihar Re-newable Energy Development Agency (BREDA) had received applications for 776 MW and completed its final evalu-ation on December 10th 2012. Some of the developer applications that have received a high grading are:

As of now, the total capacity that will move ahead and sign a PPA with the state is unclear. Also the tariff for such a PPA is not known at this stage. A similar process was followed by Guja-rat for allocations but Bihar has been more transparent and has allowed various rounds of grading to be pub-lished before finalizing the grades22.

5.3 STATUS OF ON-GOING PROJECTS – CSP

NSMOf the 500 MW of CSP projects due to be completed in February and May 2013, only a third may be ready on time. According to the MNRE, three of the 10 projects are unlikely to be built. Five projects, with 320 MW of capacity, have been delayed. Accord-

---------------------20 “Shree Ganesh to exit solar power business”, The Hindu Business Line21 According to industry sources22 Click here for the complete grading document

Figure 5-4: Grading of solar project development proposals made to BREDADeveloper Capacity

requested (MW)Grading score

(out of 100)Response Renewable Energy, Kolkata 25 100Moser Baer Solar, New Delhi 85 100Avantika Contractors, Hyderabad 5 97Alex Green , Kolkata 50 95Diwakar Solar Projects, Hyderabad 15 85 ©

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Source: BREDA

Odisha has allocated 25 MW in December

2012 through a bidding process.

The state of Bihar is looking to allocate

projects based on a grading mechanism.


ing to industry sources, the primary reason for this is the faulty evalua-tion of Direct Normal Irradiation (DNI) during the planning stages of the projects. Another reason cited for the delays is the unavailability of the Heat Transfer Fluid (HTF). Globally, only two companies from the US are known to produce plant grade HTF (refer to the October 2012 edition of the India Solar

Compass to read more). According to statements made by MNRE officials, it is likely that penalties for delays in CSP projects will be put off to allow the projects to complete. The new alloca-tions under phase two of the NSM have been pushed back to 2014 as by then a more clear picture will emerge on the challenges, benefits and lessons learnt for a next wave of projects.


Delayed financial closures have strained execution timelines for nu-merous PV projects in India in the past two years. Actual disbursement of the debt amount can vary, based on project execution factors such as the time tak-en for acquisition of land, selection of suppliers, technical design of the proj-ect and required due diligence of the lender. International financing institu-tions are able to offer cheaper debt but the disbursement from such institu-tions can take anywhere between five to ten months. This is a significant issue as commissioning deadlines for PV projects cannot accommodate such timelines. As an example, the recently announced allocation for 1,000 MW of solar in Tamil Nadu provides for just 10 months for commissioning and the allocations for 1,000 MW in Andhra Pradesh provide for just six months for commissioning.

In such a scenario, bridge financing for the construction period has become a norm in the market. It is proving to be vital to help keep the projects on track with regards to timelines, help smaller developers to offer procurement terms comparable to those of larger competi-tors and allow developers enough time to look for sources that can offer them optimum terms of finance. Apart from delayed disbursement under interna-tional finance, bridge financing is also used in any situation where liquidity is required so that procurement and/or construction can begin before the scheduled disbursement of debt. Further, as the risk of a commissioned project is significantly lower than a project under development, better terms of debt with respect to interest rates can be achieved if the debt is disbursed after plant commissioning.

Bridge financing for construction can be of the following types:

1. Equity: A developer may invest eq-uity to meet the entire requirement of funds. However, such an option

can severely strain liquidity for the developer, in which case using a short-term debt instrument to get access to the required fundsmight be preferred.

2. Pre-financing by EPC companies: Pre-financing by EPC companies is prevalent in Europe but has hardly been used in India. Pre-financing in Europe and the US is done by EPC companies that provide construc-tion finance. Even in these regions, construction finance is provided only by certain EPCs that are large in size and only to customers that have a low risk profile. In India, no EPC company is known to provide pre-financing for construction. This may be because of lower margins of EPCs in India.

3. Construction finance from a finan-cial institution: Bridge financing is usually available from most lend-ers at a higher interest rate. The differential is usually of about 100 basis points and the disbursement for such finance is much quicker. To access such finance, the developer nonetheless needs to be in posses-sion of the land for the project and a LoIfrom an EPC company willing to construct the project. Banks require EPC companiesto have a buy-in to the project by spending resources on the design and planning of the plant before short-term debt can be sanctioned.

4. Suppliers‘ credit: Suppliers‘ credit is not a debt instrument but is used to ease a strained cash flow situa-tion for developers. Due to the over-supply of modules in the market, suppliers‘ credit has been made available by almost all suppliers at interest rates of around 8%. This is usually backed by a LoC but can also be backed by a corporate guar-antee in some cases. The credit can be offered for as long as 18 months at mutually agreed terms. Banks usually want to hypothecate it with the loan so that preference is given to their interest payment.

6. FINANCING

Bridge financing for the construction period has

become a norm in the market.

Bridge financing is usually available from

most lenders at a higher interest rate.


5. Term loan that allows for easy re-finance: Some project developers take a Rupee Term Loan (RTL) with the sole intent to refinance it at a later stage through international finance. The key terms that are ne-gotiated for such an arrangement includea longer moratorium period and a lower refinance fee. This pro-

vides more security and time for the developer to look for an optimum source of finance.

To read more about bridge financing, please read BRIDGE TO INDIA’s INDIA SOLAR DECISION BRIEF on debt-fi-nancing for solar projects in India, due to be released in February 2013.


7. UPSTREAM INDUSTRY ANALYSIS

7.1 PV MANUFACTURING IN INDIAIn the last quarter (October - Decem-ber 2012), Indian manufacturers con-tinued to struggle with the oversupply in the global market. In spite of their current underutilized capacities and poor financial health, they are largely hopeful about 2013. Two key factors for their optimism are the possibility of a Domestic Content Requirement (DCR) under the NSM and a possible impo-sition of anti-dumping duties (refer to the key question section to read more)23.

Companies like Vikram Solar, Webel Solar, HHV Solar and Sonthalia Solar that received orders under batch two of phase one of the NSM, have manufac-tured the modules and as of December 2012, have delivered or are starting to deliver the modules to plant locations (refer to the October 2012 edition of the India Solar Compass to read more about their contracts).

Contract manufacturing for interna-tional module suppliers is proving to be another source of revenue for Indian manufacturers. Companies like Rene-Sola (China), SolaireDirect (France) and IBC Solar (Germany), have for-mally announced that they contract manufacture in India. All three have partnered with Websol Energy Sys-tems. ReneSola plans to manufacture 250 MW over the next two years and is known to have already secured orders for 17 MW from two Indian solar power developers. SolaireDirect is expected to use these modules for their own projects. Both ReneSola and IBC Solar provide their own product guarantees. At least one other international manu-facturer from China is known to have entered into such a contract but has not made any public announcements yet.

7.2 INTERNATIONAL MODULE SUPPLY ANALYSISIn the last quarter (October - Decem-ber 2012), for projects under batch two of phase one of the NSM, inter-national shipments for most projects are expected to have been dispatched/received from international suppliers such as First Solar (US), Solar Frontier (Japan) and MiaSolé (US) (refer to the October 2012 edition of the India Solar Compass to know about the supply contracts).

In BRIDGE TO INDIA’s interaction with international suppliers, especially the leading Chinese suppliers, a key point that has been made is that most Indian developers are expecting unreasonable prices at which suppliers are unable to make any profits. Moreover, according to them, the expectations for suppli-ers’ credit and financing support are unrealistic. International suppliers see the strategic importance of India and understand the possibility of achiev-ing high sales volumes here. However, due to the lower price expectations of the developers, suppliers are often required to sell at a loss – which they are increasingly unwilling to do. At the Renewable Energy Expo, New Delhi in November 2012, one of the senior rep-resentatives of a prominent Chinese supplier was quoted as saying “Indian developers ask for 10 cents below the market price. When $ 0.80/Wp was the market price, Indian developers expected $ 0.70/Wp. Now, when the price is $ 0.70/Wp, developers expect $ 0.60/Wp. Apart from this, they expect suppliers’ credit for up to 18 months. Some suppliers can provide modules at that price as they need to clear their inventories. But, this is not a sustain-able market environment".

Many other suppliers have also raised similar concerns. Due to low margins

---------------------23 More information can be found at the BRIDGE TO INDIA blog at the following links: - India begins anti-dumping investigation on module imports from China, US, Malaysia and Taiwan - Will the MNRE change the DCR for the upcoming second phase of the NSM?

Contract manufacturing for

international module suppliers is proving

to be another source of revenue for Indian

manufacturers.

Most Indian developers are expecting

unreasonable prices at which suppliers are

unable to make any profits.


and the looming possibility of anti-dumping duties, many international module suppliers are currently pes-simistic about their opportunities in India.

7.3 INVERTER SUPPLY ANALYSISInverter supply to projects in India is mostly from international companies as there is limited manufacturing capacity within India and unlike in modules, there is no DCR.

The Indian market is almost com-pletely dominated by central inverters. The key reason for this is their lower cost as compared to string inverters(by 6-10%). Due to the price competition in the Indian market, many developers go to the extent of buying these inverters without a part of the display panels and also without the in-built transformer to cut costs further. While international manufacturers like SMA, Bonfiglioli and AEG have been the key suppli-ers in the Indian market, Schneider Electric has been the most successful newcomer. The company was able to

capture over 100 MW (30% share) for projects under the batch two of phase one of the NSM after introducing its new series of central inverters in India in the second quarter of 2012. Key rea-sons for this may be their established manufacturing base for such inverters in India and their overall presence in the Indian market as a group company that will help them provide the neces-sary after sales support. According to a statement by the company, “Schneider Electric is providing integrated solu-tions to its customers including the PV Box, array boxes, monitoring & control, and the grid connection substations. The PV Box contains two Conext Core XC inverters, a DC combiner box, a step-up transformer, medium voltage switch and other accessories and is adapted to meet the local installation conditions. This enables customers to reduce construction lead time, lower the costs of commissioning and en-hance the uptime". None the less, SMA has been able to retain its position as the largest supplier under batch two of phase one of the NSM with a supply of around 125 MW.

Figure 7-1: Tentative list of inverter supplies to ongoing projects under batch two of phase one of the NSM24

Developer Project SPV Size (MW)

Inverter supplier

Solaire Direct Pokaran Solaire Energy Pvt. Ltd. 5 Schneider Electric

Welspun Welspun Solar AP 20 AnsaldoWelspun Solar AP 15Welspun Solar AP 15

Azure Power Azure Power India Ltd. 20 SMAAzure Power India Ltd. 15

Sai Sudhir Energy Sai Sudhir Energy 20 AEGVS Lignite Power (KSK Energy Ventures)

Sai Maithili Power Company Pvt. Ltd.

10 Schneider Electric

Symphony Vyapar Symphony Vyapar Pvt. Ltd. 10 AEGJakson Power Jakson Power 10 Schneider

ElectricJakson Power 10


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---------------------24 This information is not comprehensive. It is the result of our industry interactions. To add to or correct this information, please contact us at [email protected]

The Indian market is almost completely

dominated by central inverters.

SMA has been able to retain its position as the largest supplier

under batch two of phase one of the NSM

with a supply of around 125 MW.



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Developer Project SPV Size (MW)

Inverter supplier

Shree Saibaba Sugar Shree Saibaba Green Power Pvt. Ltd.


LEPL Projects LEPL Projects Ltd. 10 Schneider Electric

SunBorne Energy SunBorne Energy 5 SMASujana Towers Sujana Towers 10 Project

cancelledFonroche Energie Group

Fonroche Rajhans Energy Pvt. Ltd.


Fonroche Saaras Energy Pvt. Ltd. 5NVR Infrastructure NVR Infrastructure 10 Schneider

ElectricEnfield Infrastructure Enfield Infrastructure Ltd. 10 BonfiglioliEssel Infra Essel Infraprojects Ltd. 20 Not knownSun Edison SEI Solar Power 20 SMA / Astro

EnergyGAIL GAIL 5 BonfiglioliMahindra Solar Mahindra Suryaprakash Pvt. Ltd. 20 SMA

Mahindra Suryaprakash Pvt. Ltd. 10Kiran Energy Solarfield Energy Two Pvt. Ltd. 20 SMAGreen Infra Green Infra Solar Projects Ltd. 5 SMA

Green Infrastructure Solar 20Lexicon Vanijya Lexicon Vanijya 10 AEG


8. KEY QUESTION:

WHAT WILL BE THE IMPACT OF ANTI-DUMPING

DUTIES IN INDIA?

8.1 BACKGROUNDIn the last two years, the Indian market has grown from 22 MW of PV to 1,090 MW. However, Indian manufacturers have sold less than 350 MW and have been unable to capitalize fully on the growth in installed PV capacity. A key factor for this has been their inability to compete on falling prices in global oversupply conditions. Small produc-tion capacities have left them unable to compete with the economies of scale enjoyed by some of the successful module suppliers globally. As a re-sult, many of the manufacturers have beenoperating their units at very low capacity utilization of around 15%. The lower capacity utilization in turn has made it even more difficult for them to compete on prices. With hefty loan repayments and dwindling company finances, there has been little or no room for investments into upgrading manufacturing capabilities and im-proving competitiveness.

The MNRE has tried to protect the domestic industry by implementing a DCR on modules under batch one of phase one of the NSM and on both cell and modules under the second batch. This, however, has not really worked as most project developers have opted for the cheaper thin film modules from in-ternational suppliers (refer to previous reports by BRIDGE TO INDIA).

In line with a new wave of global protectionism in the industry, Indian manufacturers allege that interna-tional photovoltaic module suppliers are selling below cost, or “dumping” in the Indian market. The Indian Solar (PV) Manufacturers’ Association on behalf of three Indian cell manufactur-ers, namely, Indosolar, Websol Energy Systems and Jupiter Solar has filed a dumping complaint against cell and module imports from China, the US, Malaysia and Taiwan. This complaint was first reported in January 2012 to

the Directorate General of Anti-Dump-ing and Allied Duties (DGAD) at the Ministry of Commerce. On November 23rd 2012, DGAD announced that it had found sufficient preliminary evidence of dumping in India. It will now begin a focused investigation25. The ‘period of investigation’ has been determined as between January 1st 2011 to June 30th 2012 (18 months). This means, that over 600MW of module imports, mostly in Gujarat and batch one of phase one of the NSM will be investigated for dumping.

According to its definition, dumping is supposed to occur when the ‘export price’ of the goods, i.e.the price of cells being exported to India, is less than the ‘normal value’ of the articles sold in the domestic market of the exporter, i.e. price of cells being sold by the same international manufacturers in their home country of China, the US, Taiwan and Malaysia. The investigation now needs to determine the ‘margin of dumping’. The margin of dumping refers to the difference between the ‘normal value’ and the ‘export price’ and is usually expressed as a percent-age of the ‘export price’.

As part of the investigation, any entity that is directly impacted in any man-ner by the duties or the lack of them is referred to as an ‘interested party’. Ac-cordingly, an ‘interested party’ can be any of the following: domestic industry on whose complaint the proceedings are initiated, exporters or the foreign producers of the like articles subject to investigation, importers of the same article allegedly dumped into India, government of the exporting country/ countries, trade or business associa-tions of the domestic producers or importers of the dumped product.

The following figure enlists the inter-ested parties or the current investiga-tions of anti-dumping duties.

---------------------25 ‘India ‘starts anti-dumping probe’ into PV imports’, Recharge News

In line with a new wave of global protectionism

in the industry, Indian manufacturers allege

that international photovoltaic module suppliers are selling

below cost, or “dumping” in the

Indian market.

On November 23rd 2012, DGAD announced that it had found sufficient

preliminary evidence of dumping in India.


Figure 8-1: List of ‘interested parties’ as part of the anti-dumping investigationCell manufacturers that have submitted the complaint

For the duties

Cell and module exporters from the US, China, Malaysia and Taiwan and/or their association

Against the duties

Project developers and/or their association

Against the duties

Domestic module manufacturers and/or their association

Mostly for the duties (as most of them have earlier imported cells from the said countries, they cannot be a part of the complainants)Manufacturing units that are not classified as export oriented units (EOUs) and wish to continue to import cells from the said countries will be against the duties

Governments of the said countries

Against the duties


The ‘interested parties’ on both sides of the investigation need to put forth their respective cases for the proceed-ings. The investigation then needs to prove the presence of dumping, calculate the margin of dumping and establish the injury to Indian manufac-turers.

The three complainants are all cell manufacturers in India and account for a manufacturing capacity of around 500 MW. Other cell manufacturers such as Solar Semiconductor, Moser Baer, KL Solar and Euro Multivision and all module manufacturers that do not have cell production capabilities have not participated as complainants. The guidelines for anti-dumping duties specify that “producers who are relat-ed to the exporters or importers or are themselves importers of the allegedly dumped goods shall be deemed not to form part of the domestic industry (refer)”26. Most module manufactur-ers buy or have bought their cells from exporters under investigation. Hence, they would not be permitted as com-plainants in the first place.

If the margin of dumping is above 2%, the complainants must be able to show that the dumping has caused or is

threatening to cause ‘material injury’ to the domestic industry. The injury can be defined in terms of a significant increase in volume of the imports of the dumped imports and has adverse financial impact on the domestic industry in terms of decline in output, loss of sales, loss of market share, reduced profits, decline in productivity, decline in capacity utilization, reduced returns on investment, adverse effect on cash flows, inventories, investments and ability to raise capital. The three complainants are expecting the levy of anti-dumping duties on cells from the said countries. Thin film modules and crystalline cells assembled into modules would also be covered under any such imposition of duties.

Cell manufacturers from the US, China, Malaysia and Taiwan now need to prove that dumping has not taken place in India. To be able to do this, they need to show that the price at which they sold their products in their own domestic market was not higher than the price at which they were sell-ing the products in India. For this, the manufacturers have to submit pricing details and terms of sale from their domestic markets and the correspond-ing details for the Indian market.

---------------------26 Click here for the anti-dumping duty guidelines.

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The three complainants are all

cell manufacturers in India and account for a

manufacturing capacity of around 500 MW.

Cell manufacturers from the US, China,

Malaysia and Taiwan now need to prove that dumping has not taken

place in India.


Developers are generally against the duties as it will make modules more expensive. The Solar Independent Power Producers’ Association, rep-resenting some Indian developers, is likely to be a key interested party in the investigations. The developers will also need to furnish the price and terms of sale at which they have imported the modules.

A time period of 40 days from the date of the notification (November 23rd 2012), has been provided to furnish such information by the interested parties in a prescribed format. The in-vestigation can take up to five months. Before the end, the market canalready expect an announcement on a provi-sional duty. At the earliest, a provision-al duty announcement can be made 60 days after the initiation of the investi-gation and can remain in effect for six months, extendable up to nine months. Given the new policy announcements in India – especially the National Solar Mission and the Tamil Nadu Policy – and their timelines for commissioning, the timing of this announcement will be extremely important.

The complainants have also re-quested retrospective duties. Due to the text of the initial notification, there is a mistaken conception that retrospective action can be taken on solar cells and modules that have been imported into India in the past months and years. That is not the case. The key purpose of retrospec-tive duties is to avoid large import volumes just before the implementa-tion of duties. Retrospective duties cannot go beyond 90 days prior to the date of imposition of provisional duties. Hence, if the provisional duty is announced, for example, 150 days from the beginning of the investiga-tion, then there can be no retrospec-tive duty (if enforced) on imports before 23rd December 2012.

China and Taiwan account for over 70 percent of solar cell manufacturing and almost all of the top suppliers of cells by volume globally are located in thesetwo countries. Globally, a large part of module manufacturing facili-ties are located in the four countries under question. There is no doubt that anti-dumping duties on equip-

Figure 8-2: Indicative module prices for various module types before and after anti-dumping duties27

Module Price before anti-dumping duties: Spot prices for modules (as of September 2012)28

Applicability of anti-dumping duties (if enforced as requested)

Expected effective price of modules if the duties are enforced as requested (at 20%)

c-Si India (using Indian cells) $ 0.75/Wp No $ 0.75/Wpc-Si India (using cells from China, Taiwan and Malaysia)

$ 0.70/Wp29 Yes $ 0.75/Wp

cSi India (using cells from Singapore and Philippines)

$ 0.73/Wp30 No $ 0.73/Wp

c-Si China and Taiwan $ 0.58/Wp Yes $ 0.70/WpCdTe (US and Malaysia) $ 0.59/Wp Yes $ 0.70/Wpc-Si US $ 0.70/Wp Yes $ 0.84/Wpc-Si Germany and Japan $ 0.86/Wp No $ 0.86/Wpc-Si (Singapore, Philippines and South Korea)

$ 0.70/Wp No $ 0.70/Wp


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---------------------27 The prices are based on multiple sources and are only indicative. Actual prices vary from company to company and deal to deal 28 Sologico price index and BRIDGE TO INDIA estimates29 Cell cost considered to be $ 0.35/Wp. Source: PV Insights30 Cell cost considered to be $ 0.40/Wp

A time period of 40 days from the date

of the notification (November 23rd 2012),

has been provided to furnish such

information by the interested parties in a

prescribed format.


ment originating from these countries will likely have an impact on overall system costs in India.The margin of dumping will depend on the price differential that existed for a period of 18 months starting January 1st 2011. However, the impact will be on current and future prices. Based on the information submitted by the complainants, they are expecting anti-dumping duties of more than 20%.

8.2 IMPACT ON INTERNATIONAL MANUFACTURERSMost Indian module manufacturers that do not have their own cell manu-facturing and look to either export modules or sell to utility scale projects (except those under DCR) procure cells internationally. A significant part of this procurement is known to be sourced from the countries under investigation. Prominent manufacturers are JA Solar, China Sunergy, BYD and Goldpoly located in China, Gintech and E-Ton located in Taiwan and BenQ Solar and Q-Cells located in Malaysia. They will stand to lose a part of their cost advan-tage (up to 20% on cells) in the event of anti-dumping duties being enforced for the said countries. On the other hand, for the sale of cells in India, price competitiveness for sale of cells by manufacturers such as REC Solar from Singapore and Kyocera from Japan will increase. With prices expected to be equalized, quality related aspects of sale criteria are likely to become the key determining factor.

Large international module manu-facturers (both crystalline and thin-film) think of India as an emerging, strategically important market. With the imposition of anti-dumping duties against Chinese manufacturers in the US, a stagnating European market and the ongoing anti-dumping proceed-ings in Europe, leading international module suppliers have been looking to sell more to India.

First Solar (US and Malaysia), Nex-Power (Taiwan), Suntech (China), LDK

(China), Trina Solar (China) Yingli (China), CSUN (China) and Hanwha (China) have been successful in selling to multiple Indian projects, cumu-latively accounting for over 400 MW of sales in India. A large number of project supplies under investigation for dumping are using modules from these suppliers. This will make them key ‘interested parties’ in the investiga-tion. If charges of dumping are proved and action is taken in the form of anti-dumping duties, these suppliers will stand to lose a part of their competitive advantage. BRIDGE TO INDIA’s interac-tion with Chinese companies shows that plans for aggressive market entry by the Chinese companies in India might go on the backburner if anti-dumping duties are enforced.

International module suppliers from countries outside of the scope of inves-tigation, such as Solar Frontier (Ja-pan), Sharp (Japan and Germany), REC Solar (Singapore), Sunpower (Philip-pines) and Bosch (Germany) have so far not been as successful as their Chinese or US competitors in India. If anti-dumping duties are imposed, they will be in a good situation to compete for sales in India.

If the results of the trade dispute in the US are in any way instructive, it is likely that most Tier 1 players will find ways to adapt to the new rulings, either via contract manufacturing, acquisition or small-scale local manufacturing investments. From experience in the US and preliminary analysis by BRIDGE TO INDIA, the price effect (cost/watt) of the aforesaid strategies can be limited to under 10% of the production cost.

Contract manufacturing for cells and modules in India can help international suppliers to avoid duties and also allow them to sell into projects under DCR restrictions (e.g. NSM). Some module suppliers such as IBC Solar (Germany) and ReneSola (China) have already tied up with Websol (one of the complain-ants) to set up contract manufacturing here (refer to the October 2012 edition of the India Solar Compass to read more about contract manufacturing). If

Most Indian module manufacturers that

do not have their own cell manufacturing and

look to either export modules or sell to

utility scale projects (except those under

DCR) procure cells internationally.

If the results of the trade dispute in

the US are in any way instructive, it is likely that most Tier 1 players will find ways to adapt

to the new rulings, either via contract

manufacturing, acquisition or

small-scale local manufacturing

investments.


anti-dumping duties are imposed, in-ternational module suppliers that have tied up for contract manufacturing are expected to benefit. However, it is also important to note that Indian cell manufacturers such as Moser Baer, Tata Power Solar, IndoSolar, Websol, Euro Multivision and Solar Semicon-ductor, might no longer be interested in leasing out a part of their capacity to international companies once the du-ties come into play as they will them-selves be in a better position to sell own modules and cells to the market.

International module suppliers can also look to circumvent the duties by procuring cells from any country outside of the countries in question or supply from any such facility that might be their own or contracted. Chinese module suppliers, for example, are circumventing the duties in the US by procuring cells from Taiwan.

If DCR is applicable only to c-Si cells and modules and anti-dumping duties also come into force, thin-film manu-facturers like Solar Frontier (Japan) and Sharp (Japan) will be the biggest beneficiaries, an advantage that has so far been enjoyed by First Solar (US). This scenario is unlikely however, as DCR is likely to be extended to thin-film under phase two of the NSM.

8.3 IMPACT ON THE INDIAN MANUFACTURERS Indian manufacturers will profit the most. Indosolar (a complainant) sell-sonly cells to international or Indian module manufacturers. On the other hand, the other two complainants Jupiter Solar and Websol Energy Sys-tems are integrated and also produce own modules. Other manufacturers in India that fall into the same category and are not a part of the complainants’ group are: Solar Semiconductor, Moser Baer, KL Solar and Euro Multivision. All these companies are likely to benefit if anti-dumping duties are able to create even a partially insulated zone for the sale of cells within India. Perhaps they

will even find new international cus-tomers who want to buy Indian cells for their modules for export to India, though they would have to significantly ramp up their manufacturing capaci-ties to meet such demand.

Indian cell and module manufacturers can broadly be categorized as being part of: a domestic tariff area (DTA), an export processing zone (EPZ), a special economic zone (SEZ) or bing an export-oriented unit (EOU). Not all anti-dumping duties are payable on products imported by manufacturing units in EPZs, by 100% EOUs or manu-facturers that hold an advance license to import products. Almost all the solar manufacturing in India is export-oriented and many of the manufactur-ers, including the complainant Indoso-lar, are 100% EOU and hence exempted from duties. All such EOUs, EPZs and advance license holders will not be impacted as far as import of cells is concerned. The imported materials (cells or wafers) in such cases are supposed to be processed in India and the final productsare then exported. Most of these manufacturers are no longer dependent on exports and are looking towards the Indian market for sales. In such a scenario, they will not be allowed to avail an exemption on duties and will have to look for tie-ups with domestic suppliers or those from other countries that are not a part of the investigation.

Manufacturers that are neither EOUs, EPZs nor are advance license hold-ers, will face duties when importing cells from countries on which dump-ing has been imposed. If the cells with anti-dumping duties are no longer competitive, these manufacturers will either have to import cells from other countries or buy them from Indian manufacturers.

8.4 IMPACT ON PROJECT DEVELOPERSDevelopers in India have largely relied on cheap modules from the countries

If DCR is applicable only to c-Si cells and

modules and anti-dumping duties also

come into force, thin-film manufacturers like

Solar Frontier (Japan) and Sharp (Japan) will be the biggest

beneficiaries.

Manufacturers that are neither EOUs, EPZs nor

are advance license holders, will face

duties when importing cells from countries

on which dumping has been imposed.


under investigation and this has in turn defined the LCOE for solar power in In-dia. The primary effect of anti-dumping duties is to increase the cost of these imports. Hence, the solar LCOE will increase.

Based on preliminary calculations, us-ing BRIDGE TO INDIA’s financial model, for a developer looking to set up a proj-ect in Rajasthan before anti-dumping duties are imposed, while looking to buy crystalline modules from China or thin-film modules from the US, if the project IRR requirement is 12.5%, the developer would bid for a tariff of ` 7.35 (€ 0.11)/kWh.

(Assumptions: CUF levels of 19%, not availing accelerated depreciation, interest rate of 12%, PPA for 25 years, debt is to equity ratio of 70:30 and with no wheeling and transmission charges, calculations and assumptions based on BRIDGE TO INDIA financial model.)

Now under the same assumptions, if the developer buys modules after anti-dumping duties are imposedfrom the next cheapest alternative from the indicative price table (at around $ 0.70/Wp), for a similar requirement of 12.5% IRR, the developer needs to bid for a tariff of ` 7.85 (€ 0.12)/kWh.

Similarly for a project in Tamil Nadu, a developer looking to buy modules from China before anti-dumping duties are enforced (if the project IRR require-ment is 12.5%)offers a tariff of ` 6.2/kWh31.

(Assumptions: CUF levels of 18%, es-calation in tariff of 5% p.a. for the first 10 years, PPA for 20 years, not availing accelerated depreciation, interest rate of 12%, debt is to equity ratio of 70:30 and with no wheeling and transmission charges, calculations and assumptions based on BRIDGE TO INDIA financial model.)

Now, under the same assumptions, if the developer buys modules after

anti-dumping duties are enforced from a manufacturer that is the next cheap-est alternative from the indicative price table (at around $ 0.70/Wp), for a simi-lar requirement of 12.5% IRR, needs to bid for a tariff of ` 6.7/kWh.

Increasingly, project developers are looking to move away from govern-ment-offered preferential FiTs and towards the strategically important private off-take segment. Anti-dump-ing duties, if enforced, are usually applicable for a period of five years. The duties would be a setback in that shift towards commercially viable solar business models.

8.5 OUR TAKEIn terms of the global market scenario, the falling costs in an oversupplied market will allow for a faster consoli-dation of uncompetitive manufactur-ers and help achieve a stable pric-ing regime. Trade barriers such as anti-dumping duties create insulated zones of limited competition, allowing higher-cost manufacturers to survive, driving up the cost of solar power. This slows the overall growth of the solar market and increases the cost to tax-payers or power consumers of gener-ating solar power.

The argument in favor of protective measures such as anti-dumping duties and DCR is that a country like India can capture a larger share of the value ad-dition of the industry. Domestic manu-facturers are given a better chance to capitalize on a growth in installations by being offered incentives and protec-tion. This puts them on a more equal footing with manufacturers from some other countries – especially China – who also receive government support.

The argument against such protective measures is that the value addition by Indian manufacturing is currently low, as current manufacturing capacity is geared to convert wafers to cells and modules. Cost of poly-silicon today is

---------------------31 Tamil Nadu Solar Policy: Tariffs could fall to ` 6.2 (€ 0.09)/kWh for 1,000 MW of utility scale proj-ects. Read more here.

Increasingly, project developers are

looking to move away from government-

offered preferential FiTs and towards the

strategically important private off-take

segment.

The duties would be a setback in that shift

towards commercially viable solar business

models.


$ 20/kg, compared with the peak of $ 400/kg. The poly-silicon manufacturers have seen significant margins disap-pear and are now (barely) surviving on operating margins after they have de-preciated their assets. No new Indian manufacturer can produce poly-silicon to match current prices. Hence, in a protective environment, the domes-tic industry will continue to be more expensive and this will keep the LCOE of solar power high.

In India, the need of the hour is to re-duce the cost of solar energy and make

it financially viable without any policy support. Protective measures will in-crease the price of solar, hindering the ability of solar energy to bridge India’s large power deficit in a commercially self-sustaining manner.

India can develop great strengths further downstream: when it comes to developing intelligent power solutions for rapidly developing economies suf-fering from weak grid infrastructure. Cells and modules are a global com-modity that should be sourced at the cheapest rates.


9. OUTLOOK9.1 CURRENT QUARTERFigure 9-1: Projected quarterly PV installations in India

The coming quarter is expected to see up to 290 MW of projects being com-missioned. A majority of this capacity is expected to come from projects un-der batch two of phase one of the NSM as the March 2013 deadline approach-es. In Gujarat, we expected around 80 MW will have been installed by the last quarter of 2012. However, information about commissioning for just 21.5 MW has so far been received.

In the absence of policy based alloca-tions for a greater part of 2012, many developers had been planning to set up projects based on the REC mecha-nism. As many new FiT-based project allocations have recently been an-nounced, it can be expected that many developers and also suppliers will have to re-orient their plans. It is expected that due to the poor performance of RECs on the exchange, availability of new development opportunities and in the absence of no credible support from the government to strengthen

the mechanism, many planned REC projects will be shelved.

NSMThe deadline for the commission-ing of projects under the batch two of phase one of the NSM is March 2013. A capacity addition of 340 MW is planned until then and a large part of that is expected to come up in the first quar-ter of 2013. There are no reports of any of the projects being significantly behind schedule but as some projects have only recently begun the civil work, we assume that at least 35 MW might be pushed into the second quarter of 2013.

Gujarat Solar PolicyThe latest information from projects in Gujarat was that large developers have invested further equity into delayed projects to help bring them online. However, there are stringent rules against share transfers above 49% into


It is expected that due to the poor

performance of RECs on the exchange,

availability of new development opportunities and in the absence of

no credible support from the government

to strengthen the mechanism, many

planned REC projects will be shelved.

The latest information from projects in

Gujarat was that large developers have

invested further equity into delayed projects to help bring them online.

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such companies. There have been sev-eral payment issues and litigations for such alleged transfers in companies like Azure Power, Millennium Solar and ESP Urja.

Other projectsIn the last quarter (October to Decem-ber 2012) we expected that towards the end of 2012, 75 MW capacity will come from the long delayed Mahagenco project in Maharashtra. However, this project is still delayed and even though construction work is under way and equipment has been ordered, we believe that due to the slow pace of the project, it will only be completed in the second quarter of 2013. Only 2.5 MW under the REC mechanism has come up in India in the last quarter. We ex-pect to see a capacity addition of about 10 MW in the current quarter (January to March 2013).

9.2 LONG-TERM OUTLOOKThe year 2013 is going to see large PV capacity being allocated in India. We expect that around 4,400 MW will be allocated in the year across the various policies. The following is the expected breakup of the allocations in 2013:• NSM:1,600MW(expectedbidding

process to be completed by April 2013)

• TamilNadu:1,000MW(tenderforallocation released)

• AndhraPradesh:1,000MW(RfSreleased)

• Rajasthan100MW(ongoingbiddingprocess – RfP released)

• UttarPradesh200MW(tendertomanage bidding process released)

• Punjab:500MW(tendertomanagebidding process released)

There will be significant opportuni-ties for project developers looking for allocations under solar policies. For Andhra Pradesh and Tamil Nadu, the maximum capacity of a project is limited by the evacuation infrastruc-ture. This means that the capacity per project will be limited to around 20 MW and the total number of projects allocated will be high. As the deadlines for commissioning of these projects under Tamil Nadu and Andhra Pradesh is ten months and six months respec-tively, we expect these projects to start being commissioned towards the end of the year. There are several reasons related to bankability and timelines due to which we expect that a large number of projects will not be com-missioned by the announced deadlines (refer to the policies section of the report). Therefore, at this stage we are assuming only 150 MW to come online in Tamil Nadu and 200 MW to come online in Andhra Pradesh by December 2013. Some delayed projects in both states are expected to eventually get commissioned backed by new equity infusion in the project companies through minority or majority stake sale.

The year 2013 is going to see large PV capacity

being allocated in India.

There will be significant

opportunities for project developers

looking for allocations under solar policies.

8. GUEST ARTICLE BALANCE OF

SYSTEMS: AN IMPORTANT FACTOR IN PERFORMANCE OF SOLAR PV INSTALLATIONSEnergy delivered from a Solar PV system is not only dependent on the efficiency of the module but also on other system components like DC Cables, Connectors and Junction Boxes. While designing the solar farm, engineers have to factor the losses from modules to the inverters to calculate the over-all performance ratio of the farm. Low quality solar cables and connectors will lead to small increases in resistance and result in higher losses of energy (I2Rt). The loss of energy already harvested, when calculated over a twenty five year life represents a substantial loss and would affect the profitability of the project.

A high quality Solar DC Cable is expected to perform for the complete lifetime of the installation which is about twenty five years. The cost of replacing a defective installed cable is very high. The replacement costs increase when factoring in manpower used for removal, reinstallation and testing of the system. In addition, there are losses in power output and revenue generation. The cost of these cables and connectors is very small in the total cost. Since the differential cost of the high quality cables is insignificant, it makes sense to invest with higher initial cost and reduce the “total cost of ownership” of a PV plant.

Solar PV installations are subject to harsh conditions such as high temperatures, UV radiation, water, moisture, dust, etc resulting in the accelerated ageing of the Solar DC cables in the field. Ageing of cable insulation and jacket material is nothing but a chemical process which

is dependent on Thermal Degradation (high temperature) and Photo Degradation (UV).

To determine the thermal ageing effect, the Arrhenius equation is a simple and accurate formula for the temperature dependence of reaction rates. It is used to model many thermally-induced processes/reactions. A useful generalization supported by the Arrhenius equation is that the reaction rate doubles for every 10 degree Celsius increase in temperature. To determine the long-term temperature stability of an insulation material, the different ageing times corresponding to different temperatures are measured and recorded in the Arrhenius-Diagram (shown below). A straight line is drawn to connect the various recorded points. By extending the straight line until it intersects the 20,000 hours axis, it is possible to determine the service life or the temperature index. A 10° C shift in temperature will increase or decrease the process by a factor of two. The temperature index as per IEC 60216 defines the ageing temperature (in °C), at which the material still has elongation at break of 50% after 20,000 hours. TUV rates cable at 120°C @ 20000hrs with working temperature of -40°C to 90°C for solar DC cables resulting in the life expectancy of cables at 90°C to be >25 years.

To reach this rating, solar DC cables are normally treated with irradiation through an electron beam cross linking process resulting in high temperature resistance of the insulation and cable jacket material. Ageing stability primarily depends on the polymer itself and the additives. The dosage of energy given to a compound in the electron beam crosslinking process determines the degree of crosslinking of the polymer. LEONI’s cross linked BETA-high-performance compounds fulfill high requirements of solar PV applications.

Low quality solar cables and connectors

will lead to small increases in resistance

and result in higher losses of energy (I2Rt).

Since the differential cost of the high quality cables is insignificant,

it makes sense to invest with higher

initial cost and reduce the “total cost of

ownership” of a PV plant.

Ageing of cable insulation and jacket

material is nothing but a chemical process

which is dependent on Thermal Degradation

(high temperature) and Photo Degradation

(UV).

34© BRIDGE TO INDIA, 2013

Solar DC Cables are exposed to direct sunlight and the effect of this on cables has to be kept in mind. The materials absorb sunlight and heat up. Some materials become hot but others, like plastics, degrade. The UV component of sunlight breaks the bonds of the polymer chains. The broken chains make the material brittle. The material loses mechanical properties, color etc. To prevent, this carbon black is added. It absorbs the UV rays and converts it into heat and this is dissipated. Research and experimental data on some materials has shown that the natural material (no color added) falls below 50% in less than 6 months exposure. This can be compared to carbon black which shows that even after 30 months exposure, the product is still well above the 90% retention value. A solar DC cable must be incorporated with finely dispersed carbon black in jacket materials, resulting in black color outer jacket, for their prolonged outdoor service life.

The LEONI group is a leading PV cable supplier. LEONI started electron beam crosslinking in 1984 and supplied beta beam irradiated cables for solar application in the 90’s. These are still performing in installations in Europe. LEONI produces and develops

compounds for insulation and jacket materials in-house. With capacity improvements over a period of time, it today has the world’s largest beta beam cross linking facility contributing to the highest production of solar DC cables. LEONI first launched UL/TUV dual approved cables in 2005 and invented 1,000 VAC UL and 1,500VDC TUV cables which will be used for solar installations in the future. LEONI can supply the complete system from junction boxes for module manufacturing to cable systems and connectors for Solar PV installations from its production facilities all over the world. To support our customers for fast installations of PV power plants LEONI has stocks available in India, Europe and USA.

LEONI BETAflam Solar products meet the highest requirements for solar PV system providing the same high expectations that are demanded from the solar modules - which are longevity and high weather resistance. We offer BETAflam Solar DC cables, BETAflam Trafoflex UV cable, BETAsolar Junction Box and BETAsolar PV connectors. For more information, please visit our website www.leoni-solar-windpower.com.

35© BRIDGE TO INDIA, 2013

Source: LEONI

A solar DC cable must be incorporated with finely dispersed

carbon black in jacket materials, resulting in black color outer

jacket, for their prolonged outdoor

service life.

LEONI first launched UL/TUV dual approved

cables in 2005 and invented 1,000 VAC

UL and 1,500VDC TUV cables which

will be used for solar installations in the

future.

Ageing stability primarily depends

on the polymer itself and the additives.

The dosage of energy given to a compound in the electron beam crosslinking process

determines the degree of crosslinking of the

polymer.


10. ANNEXURE10.1 GLOSSARY OF TERMSAPPC – Average Pooled Purchase Cost

APTRANSCO – Andhra Pradesh Transmission Company

BREDA – Bihar Renewable Energy Development Agency

CAPEX – Capital Expenditure

CCD – Compulsory Convertible Debentures

CDM – Clean Development Mechanism

CERC – Central Electricity Regulatory Commission

CREDA – Chhattisgarh State Renewable Energy Development Agency

CSP – Concentrated Solar Power

DCR – DomesticContent Requirement

DISCOM – State Distribution Company

DNI – Direct Normal Irradiation

EPC – Engineering, Procurement and Construction

FiT – Feed-in-Tariff

GBI – Generation Based Incentive

HT – High Tension

HTF – Heat Transfer Fluid

LCOE – Levelized Cost of Electricity

LoC – Letter of Credit

LoI – Letter of Intent

MNRE – Ministry for New and Energy

MoP – Ministry of Power

MoU – Memorandum of Understanding

NOC – No Objection Certificate

NSM – Jawaharlal Nehru National Solar Mission

NTPC – National Thermal Power Corporation

NVVN – NTPC Vidyut Vyapar Nigam

PV – Photovoltaic

PPA – Power Purchase Agreement

PSA – Power Sale Agreement

REC – Renewable Energy Certificate

RfP – Request for Proposal

RPO – Renewable Purchase Obligation


RPSSGP – Rooftop PV and Small Solar Power Generation Programme

RRECL – Rajasthan Renewable Energy Corp.

RTL – Rupee Term Loan

RVE – Remote Village Electrification Scheme

SEZ – Special Economic Zone

SPO – Solar Purchase Obligation

TANGEDCO – Tamil Nadu Generation and Distribution Company

TEDA – Tamil Nadu Energy Development Authority

VAT – Value Added Tax

VGF – Viability Gap Funding


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