CHALLENGES BEFORE INDIAN SOLAR INDUSTRY 2021
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Indian Solar Industry
Indian renewable energy sector is said to be the fourth most attractive renewable energy market in the world. For a country such as India, which is the world’s third-largest emitter of greenhouse gases, the clean energy sector is crucial as it can help in tackling climate change and reduce the consumption of fossil fuels. In recent years India has made commendable progress in bringing electricity connections to hundreds of millions of people with the use of renewable energy, particularly solar. India is targeting 280 gigawatts (GW) of solar power by 2030 and 175 GW by 2022.
While the sector has progressed immensely in the past few years. The rapid expansion of solar power has transformed India’s electricity sector, enabling it to provide clean, affordable and reliable power to a growing number of households and businesses, But There are many factors plaguing the growth of the sector. The factors the play a serious challenge before the growth of the Indian Solar Market are discussed below:
Reliance On Imports
The sharp decline in prices of solar technologies in recent years has been one of the biggest drivers in the adoption of solar PV in the country. However, The Indian solar industry relies heavily on imports of important components such as solar cells and PV modules. The cost of modules produced in China is 8-10% cheaper than the one manufactured in India, and about 80-85% of the solar modules used in India are manufactured in China. Therefore, the huge dependency on imports has affected domestic manufacturing in the country, which is further expected to hinder the growth of the market. Manufacturing of solar modules typically requires materials such as glass, silicon, copper, silver, aluminium etc. What worries us is that the supply and refining of these crucial minerals required in the solar and overall renewable energy systems are limited to a few countries. This creates sources of concern for companies that produce solar panels using imported minerals, as their supply chains can quickly be affected by regulatory changes, trade restrictions or political instability in a small number of countries. The shortage of raw materials during Covid-19 pandemic is the best example of this. Government has also noted instances of certain countries dumping solar cells and modules to kill the nascent domestic industry, because of which the government has announced a basic custom duty (BCD) of 25 percent on solar cells and 40 percent on solar modules from April 1, 2022.
Lower Tariff Structures
Lower tariffs are good news for consumers but devastating for energy companies. State governments’ insistence that companies sell power to DISCOMs at cheap prices hurts these firms’ profit margins and negatively affects focus on quality and innovation. In recent years, the reduced tariffs have also led to increased number of solar power plant installations, but it has also raised concerns over the long term viability of these projects. he current trend of competitive bidding & constantly falling tariffs has brought about a price war and has reduced project developer margins, compelling them to reduce costs in various areas, leading to compromise in project quality that can be seen in installations across the country. The lack of regulations for product quality certification, intense competition, and absence of requisite awareness has only emboldened the problem.
Module mounting structures are considered as the backbone of any solar power project whether ground mounted or rooftop. They should be able to withstand the weight of solar panels, high wind speeds, and temperature variations. Aggressive bidding has impacted the quality of these module mounting structures as well.
Pandemic & Slowdown Impact
The COVID-19 pandemic has hit the Indian renewable solar and power sector, supply chains, and businesses and severely hindered the sustainable energy climate transition. Energy demand is lower now due to decreased economic activity, offices remaining closed and millions working from home. Moreover, many consumers have not been able to pay their electricity bills or have delayed doing so in recent months. With the prevailing uncertainties in the industry, the solar energy sector is trying to bounce back in business to achieve the renewable energy target of 100 GW by 2022 set by the Government.
Due to COVID-19 and nationwide lockdown, ongoing Solar projects in the country have been completely shut, power companies are facing disruption and installations companies are concerned about the delays in their projects because of the production slowdown in China. In India, the solar industry is relying on China for around 80% of its requirement of solar supply. Due to lockdown, top Industry players have been facing delays in procurement of modules, solar cells, and other components.
Solar rooftop sector has been badly affected because of two reasons: one is its labour cost and other one is its dependence on the country’s commercial and industrial sectors.The impact of the situation is not uniform among all developers, unlike the lockdown last year. Developers who are dependent on third-party engineering, procurement, and construction (EPC) services are more affected than those with an in-house EPC team. And Utility scale projects may not have faced same pressure as that of rooftop solar power projects.
Lack of Financial Support From Banks
From banks, NBFCs, to personal loans various financing options are available for rooftop projects in India, but they are less accessible and more complicated. Multiple lines of credit are extended by State Bank of India (SBI), Punjab National Bank (PNB), and Indian Renewable Energy Development Agency Ltd (IREDA) at attractive interest rates. NBFCs present in the space have higher interest rates, making the project less attractive.
The RBI introduced loan options for rooftop solar under the priority sector lending (PSL) norms. However, the initiative failed to create much impact because of high interest rates charged by banks, as they perceived Rooftop PV projects to be a high-risk asset.
Centre’s Kusum scheme aimed at helping farmers with extra income from their barren and semi-fertile lands is facing hurdles from banks who are reluctant to finance the units. Banks have developed cold feet to finance the projects because of two reasons
DISCOMs don't have a good track record of paying for the power on time.
They cannot confiscate the farmer’s land given the sensitivity of the issue.
Lower tariffs had raised concerns over the sustainability of assets whereas Slowdown in the sector has made the lenders wary. Debt financing is also under pressure as banks are struggling with NPAs in the power sector and there is a sense that the compromises made in quality could potentially become an issue in future.
Michael Eckhart, managing director at Citigroup stated that when a market is government-driven, low cost is the parameter. So, there is now a fear of creating a future where the projects don’t perform as expected due to quality issues and as a result, do not generate the expected revenue.
Another challenge is where the interest cost is a key driver against the competition, the market is pretty competitive. Several players are coming in from overseas, and some of them have access to cheap funds. As a result, they can comfortably enter domestic bids since their expectation of returns is lower. Apart from this, it is difficult to keep the interest cost down.
Land Acquisition The Biggest Impediment
Land acquisition is one of the single biggest challenges, and even the most experienced developers seem to have problems with it. Large-scale solar power projects continue to face land acquisition challenges and other bureaucratic hurdles. Delay in approvals is another hurdle. Large projects take time to get commissioned and delays add to the complexity in terms of execution time. Another challenge is getting the land at a good price. Once land-owners figure out that a developer has started the land identification process in the area, they start increasing prices to unreasonable levels. Land acquisition becomes a painstaking process, especially when it conflicts with agricultural usages.
Developers mentioned that solar park projects, where the government provides land, are also becoming increasingly competitive, forcing them to look at other state tenders. However, even the government is running into difficulties with respect to acquiring land and transmission infrastructure.Land acquisition is unclear, and the situation is different for different regions. It is unpredictable in terms of prices and timeline too.
Other Challenges
Lack of funding for ambitious schemes and initiatives like National Solar Mission.
Manufacturers are mostly focused on export markets that buy Solar PV cells and modules at higher prices thereby increasing their profits.
Lack of closer industry-government cooperation for the technology to achieve scale.
Lack of focused, collaborative and goals driven R&D to help India attain technology leadership in PV.
Training and development of human resources to drive industry growth and PV adoption
The need to build consumer awareness about the technology, its economics and right usage.
Complexity of subsidy structure & involvement of too many agencies like MNRE, IREDA, SNA, electricity board and electricity regulatory commission makes the development of solar PV projects difficult.
Conclusion
With immense potential in the solar energy sector, India shall invest prudently in new and emerging solar technologies through strong financial measures that include green bonds, clean energy funds and institutional loans. There is a need to promote R&D particularly in renewable energy storage technology and tackle bureaucratic hurdles in implementation of such efforts. For a country like India, which doesn’t produce many of the minerals required for renewable energy systems, it should focus on long-term policy making to achieve its ambitious renewable energy targets.
Improvements in the manufacturing process, increase in efficiency and development of new products can significantly reduce the mineral requirement to produce every MW of renewable energy equipment. Recycling should be used as an important tool to recover critical minerals which may be difficult to procure in the international markets
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