Power Pack

Solar Energy

1
• Industry Overview :3

• Consolidation : 10

• Costs and Investments : 13

• Module Prices : 19

• Solar Rooftop : 24

• Future Outlook : 31

2
 Industry
Overview

3
Capacity additions lower by ~6% y-o-y in 9M FY19

• Capacity additions were lower by 6 per cent y-o-y at 3,561 MW in 9M FY 2019 led by
commissioning of allocations made under central and state policies in the previous fiscals.
• Additions have been slower in this fiscal amid several policy issues and a rise in capital
costs.
• The imposition of 25 per cent safeguard duty, GST procedural issues, a weaker rupee and
rising cost of debt have caused capital costs to remain range bound between Rs 32-35
million per MW, as compared to expectations of a continuous decline.

4
Capacity additions lower at 3,561 MW in 9M FY’19 compared to 3,781
MW in 9M FY’18
• In 9M 2018-19, ~3.6 GW of solar power projects were commissioned, which was lower by
~6 per cent over the same period last year, while FY 18 had seen an increase of 69 per cent
y-o-y.
• The states of Rajasthan, Madhya Pradesh and Andhra Pradesh added ~2.1 GW alone (or
~60% of the total solar capacity additions), with several large projects under Rewa ultra
mega solar park scheme, SECI, Bhadla solar park scheme and Andhra Pradesh state solar
policy commissioning over the 9-month period.

5
Major capacities commissioned in 9M FY’2018-19

6
Solar Capacity Additions (MW)

Source: MNRE, Crisil Research

7
Solar Capacity Additions (MW)

• Performance of operational projects continues to remain stable with players like ACME,
ReNew, Adani – key names in the sector – reporting healthy PLFs of 19-22 per cent over
the past 11 quarters.
• Players have been designing projects utilizing a trend called DC (direct current)
overloading which entails connecting more modules on the DC side of the plant to generate
incrementally more in the non-peak generation hours.
• This has helped improve PLFs to the 21-22% range.
• Players have been known to utilize DC overloading up to 30-40% of AC (alternating
current) side capacity.

8
PLFs of operational projects for few key players

Source: MNRE, Crisil Research

9
 Consolidation

10
Consolidation taking place, large / well-funded players driving it

• Acquiring projects in locations/states near already operational assets help improve

economies of scale where spare parts/staff can also be centrally located, catering to several
projects at once.
• Consolidation to continue with the on-going quest for a larger portfolio among larger
players and several smaller firms exiting the sector due to increased competition.

11
Key M&A deals over the recent past

Source: Industry
12
 Costs and Investments

13
Solar project tariffs rise with duty imposition, developers in wait and watch
mode
• Developers have been bidding at higher tariff ranges due to the safeguard duty,
recommended by the Directorate General of Safeguards in July 2018, being imposed.
• As a consequence, developers are planning procurement once duty rates start to decline
(July 2019 and beyond).
• Further, Chinese authorities have cut subsidies to the solar sector, which has caused a crash
in module prices.
• Without a duty, tariffs would have continued in the Rs 2.5-2.7 per unit range however, with
the duty tariffs of Rs 2.7-2.9 are required for healthy returns of 10%-13%.

14
Tariff of Rs. 2.7 -2.9 p.u. required to generate healthy IRRs with the duty
imposition
• Our base case analysis is for an independent power producer (IPP) undertaking EPC in-
house and using imported modules given that this is the most prevalent model.
• For our analysis on project economics, the following are the key assumptions based on
our interactions with project developers and bankers.
• Capital cost: Rs. 34-35 million per MW for a project based on imported modules.
• Further, some Inverter overhaul charges in the 13th year of the project. These
assumptions are based current landed module costs of ~USD 0.24 and factoring the
safeguard duty at 25% in addition to the new GST rate of 8-9% (new clarification by
council).

15
Tariff of Rs. 2.7 -2.9 p.u. required to generate healthy IRRs with the duty
imposition
• Plant Load Factor: A plant load factor (PLF) of ~21-23 per cent based on all India
average PLFs and factoring DC side overloading which has been assumed at 25 percent.
DC side overloading implies that PV arrays (DC side) of higher than rated capacity of
inverters could be connected to generate more output (number of units) from inverters,
essentially adjusting for losses in the system design.
• However, given no restriction on power that can be fed to the grid and also no cap on the
prices of such additional power, players are optimizing the system design to generate
more CUF at incremental cost.
• However, PLFs could vary significantly from location to location depending on the level
of irradiance.
16
Tariff of Rs. 2.7 -2.9 p.u. required to generate healthy IRRs with the duty
imposition
• Debt to equity: A debt equity ratio of 70:30 based on the typical capital structure of
projects under operations.
• Foreign borrowing costs: Assumed a rate of about 9.5 per cent (including hedging costs,
with 12 months of moratorium) with developers availing various routes to lower cost of
debt including the option of refinancing of debt once assets become operational.
• Based on the above assumptions (factoring in DC overloading), a levelised tariff of Rs.
2.7 – 2.9 per unit is necessary for equity internal rate of returns (IRRs) of 10-13 per cent.

17
Tariff of Rs. 2.7 -2.9 p.u. required to generate healthy IRRs with the duty
imposition

• This is applicable for independent power producers (IPPs) who generally do not avail
accelerated depreciation.
• (Accelerated depreciation benefit allows depreciation of 80 per cent of the capital cost in
the first year of commissioning).
• Capital costs are one of the key factors deciding viable tariffs.
• It is influenced by equipment costs (mainly modules which form 55-60% of overall cost),
exchange rate and taxation policies.

18
 Module Prices

19
A key factor determining capital costs is module prices, which is mainly
imported from China.
• Trend in module prices

Source: MNRE, Crisil Research

20
A key factor determining capital costs is module prices, which is mainly
imported from China.
• Trend in module prices
• Capital costs declined sharply to about Rs. 30-35 million per MW (without factoring
overloading) by March 2018 from Rs. 100 million per MW at end of 2011 on account of
sharp fall in module prices (modules form about 55-60 per cent of the total capital costs of
setting up a solar power plant) led by significant overcapacity, particularly in China.
• Chinese players remain some of the big exporters of ready-made modules and cells to the
Indian domestic market.

21
A key factor determining capital costs is module prices, which is mainly
imported from China.
• Trend in module prices
• Module prices saw a sharp fall to USD 0.56/W in 2015-16 from USD 1.14/W in 2011-12
mainly led by a rapid decline in prices of poly silicon and non-silicon components.
• The declining trend has continued in 2016-17 and 2017-18, with average module prices
being USD 0.43/W and USD 0.32/W respectively.
• This was due overcapacities which persist in the entire value chain from polysilicon to
modules in the Chinese market, a major exporter of modules to India.
• Further, at the start of June 2018, China’s National Energy Administration announced a
reduction of the FiT rates by RMB 0.05-0.07 per kWh, limits on capacity additions with
distributed generation limited to 10 GW and stopped subsidies for utility-scale solar
projects.
22
 Trend in module prices

• Other programs such as the top-runner and poverty alleviation program were however, not
to be affected.
• This however, caused weakening in demand for modules from the world’s leading solar
market.
• Thus, causing the excess capacities to find new markets such as India.
• As a consequence, module prices further crashed ~38% over April 2018- December 2018,
from USD 0.30 per wattpeak to USD 0.24 per wattpeak.
• This however, has had significant consequences for the leading module makers. Chinese
module manufacturers have not fared well, with several large players witnessing low
margins as they aggressively compete for a shrinking domestic market.

23
 Solar Roof-top

24
Projected rooftop capacity additions over 2018-19 to 2022-23

Source: MNRE, Crisil Research

25
Close to 8 GW solar rooftop capacities expected to be commissioned over
next five years (FY 2019-23)

• Solar rooftop power capacity additions of ~8,000 MW over the next five years (2019-2023).
• The capacity additions would be driven mainly by commissioning of capacities disbursed
by SECI (1000 MW); capacities allocated by the state governments (up to 500 MW),
commissioning of ~2,000-2,500 MW of capacities by government institutions such as
metros, railways, airports; and ~2,000-3,000 MW of capacities to be added by industrial and
commercial consumers under net/gross metering schemes of various states.

26
Only ~2 GW of grid-connected roof-top capacity added till March 2018 due
to high costs and limited focus
• Rooftop projects are small-scale solar photo-voltaic (PV) installations on roofs of buildings
(for a detailed view on the operating models, refer to Annexure I).
• Rooftop projects may or may not be connected to the grid.
• As per the government target of 100 GW of solar by FY’22, 40 GW is proposed to be added
under rooftop-based solar systems.
• However, till FY 2018, only ~2.0 GW of rooftop capacity is estimated as installed, with
~400-600 MW estimated to have been added in FY’18 as against ~9,010 MW of ground-
mounted solar projects in the fiscal.
• While, MNRE subsidized projects comprise 50% of the above (~1 GW of the installed
capacity), the private market formed mainly by commercial and industrial customers (not
• subsidized)
27
are estimated to form the remaining 50% of the installed capacity.
Only ~2 GW of grid-connected roof-top capacity added till March 2018 due
to high costs and limited focus

• Roadblocks hindering growth of rooftop solar include high cost of rooftop projects, limited
availability of finances for rooftop projects, weak infrastructure of power distribution
companies, poor implementation of open access, and cheaper solar power available from
ground-mounted projects.
• Although, MNRE has entrusted Solar Energy Corporation of India (SECI) with
implementation of large-scale, grid-connected rooftop PV projects, with subsidy support
from National Clean Energy Fund (NCEF) funds, release of subsidy has been delayed by
more than six months in some cases.
• Nevertheless, rooftop solar projects have attracted interest from players in the entire solar
value chain ranging from module manufactures (TATA Power Solar, Waaree Energies,
28
Only ~2 GW of grid-connected roof-top capacity added till March 2018 due
to high costs and limited focus

• Vikram Solar, etc.) to system integrators (Rays Power, Jackson Engineers) and independent
power producers (Welspun Solar, Azure Power, Sunedison, Mahindra Solar, etc.)
• owing to falling costs and favourable regulatory policies in a few states (net metering,
exemption on electricity duty, wheeling and cross-subsidy charges).

29
Rooftop schemes approved for funding by SECI till YTD 2018-19 (at end of
December 2018)

Source: MNRE
30
 Future Outlook

31
48-50 GW solar capacity to be added over next five years
• Solar power capacity additions to rise over the next five years.
• This will be driven by commissioning of projects allotted under different state policies;
National Solar Mission (NSM); other SECI schemes; and central public-sector undertaking
tenders. Regulatory focus is key to supporting capacity additions ahead, in addition to
adequate land availability, timely implementation of grid infrastructure and the ability of
players to raise low cost funds.

32
Solar capacity additions of 48-50 GW over 2019-2023
• 48-50 GW of solar photovoltaic (PV) capacity additions over 2019 to 2023 (refers to fiscal
year of April to March).
• This will be driven by additions under The National Solar Mission (NSM) Phase II Batch II,
III, IV, V and VI; Other schemes launched by SECI (ISTS, floating solar tenders, state
specific schemes etc.)
• Capacities tendered by distribution companies in various states to fulfill Renewable
Purchase Obligations (RPO); Capacities tendered by cash rich public sector undertakings
(PSU) such as National Thermal Power Corporation (NTPC), Neyveli Lignite Corporation
(NLC), Coal India Limited (CIL) etc.; Rooftop projects.
• To arrive at capacity additions, progress of capacity allocations under the above

33
Solar capacity additions of 48-50 GW over 2019-2023
• For our analysis, also factored in the economic feasibility of tariffs, extent of payment
security, financial health of state discoms, Renewable purchase obligation (RPO) targets as
well as execution risks in project implementation.
• From our analysis, solar power capacity additions of 48-50 GW over the next five years
(FY 2019-23) as compared to ~20 GW over the last five years (FY 2014-18).
• However, the share of solar power in total units generated (MUs) is likely to remain
between 6-7 per cent by 2023 as thermal based power would continue to be the dominant
source of power.

34
Various policies announced by government

35
GST to usher in warehousing investments in India
• Solar power capacity additions of 48-50 GW over the next five years (FY 2019-23) as
compared to ~20 GW over the last five years (FY 2014-2018).
• Growth in capacity additions will be driven by government support with an
aggressive tendering roadmap outlined and being followed by the government so far.
• Few external factors such as improvement in technology (floating solar, module
efficiency) and low capital costs is also key to enabling additions.
• However, a lack of policy coherence has caused uncertainty to mount for developers
over FY’18 and FY’19 impacting bid response.

36