Solar power sector: Looking forward to a brighter year

Last year was full of ups and downs for India’s renewable energy industry. While 2018 started off with the first quarter witnessing a huge increase in installed capacity, especially in the solar power sector, there was an industry-wide fall in capacity addition as well as auctioned capacity from the second quarter onwards.

The success of the first quarter can be attributed to the several power projects that were in the pipeline in 2017 and were commissioned in early 2018.

The slowdown in the subsequent three quarters was due to a number of uncertainties surrounding the industry following various legislative changes and difficulties faced by original equipment manufacturers (OEMs) and developers.

The Ministry of Finance imposed an initial safeguard duty of 25% on solar panels imported from China and Malaysia, in a bid to promote the use of domestically manufactured solar equipment and to safeguard the interests of the domestic manufacturers. This sudden increase in financial burden stalled the projects that were under development, leading to a slowdown and delay in achieving the targets set for the year.

Another major setback was due to the ambiguity on the rate of goods and services tax (GST) to be paid on the supply of goods and the performance of services.

Different states relied upon different advance rulings, which inevitably resulted in an extended phase of inaction by developers. However, shortly before the close of the year, the GST Council gave its recommendations on the GST to be paid in relation to the works component and the supply component of Engineering, Procurement and Construction (EPC) contracts. Though the industry players may not be on board with the council’s recommendations, it is a relief that the ambiguity has been resolved.

Roadblocks such as the unavailability of land and connectivity issues, coupled with several legislative changes brought about by the various ministries resulted in a relative lull across the renewable energy sector in India. The industry witnessed the lowest tariffs in 2018 compared with the previous quarters.

According to the Ministry of New and Renewable Energy’s (MNRE) year-end review, it appears that, as of 31 October 2018, India has already achieved the targets set for 2022 for installed capacity of biomass and small hydro energy, and wind energy targets have crossed the half way mark at 34.98 gigawatts (GW) of installed capacity. However, the solar energy sector has a long way ahead as only 24.33GW capacity has been installed against a target of 100GW, and only 36.6GW have been tendered or are under implementation.

However, 2019 seems to have started on a positive note with the projects in the renewable industry put on the fast track. To the industry’s relief, MNRE has been taking proactive steps to ensure that the ambitious target of installing an aggregate capacity of 175GW renewable energy by 2022 is met. The year-end review estimates that 60GW solar energy and 20GW wind energy contracts will be tendered by the end of the 2019-20 financial year. Interestingly, in December 2018 around 10GW of renewable energy projects had been tendered.

The MNRE has also made an attempt to accelerate the development of solar power projects and to make up for the lag faced by the industry through a recent amendment to the Guidelines for Tariff Based Competitive Bidding Process for Procurement of Power from Grid Connected Solar PV Power Projects. The amendments seek to considerably reduce the timelines for completion of the bidding process, attaining financial closure as well as commissioning of the projects.

To provide a boost to the domestic solar equipment manufacturing sector, the MNRE has mandated a minimum percentage of local content for renewable energy projects, which are to be sourced by the government and related entities from domestic manufacturers. It has also introduced a compulsory certification and registration for domestic manufacturers in order for them to be included in the approved list of models and manufacturers, which will be effective from March 2020.

In view of the positive developments and initiatives, and keeping in mind the estimates for the year, 2019 is expected to be more successful than last year. The ministries seem to working towards removing the obstructions and hurdles that were plaguing the industry in 2018. The approximately 46GW of solar projects that are being implemented or have been tendered last year are expected to see the light of the day this year.

Rahul Arora is a partner and Ruhani Khanna is an associate at HSA Advocates. HSA is a full service firm with offices in New Delhi, Mumbai, Bengaluru and Kolkata.