investment trends & regulatory challenges · investment trends & regulatory challenges...
TRANSCRIPT
Investment trends & regulatory challenges
Rishabh Jain
Manager – Market IntelligenceCEEW Centre for Energy Finance
Energy Finance Conference 201918th August 2019
© Council on Energy, Environment and Water, 2019
CEEW – Among South Asia’s leading policy research institutions
Energy Access Renewables
Low-Carbon Pathways
Technology, Finance, & Trade
Industrial Sustainability & Competitiveness
Risks & Adaptation
Power Sector
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Centre for Energy Finance
Tapping every ray of the sun
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22,000
1,00,000
-
20,000
40,000
60,000
80,000
1,00,000
1,20,000
2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22
Cum
ulat
ive
sola
r cap
acity
(MW
)
For 100 GW-needed aCAGR of 62.2 %
As per NSM targets: CAGR of 34%
In getting to 100GW of solar capacity, the required CAGR of 62.2% will result in cumulative installed capacity doubling every 18 months.
India’s clean energy ambitions require considerably higher capital flows
Sources: RE investment flows 2013-2017 – BNEF, 2018-2030 – IFC; EV market share ambition – Press Information Bureau 4|
0 10 20 30 40
Targeted 2018-2030
Actual 2013-2017
USD Billion
Comparison of annual RE investment flows with
requirements for targets
• Additional investments by states needed in:o Transmission infrastructureo Solar parks
Renewable energy
0% 10% 20% 30% 40%
Targeted 2030 MarketShare
2018 Market Share
Share of annual vehicle sales
Comparison of present EV sales with stated government
ambition
Electric mobility
• Investments needed across the value chain: o Component manufacturingo Battery manufacturing/assemblyo Charging infrastructureo Mobility services o After-sales services
Clean Energy Investment Trends
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Market concentration of developers sanctioning new projects remains high
CEEW CEF – IEA Clean Energy Investment Trends 2019 6|
55%63%
43% 48%58%
72%86%
60%71%
82%
0%
20%
40%
60%
80%
100%
2014 2015 2016 2017 2018
Market concentration in solar PV
Share of top 5 firms in sanctioned solar projects
Share of top 10 firms in sanctioned solar projects
48%39%
51%
66%57%
76%63%
75%
91%83%
0%
20%
40%
60%
80%
100%
2014 2015 2016 2017 2018
Market concentration in wind
Share of top 5 firms in sanctioned wind projects
Share of top 10 firms in sanctioned wind projects
70%
50%60% 60%
50%
70%
90%
50%
0%10%20%30%40%50%60%70%80%90%
100%
2015 2016 2017 2018
Churn rate for the top solar and wind developers
Top 10 Solar Top 10 Wind
• Even top developers have limited capacity to finance new projects every year
• Considerations of portfolio diversification across locations and offtakers could be impacting bidding patterns
• Industry consolidation in the wind industry is reflected in reduced churn in 2018
Reduced interest in solar parks
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3%
38%22%
54%
24%
97%
62%78%
46%
76%
0
500
1000
1500
2000
2500
3000
3500
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2014 2015 2016 2017 2018
MW
Shar
e of
pro
ject
s aw
ared
ed
Share of solar parks in overall project capacity awarded (MW)
Non-solar park projects (left-side axis)
Solar park projects (left-side axis)
Nameplate Capacity of Solar Park Projects Awarded (right-side axis)
• Persistent challenges in land acquisition and setting up transmission infrastructure have delayed the development of solar parks
• High solar park charges are a matter of concern for the industry
• Reduction in quantum of project capacity awarded through this route.
• SECI has now taken a more active role in park development itself through the introduction of a new mechanism - Mode 7 - for park development
Debt financiers’ risk perceptions for renewable energy projects have declined
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225200
150
0
50
100
150
200
250
300
2014-2015 2016 2017-2018
Basis
poi
nts
Interest rate spreads - Solar PV and wind
73.3%
74.3%
73.5%
75.0%
73.8%
75.0% 75.0%
74.0%
72.0%
72.5%
73.0%
73.5%
74.0%
74.5%
75.0%
75.5%
2014 2015 2016 2017
Weighted average debt-to-equity ratio
Solar Wind
Interest rate spreads from benchmark rates for lending to solar PV and wind projects have declined by 75-125 basis points from 2014-2018
Capital structures for solar PV have become more debt-heavy whereas those for wind have remained stable
Roadblocks to Investment
Source: CEEW, CII, TWI, TCX – CRMM Feasibility Study, 2017
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There are no off-take riskmitigation instruments dedicated toRE
The existing instruments burdenboth issuers and users with hightransaction costs and complexapplication processes causingprohibitive delays
Existing risk-mitigation instrumentsdo not comprehensively addressthe specific roadblocks faced byprivate investors
Risks plaguing RE investments
Offtakerrisk
Political risk
Foreign exchange
risk
Currency in-covertibility
risk
Equipment quality
concerns
Cost overrun
risk
Andhra Pradesh – reducing investor confidence
As per AP tariff order for FY 19-20
No. of units to be supplied (In MU)
Existing averagetariff (INR/unit)
Revenue from sale of under existing tariff (INR crore)
Proposed tariff(INR/unit)
Revised revenue from as per proposed tariff(INR crore)
Potential revenue impact on developers (INR crore)
(I) (II) (III) =(I) *(II) (IV) (V) = (I) * (IV)(VI) = (III) –(V)
Wind Power 8,866 4.63 4,105 2.25 1,995 -2,110
Solar Projects (SPD) 1,230 5.90 726 2.44 300 -426
Solar Parks 5,933 4.10 2,433 2.44 1,448 -985
Solar NVVNL 38 10.67 40 2.44 9 -31Total/ average 16,068 4.55 7,304 2.34 3,752 -3,552
Source – CEEW CEF analysis basis tariff orders of AP for FY 19-2010|
Safeguard duty – increasing uncertainty
Note 1: Share of imports refers to the share in terms of value, sourced from Ministry of Commerce and Industry website.Note 2: The period of investigation refers to the period which the DGTR considered in its safeguard duty investigation. This corresponds to the period spanning FY 2014-15 to FY 2017-18.
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-50%
0%
50%
100%
150%
200%
2014-15 2015-16 2016-17 2017-18 2018-19
% Increase in Imports % Increase in Installations
Share of imports of cells, whether or not assembled into modules, fromexporters
Country Share of imports (Period ofinvestigation)
Share of imports (Aug2018 – Jun 2019)
China 86.3% 76.9%Taiwan 2.5% 1.4%Malaysia 6.5% 0.5%Singapore 1.1% 6.0%Thailand 0.1% 4.5%Vietnam 0.4% 6.0%
• In one year of implementation, the government has collected INR 3200 cr
• Lack of clarity on what will happen after Aug 2020 can lead to speculative bidding
• Same HS code for solar cells and modules reduces our understanding about the impact of safeguard duty
• For any new investments in manufacturing, longer term market and regulatory support and clarity in implementation is essential.
Key challenges & risks – Planning
• Transparency – Real time data on land availability, transmission network, development for
evacuation infrastructure and a clear roadmap of projects is not available– Co-ordination delays between central and state government agencies often lead to
delay in projects• Inconsistent & unclear policies
– Retrospective change in policies are a major red flag for investors (AP and other states renegotiating or cancelling PPA’s)
– Lack of clarity on GST created lot of challenges for companies.• Manufacturing
– Solar module manufacturing industry needs strategic fiscal support and a strong domestic public procurement programme.
– Unclear roadmap and project implementation challenges have reduced capacity utilisation of wind turbine manufacturers
– Focus on energy storage is urgent otherwise, India will be a price taker, not a price maker - with limited profits accruing to domestic industry.
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Key challenges & risks – Execution
• Bid cancellation & delays– Nearly 5 GW of solar projects witnessed cancellations in 2018, primarily due to
increased tariff – Such instances should not be allowed because price was discovered via a
transparent competitive bidding process. – Increased in market uncertainity, has translated into an increase in tariffs
discovered at renewable energy auctions from the record lows realised in 2017
• Development of evacuation infrastructure – Increasing, availability of evacuation infrastructure is becoming a concern. – Transparency on infrastructure availability and development of greenfield
projects is critical for the successful integration of RE power into the grid. – Important to strategically plan the sites of RE deployment in order to minimise
the overall cost to the economy, rather than merely optimising for the levelisedcost of electricity.
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Key challenges & risks – Operational
• Delay in payments– Payments should be made according to invoice date and not on case to case basis
(First In First Out should be followed)
• Scheduling & Forecasting – Should be strengthened by incorporating generation losses due to unexpected
weather conditions
• Curtailment– Instances of curtailment is now spreading to many states, many questioning the
“Must Run” status of RE. – Curtailment requests should not be verbal and on technical grounds only
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