mercom capital group india solar market update...the seci, the implementing agency setting up 2,000...

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Mercom Capital Group

India Solar Market Update

India Solar Quarterly Market Update – Market Heating Up, but Low Tariffs Posing a

Challenge

Nov 2015

KEY FINDINGS

� Year-to-date (YTD) solar installations have reached 1,652 MW with cumulative solar installations totaling

4,816 MW.

� We expect 2015 calendar year installations to total about 2,150 MW – which is slightly below our previous

estimate – and are forecasting that 2016 installations will reach approximately 3,645 MW.

� There are about 5,500 MW of projects that are due to be auctioned off over the next few months.

� The first auction under 3,000 MW Phase II Batch 2 JNNSM program was highly competitive, with SunEdison

coming out on top with a winning bid of ₹4.63 (~$0.071)/kWh for 500 MW, the lowest recorded bid in India

so far.

� In a positive development, the Union Cabinet just gave its approval for a new program called ”UDAY” (Ujwal

DISCOM Assurance Yojana) which is focused on the financial turnaround of power distribution companies.

List of Charts/Tables

India Solar Installations (MW)……………………………………………………………..……………….. 2

MNRE 100 GW Installation Target by Category………..…….………………….……..……………….. 3

Utility-Scale Solar Projects in India…………………………………………………………….................. 4

Status of 5,500 MW Solar Tenders - Auctioned/Pending……………………………………………… 5

5,500 MW Tenders – DCR/Non-DCR…………………………….………………………………….…… 6

Status of Solar Parks…………………………………………................................................................ 7

Lowest Bids in Reverse Auctions in India (₹/kWh)……………………………..……...……................. 10

Monthly Average Chinese Module Spot Prices……………………………………………..................... 10

Ministry-wise NCEF Fund Allocation By Year ……………………………………................................. 11

States To Take Over Future Losses of DISCOMs in a Phased Manner…………………...……..….. 13

India Green Bonds………………………………………………………….…………………..……….….. 14

Punjab Auction Winning Bids……………………………………………..…………………..……….….. 19

India Solar Installations (MW) By Location …………………………………………………………..….. 21

Uttarakhand Auction Winning Bids………………………………………..…………………..……….….. 22




We saw increased activity in the Indian solar sector over the last quarter with tenders and auctions beginning to occur

more frequently along with some important policy announcements. Year-to-date (YTD) solar installations have

reached 1,652 MW with cumulative solar installations totaling 4,816 MW. We expect 2015 calendar year installations

to total about 2,150 MW – which is slightly below our previous estimate – and are forecasting that 2016 installations

will reach approximately 3,645 MW.

After several delays, the National Thermal Power Corporation (NTPC) has begun calling for tenders as part of the

3,000 MW Phase II Batch 2 JNNSM program. The first auction under this program was highly competitive, concluding

recently with SunEdison coming out on top with a winning bid of ₹4.63 (~$0.071)/kWh for 500 MW, the lowest

recorded bid in India so far. There is widespread concern throughout the industry as to the direction the market is

headed; most agree that bids at these levels are unsustainable. Industry participants are worried that if this continues,

we might be headed in the same direction as infrastructure/road projects in India where a similar “lowest bid wins”

concept has been a disaster with many winning bids resulting in stalled or abandoned projects because they were

financially unviable from the start. In a fight for market share, bids are falling much faster than component prices and

interest rates. In fact, solar module prices have held steady this year and inventories are tightening, which could lead

to prices holding steady or even slightly increasing. We were surprised to find that many solar company executives

who openly stated that tariff levels below ₹5 (~$0.077)/kWh were unworkable, have not taken their own advice,

bidding below that mark. If one of these projects fail, it will set the industry back several years.

6 12172

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Source: Mercom Capital Group, llc

Annual Solar Installations

Cumulative Solar Installations

Nov 2015

Data derived from MNRE, Mercom Project Tracker & Public Sources

India Solar Installations (MW)




MNRE 100 GW Installation Target by Category

Category I Proposed Capacity (MW) Category II Proposed Capacity (MW)

Rooftop Solar 40,000

Scheme for Decentralized Generation of

Solar Energy Projects by Unemployed Youth

and Farmers

10,000

Public Sector Units 10,000

Large Private Sector/ Independent Power

Producers 5,000

Solar Energy Corporation of India 5,000

Under State Policies 20,000

Ongoing Programs including past

achievements 10,000

Total 40,000 60,000

Source: MNRE

In our view, the lowest bid does not equal a decrease in project costs, as touted by both the media and government

officials. We have already seen some projects being abandoned as developers realize that they couldn’t build a

profitable project at the price they bid. There is significant pent up demand to build projects from a large number of

developers that have invested millions to set up operations in India, but have not seen many projects to bid for. When

projects do come up, competition at these auctions is intense, driving bids down. At these low tariff levels, project

funding will start becoming an issue according to the banks.

The Indian solar manufacturers association has mentioned that their anti-dumping complaint against foreign

manufacturers has been accepted. We believe that it is highly unlikely that the government will re-litigate this issue.

At the current bid levels we are seeing in the auctions, any increase in component prices will effectively kill the

market.

In a positive development, the Union Cabinet just gave its approval for a new program called ”UDAY” (Ujwal DISCOM

Assurance Yojana) which is focused on the financial turnaround of power distribution companies. The government of

India has recognized that unless the distribution companies are solvent and maintain good credit ratings, reaching

renewable energy installation goals and providing a 24-hour power supply to the country will be impossible.

Therefore, the government is proposing that individual state governments take over 75 percent of DISCOM debt and

a reduced interest rate for the remaining 25 percent. This is an improvement over the previous government’s

unsuccessful turnaround plan in 2013. If successful, this could remove one of the toughest obstacles that has

plagued the power sector in India for decades.

Between NTPC and the Solar Energy Corporation of India (SECI) there are about 5,500 MW of projects that are due

to be auctioned off over the next few months and we are hoping that some rationalization will kick into the bidding

process. If not, it will continue to be a race to the bottom.




Utility-Scale Solar Projects in India

Operational and Under Development

Nov 2015

Capacity (MW)

In-Operation

Solar PV 4,607

Solar Thermal 209

Total 4,816

Under Development

Solar PV 7,494

Solar Thermal 280

Total 7,774


Policy updates

JNNSM - Phase II Batch 1

700 MW were scheduled to be completed by May 2015 under this batch. We have confirmed that 650 MW have been

commissioned so far. The remaining 50 MW, including 20 MW in the DCR and 30 MW in the Open category, are yet

to be commissioned. According to our sources, a 10 MW project is likely to be cancelled and 30 MW of projects are

expected to be commissioned by the end of November 2015.

JNNSM - Phase II Batch 2 State Specific Bundling Scheme (NTPC)

MNRE has been calling for tenders for Batch 2 for 3,000 MW of PV projects, which will be implemented by NTPC

through open competitive bidding. These projects will be developed in solar parks established by central and state

agencies on land provided by state governments or on land identified by project developers in their respective states.

So far, tenders amounting to 2,750 MW have been announced, and a reverse auction has been completed for a 500

MW Ghani Solar Park. SunEdison won the auction at a tariff of ₹4.63 (~$0.071)/kWh. MNRE has been allocating

these projects to various states who had shown interest in or requested capacity allocation. The states of Haryana,

Punjab and Jammu & Kashmir, which had earlier requested projects, have now backed out; MNRE has been

allocating these projects to other states.

JNNSM - Phase II Batch 3 (SECI)

The SECI, the implementing agency setting up 2,000 MW of grid-connected solar PV power projects under JNNSM

Phase II Batch 3 - “State Specific VGF Scheme” in solar parks, has called for tenders amounting to 1,190 MW.




NTPC has been issuing tenders in batches:

Status of 5,500 MW Solar Tenders - Auctioned/Pending

Location MW Capacity Technical Bid Opening Date Auction/Status Result

JNNSM Phase II Batch 2: NTPC Tenders (State Specific Bundling Scheme)

Ghani Solar Park, Kurnool, Andhra Pradesh 500 Open 10 X 50 MW

July 2, 2015

Extension 1 - Jul 31, 2015

Extension 2 - Sep 10, 2015

Completed

SunEdison won the

auction with a bid

of ₹4.63

(~$0.071)/kWh

Gani-Sakunala Phase-II Solar Park, Kurnool,

Andhra Pradesh 500

DCR 3 X 50 MW

Open 1 X 350 MW

August 3, 2015

Extension 1 - Aug 12, 2015


TBD NA

Bhadla Phase-II Solar Park, Jodhpur, Rajasthan 420 Open 6 X 70 MW

July 29, 2015

Extension 1 - Aug 20, 2015


TBD NA

Rajasthan 230

DCR 10 X 10 MW September 7, 2015

Extension - Sep 28, 2015 TBD NA

Open 13 X 10 MW September 9, 2015

Extension - Sep 30, 2015 TBD NA

Uttar Pradesh 100 Open 10 X 10 MW October 14, 2015 TBD NA

Pavagada Solar Park Projects, Tumkur , Karnataka 600 DCR 2 X 50 MW November 4, 2015 TBD NA

Open 10 X 50 MW November 9, 2015 TBD NA

Telangana 400 DCR 10 X 5 MW December 16, 2015 TBD NA

Open 10 X 35 MW December 10, 2015 TBD NA

JNNSM Phase II Batch 3: SECI Tenders (State Specific VGF Scheme)

Maharashtra, Tranche-I 500

DCR: 50 MW

Open: 450 MW

Min 10 MW each

October 14, 2015

Extension - Nov 18, 2015 TBD NA

Gujarat Solar Park, Charanka, Tranche-II 250

DCR: 1 X 25 MW

Open: 5 X 40 MW,

1 X 25 MW

October 16, 2015

Extension - Nov 24, 2015 TBD NA

UP Solar Park, Tranche-III 440

DCR: 1 X 50 MW

Open: 2 X 50 MW, 1 X

65 MW, 3 X 75 MW

November 18, 2015 TBD NA

NTPC Tenders: (Self-owned and Developed Projects)

Anantpur Phase-I Solar Projects 250 DCR 5 X 50 MW PPA signed

PPA signed with AP

Power Utilities for

₹6.16 (~$0.095)

/kWh

Madhya Pradesh Solar Projects 250 DCR 5 X 50 MW July 30, 2015 TBD NA

Rajasthan Solar Projects 260 DCR 4 X 65 MW August 6, 2015 TBD NA

Anantpur Phase-II Solar Projects 750 Open 6 X 125 MW October 29, 2015 TBD NA

Source: NTPC, MNRE, SECI Mercom Capital Group, llc




5,500 MW Tenders – DCR/Non-DCR

500

350 420

130

100

500

350 450

225

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NTPC - JNNSM PII B2 SECI - JNNSM PII B3 NTPC - Self-owned

DCR Projects

Open Category


Note: Financial Bids have opened for Ghani Solar Park and Anantpur Phase-I Solar Projects

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Other announced Solar Programs –

Ultra Mega Projects in Solar Parks - According to the latest updates, 21 states have so far agreed to set up a total

of 27 solar parks with a combined capacity of 18,418 MW as part of MNRE’s plan to set up individual Solar parks with

capacities of 500 MW and above in order to fulfill the 20,000 MW capacity target within a five–year span beginning in

FY 2014-15.

Status of Solar Parks

No. State Capacity

(MW)

Name of the Solar

Power Park Developer Land Identified at

1 Gujarat 700 GPCL 1,407 hectares, Radhanesda, Vav, District

Banaskantha

2 Andhra Pradesh 1,500 AP Solar Power Corporation, JVC of SECI, APGENCO and

NREDCAP

3,058 hectares NP Kunta of Anantpuramu &

Galiveedu of Kadapa Districts


NREDCAP

1,458 hectares at Kurnool

District


NREDCAP Galiveedu Madal, Kadapa district

5 Uttar Pradesh 600 Lucknow Solar Power Development Corporation, JVC of

UPNEDA and SECI

1,038 hectares at Jalaun, Sonbhadra, Allahabad,

Kanpur & Mirzapur Districts

6 Meghalaya 20 Meghalaya Power Generation Corporation (MePGCL) 27 hectares at West Jaintia Hills & East Jaintia Hills

Districts

7 Rajasthan 680 Rajasthan Solar Park Development Company Ltd. (RSDCL) 1,797.45 hectares Bhadla Phase II, Bhadla

8 Rajasthan 1,000 Surya Urja Company of Rajasthan; a JVC between State Govt.

and IL&FS Energy Development Company

2,000 hectares

Bhadla Phase III, Bhadla

9 Rajasthan 1,000 Surya Urja Company of Rajasthan; a JVC between State Govt.

and IL&FS Energy Development Company

2,000 hectares

Jaisalmer Phase I, Jaisalmer

10 Rajasthan 500 Adani Renewable Energy Park Rajasthan (AREPRL); a JVC of

Government of Rajasthan and APEPRL Bhadla Phase IV, Bhadla, Jodhpur

11 Madhya Pradesh 750 Rewa Ultra Mega Solar Limited; a JVC of SECI and MPUVNL 1,400 hectares at Rewa

12 Madhya Pradesh 2,000 Rewa Ultra Mega Solar Limited; a JVC of SECI and MPUVNL 6,000 hectares at Neemuch, Agar, Mandsaur,

Shajapur, Rajgarh, Chhatarpur and Morena

13 Karnataka 2,000 Karnataka Solar Power Development Corporation (KSPDCL), JVC

of SECI and KREDAL 2,429 hectares at Pavagada taluk Tumkur District

14 Tamil Nadu 500 To be finalized 568 hectare at Ramanathapuram District

15 Telangana 1,000 SECI, Telangana GENCO and Telangana New & Renewable

Energy Development Corporation (TNREDC) 2,189 hectare at Gattu, Mehboob Nagar District

16 Kerala 200 JVC of SECI and KSEB 4,858 hectares at Paivalike, Meenja, Kinanoor,

Kraindalam and Ambalathara villages of Kasargode

17 Uttarakhand 39 UJVN 77.853 hectares at Almora District

18 Arunachal Pradesh 100 Arunachal Pradesh Energy Development Agency (APEDA) 2,700 acres of waste land Digaru Paya region in

Sonpura circle, Tezu Township, Lohit District

19 Nagaland 60 Directorate of New & Renewable Energy, Nagaland Dimapur, Kohima and New Peren Districts

20 A&N Islands 100 NTPC South Andaman

21 West Bengal 500 West Bengal State Electricity Distribution Company East Mednipur, West Mednipur, Bankura

22 Himachal Pradesh 1,000 HP State Electricity Board Spiti Valley of Lahaul & Spiti District

23 Assam 69 JVC of APDCL, APGCL & SECI Amguri in Sibsagar District

24 Maharashtra 500 To be finalized To be finalized

25 Chhattisgarh 500 To be finalized To be finalized

26 Jammu & Kashmir 100 To be finalized To be finalized

27 Odisha 1,000 JVC of GEDCOL & SECI To be finalized

TOTAL: 27 Solar Parks in 21 States with aggregate capacity of 18,418 MW

Source: MNRE Mercom Capital Group, llc




JNNSM - Phase II Batch 5 (New)

Under Batch 5, Central Public Sector Undertakings (CPSUs) and Government of India organizations’ self-use, third-

party sale or merchant sale calls for the development of 1,000 MW of grid-connected solar PV power projects with

mandatory DCR, and VGF over a span of three years from FY 2014-15 to 2016-17.

MNRE approved projects under this scheme in Categories A, B and C based on their stages of development.

Category A: Projects approved and already under development – NTPC – 50 MW and BHEL – 6.5 MW.

Category B: Projects to be approved in the next three months (70 MW) - SECI – 5 MW, Vishakapatnam Port Trust

(VPT) – 10 MW, NHPC – 50 MW and Rashtriya Ispat Nigam Limited (RINL) – 5 MW.

Category C: Projects to be sanctioned which have yet to issue tenders (778 MW) – The list of interested CPSUs

under this category will be officially announced once the tenders are issued.

Solar Projects by Defense Sector

Under this plan, more than 300 MW of grid-connected and off-grid solar PV power projects are proposed to be set up

by Defense Establishments under the Ministry of Defense with mandatory DCR, and VGF in five years between 2014

and 2019.

According to our sources, 160 MW has been approved by MNRE. The Ordinance Factory Board under the Ministry of

Defence is developing 150 MW, and the Border Security Force is currently developing 10 MW.

Grid-Connected Solar PV Power Plants on Canal Banks and Canal Tops

MNRE launched a program for the development of 100 MW of grid-connected solar PV power projects on canal

banks and canal tops. Projects under this scheme are under development in eight different states (50 MW – Canal

Banks and 50 MW – Canal Tops). Only a single 1 MW canal top project in Andhra Pradesh is expected to be

commissioned by the end of 2015.




Other Updates

Solar bids – Race to the bottom

In our previous update, we took a look at the solar tariff declines in terms of average bids over the last 5 years. In this

report we are looking specifically at the lowest bid trends in reverse auctions in lieu of SunEdison’s record low bid of

₹4.63 (~$0.071)/kWh in the recently concluded NTPC auction. Also, the lowest bids reflect the competition and

perception among developers regarding the price they believe that they need to bid in order to win projects. For

example, the perception among developers now is that they cannot win a project unless they breach the ₹4.63

threshold set by the previous auction.

The lowest bids in FY 2015-2016 range from a high of ₹7.29 (~$0.112)/kWh under the Punjab PII C1 auction all the

way down to ₹4.63 (~$0.071)/kWh in the NTPC Auction in Andhra Pradesh, a difference of about 36 percent.

While bid prices are expected to vary under different policies over the years, largely due to the difference in

geography and solar insolation levels, we are seeing a wide spread variation in auction prices within same states. For

example, the lowest bids in Punjab dropped by ~30 percent within 2015-16, while the drop in low bids in

Telangana/Andhra Pradesh was ~20 percent.

In our channel checks, we are not seeing a significant enough drop in component prices to justify a 20-30 percent

drop in bids. If anything, prices are solidifying as the year-end rush is creating a shortage putting upward pressure on

prices. Looking at Chinese module spot price trends in 2015, the price drop is about 8 percent in the first six months

after which it has held steady. A number of factors including the Chinese year-end rush due to a renewed installation

goal, an expected rush in the U.S. in 2016 prior to the expiration of the 30 percent investment tax credit, and

inventory tightening due to a shortage in wafers indicate that prices will hold steady and/or rise slightly over the next

12 months.




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Note: AP Phase II - The range of first-year tariff offered by the successful bidders was Rs.5.25-5.99/kWh with a 3% per annum escalation for the first 10 years, then flat thereafter. The levelised tariff works out to Rs. 6.17/kWh.

Nov 2015

Lowest Bids in Reverse Auctions in India (₹/kWh)

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Module Prices ($/W)

*Data derived from PVinsights, Energy Trend, Digitimes and other public and private sources Mercom Capital Group, llc

Monthly Average Chinese Module Spot Prices




NCEF Funds

There has been no change in NCEF fund allocation over the last three months, according to the data from the

Ministry of Finance.

With financing being one of the biggest challenges for developing renewable projects in India, it is perplexing not to

utilize the NCEF funds which were primarily started to fund renewable projects. Now these funds are being diverted

to other government projects, like river cleaning, due to a policy revision by the current government. We are unsure

about the logic behind taxing the coal industry to clean rivers instead of funding renewable projects.

Ministry-wise NCEF Fund Allocation By Year

Ministry/

Year MNRE

Ministry of Water

Resources, River

Development & Ganga

Rejuvenation

Ministry of

Drinking Water &

Sanitation

Ministry of

Environment &

Forests

Total

₹ in

Crore

US$ in

Million

₹ in

Crore

US$ in

Million

₹ in

Crore

US$ in

Million

₹ in

Crore

US$ in

Million ₹ in Crore US$ in Million

2010-11 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

2011-12 160.80 24.74 0.00 0.00 0.00 0.00 59.95 9.22 220.75 33.96

2012-13 125.78 19.35 0.00 0.00 110.65 17.02 10.00 1.54 246.43 37.91

2013-14 1,218.78 187.50 0.00 0.00 0.00 0.00 0.00 0.00 1,218.78 187.50

2014-15 (RE) 1,978.00 304.31 1,500.00 230.77 110.65 17.02 0.00 0.00 3,588.65 552.10

2015-16 (BE) 2,500.00 384.62 2,100.00 323.08 0.00 0.00 110.00 16.92 4,710.00 724.62

Total 5,983.36 920.52 3,600.00 553.85 221.30 34.05 179.95 27.68 9,984.61 1536.09

Note: Dollar-Rupee conversions were calculated at $1 = ₹65

Source: PIB, MNRE, Ministry of Finance

Mercom Capital Group, llc

We recommend that the government create a ‘reserve backstop fund’ using NCEF funds

against non-payments or delayed payments by DISCOMs which will have an immediate

positive impact, eliminating offtaker risk, reducing interest rates and increasing lending.




DISCOM Turnaround Plan

The government of India recently approved a plan called UDAY (Ujwal DISCOM Assurance Yojana) to turn around

power distribution companies (DISCOMs). This is an improved version of another turnaround plan approved in 2013

which went nowhere.

The financial health of DISCOMs has been a primary hurdle for India to scale its power generation efforts, and is a

major reason behind power shortages and cuts, the lack of power for 300 million people, economic growth, inflation,

high interest rates for project development and a lack of funding in the power sector. This plan will be a game

changer if the States adopt it.

The UDAY plan is designed to achieve these goals through four initiatives –

• Improving operational efficiencies of DISCOMs - compulsory smart metering and upgrading transformers

and meters. Energy efficiency measures like efficient LED bulbs, agricultural pumps, fans and air-

conditioners are forecasted to reduce the average AT&C loss from around 22 percent to 15 percent and

eliminate the gap between Average Revenue Realized (ARR) & Average Cost of Supply (ACS) by 2018-19.

• Reduction in cost of power – through the increased supply of cheaper domestic coal, coal linkage

rationalization, liberal coal swaps from plants with low efficiency to those that are more efficient, coal price

rationalization based on Gross Calorific Value (GCV), supply of washed and crushed coal, and the faster

completion of transmission lines. NTPC alone is expected to save ₹0.35 (~$0.005)/unit through a greater

supply of domestic coal and the rationalization/swapping of coal. These cost savings will be passed on to

DISCOMs/consumers.

• Reduction in interest cost of DISCOMs.

• Enforcing financial discipline on DISCOMs through alignment with State finances - Further provisions to

spread out the financial burden on States over three years, to give States the flexibility to manage the

interest payment on the debt taken over, within their available fiscal space in the initial few years. A

permanent resolution to the problem of DISCOM losses is achieved by States taking over and funding at

least 50 percent of the future losses (if any) of DISCOMs in phases.

Key proposals –

• Reduction in interest cost of DISCOMs – States to take over 75 percent of DISCOM debt as of 30

September 2015 over two years - 50 percent of DISCOM debt to be taken over in 2015-16 and 25 percent in

2016-17. This is estimated to reduce the interest cost on the debt taken over by the States by around 8-9

percent, from as high as 14-15 percent currently.

• Government of India will not include the DISCOM debt taken over by the States in the calculation of the

fiscal deficit of respective States in the financial years 2015-16 and 2016-17.




• DISCOM debt not taken over by the State shall be converted by the Banks/FIs into loans or bonds with

interest rates not more than the bank’s base rate plus 0.1 percent. Alternately, this debt may be fully or

partly issued by the DISCOM as State guaranteed DISCOM bonds at the prevailing market rates which shall

be equal to or less than the bank base rate plus 0.1 percent.

States To Take Over Future Losses of DISCOMs in a Phased Manner

Year 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21

Previous Year’s

DISCOM losses to

be taken over by

States

0% of the loss of

2014-15

0% of the loss of

2015-16

5% of the loss

of 2016-17

10% of the loss

of 2017-18

25% of the loss

of 2018-19

50% of the loss of

2019-20

Source: Ministry of Power

• State DISCOMs have to comply with the Renewable Purchase Obligation (RPO), outstanding since April 1,

2012, within a period to be decided in consultation with the Ministry of Power.

• States accepting UDAY and meeting operational milestones will be given additional priority funding through

various schemes of the Ministry of Power and the Ministry of New and Renewable Energy.

• Adopting States will also be supported with additional coal at notified prices and, in case of availability

through higher capacity utilization, low cost power from NTPC and other Central Public Sector Undertakings

(CPSUs).

• States not meeting operational milestones will be liable to forfeit their claim on IPDS and DDUGJY grants.

The caveat: UDAY is optional for all States.

We have seen over the years that ‘optional’ programs have not worked well in India; take RPOs for example. But

we are hopeful this time will be different and that the incentives are enough for States to move towards

addressing the DISCOM issue now.

WTO Domestic Content Ruling

A World Trade Organization (WTO) panel has ruled against India in a case filed by the United States. The

confidential report declared that India was in violation of the global trade rules with the imposition of domestic content

requirements for solar cells and solar modules under the Jawaharlal Nehru National Solar Mission (JNNSM). India is

expected to appeal against this ruling.




Green Bonds

Green bonds have exploded globally as a way to fund renewable energy and other environment friendly, sustainable

projects, and close to $50 billion (~₹3.25 Lakh Crore) could be issued world-wide this year. Green bonds may end up

being another funding source for projects in India. We have already seen some issued but they are still a very small

piece of the puzzle in India.

Like in most countries, India will need an ‘all of the above’ strategy with a variety of financial instruments to fund

projects since some financial instruments tend to go bust after a period of time depending on market conditions, a

scenario we are currently seeing in the U.S. However, the most important factor will be the health of the Discoms.

Offtaker credit rating is the single most important risk that is quoted to us by investors. If that is not fixed, project

financing of any kind will always be an uphill battle.

India Green Bonds

Issue Date Name Amount

Tenure Yield % ₹ in Crore US$ in Million

Oct-15 EBRD 25 3.85 2.5 Years 5.31

Jul-15 EBRD 110 16.92 3.5 Years 5.85

Jun-15 EBRD 144 22.15 2.5 Years 5.49

Aug-15 IFC 315 48.46 5 Years 6.45

Mar-15 EXIM Bank of India 3,250 500 5 Years 2.75

Feb-15 YES BANK 1,000 153.85 10 years 8.85

Feb-14 IREDA 500 76.92 10, 15, and 20 Years 8.16%, 8.55% and 8.55%





Industry Feedback

These are takeaways from our recent conversations with major developers, manufacturers and investors

Developers

• After long delays by NTPC, we are starting to see some momentum in the market with the latest 500 MW

auction.

• Attractive State Markets – Punjab, Andhra Pradesh, Telangana, Karnataka, Gujarat, Maharashtra.

• Current low bidding is financially unsustainable.

• The NPTC has allowed the bids to drop to ₹4.63 (~$0.071), while they are receiving ₹6.12 (~$0.094) for their

own projects along with AD and cheaper funds.

• Cheaper foreign borrowing is not a magic bullet anymore, as hedging costs are 7-8 percent.

• Solar Parks are very expensive; recent NTPC projects in AP are costing ₹43,00,000 (~$66,154)/MW + O&M

fees of ₹2,00,000 (~$3,077)/MW per year. The same project can be executed privately for less than half of

that cost.

• The Government should focus on facilitating land rather than trying to make money by raising costs for

developers.

• A tariff below ₹5 (~$0.077) is not feasible considering land and other costs. Bids are falling faster than

module prices. Currently there is a premium for modules as supply is low.

• Low bids are a huge threat to the industry.

• Enforcement is weak and projects are delayed for years as developers wait for module costs to drop. There

needs to be strict enforcement and projects need to be cancelled and reassigned if there are delays which

will deter aggressive bids to some extent.

• After RBI rate cuts, lending rates have come down slightly.

• The amount of debt available is based on tariffs with some banks. Example: Tariff >₹6 (~$0.092) for 75

percent debt, ₹5.5 (~$0.085) - 65 percent debt, ₹5 (~$0.077) – 50 percent debt.

• Current domestic interest rates are 11-12 percent based on the offtaker credit rating. For example, interest

rates are higher for projects in Tamil Nadu and Rajasthan while they are lower in Maharashtra and Gujarat.

• Foreign loans are 2-3 percent + 7-8 percent hedging cost.

• IRRs are in the 13-15 percent range.

• Currently facing some evacuation issues in Tamil Nadu and Rajasthan.

• Currently facing payment delays of 30-60 days in some states.

• Best States for timely payments – Gujarat, Andhra Pradesh, Telangana, Punjab, Madhya Pradesh.

• States with payment problems – Tamil Nadu, Rajasthan, Uttar Pradesh.

• It is a great idea to use NCEF funds to ensure payment security.




Manufacturers

• Extremely challenging market with huge pressure on prices.

• At current prices, these new low bids are unsustainable.

• Many delays and huge gaps between auctions are making production planning tight and hurting

manufacturers.

• There is a severe supply/demand mismatch.

• India is experiencing price pressure while ASPs are hardening in the rest of the world.

• Polysilicon and wafer prices have increased by over 15 percent in the last 30 days. There is a wafer

shortage in the market.

• Exports are starting to look up.

• Average selling prices are $0.49-0.55 (~₹32-36)/W. ASP’s for DCR projects are $0.56-0.61 (~₹36-40)/W.

• Net margins are in the 3-5 percent range.

• With the NTPC delays and plunging tariffs, no new manufacturer is willing to add capacity right now.




Investors

• Developers are bidding aggressively based on assumptions that the cost of components will continue to fall

no matter what.

• There is a concern that DISCOMs and the government will start thinking that they have over paid for other

PPAs after the latest ₹4.63 (~$0.071) bid.

• We will be very focused on the quality of components and projects as tier 1 modules are sold out and only

low quality panels are available.

• Offtaker risk is still the same even at these low tariff levels.

• DISCOMs are deferring payments for solar projects as they are small and cannot shut down production.

They don’t take such risks with coal plants because they are big and the impact of a plant shutting down is

huge.

• India is unprepared to meet a huge solar installation target when it comes to transmission infrastructure, grid

upgrades, forecasting, decentralized development and cost calculation.

• Solar projects are concentrated in only a few states due to the financial health of DISCOMs.

• Tariffs depend on capital costs, but anything below ₹5 (~$0.077) is risky with no margin for error.

• Though tariffs are important, the focus is on debt service coverage ratio, which should be 1.3-1.4 for a 15

year tenure.

• Interest rates have been reduced by 20-35 bps after the RBI rate cut and could go lower.

• It is true that renewable energy is still part of the larger power/infrastructure funding basket but since

financial institutions have not been lending to conventional power projects in the last few years, there are

plenty of funds available to lend to renewable projects.

• IRRs from projects financed are about 13-15 percent levered.

• Current lending rates are 11-12 percent with some large lenders lending at 10.5 percent in special cases.

Tenures are increasing to cover 80 percent of the PPA period.

• So far there have been no issues with capacity factors.

• Three month payment delays are being factored into the financial assumptions.

• Payment delays are occurring in Tamil Nadu, Uttar Pradesh, Maharashtra and Rajasthan.

• JNNSM projects can get a 0.25 percent discount in interest rates and DISCOMs with bad credit ratings can

add 1 percent to the interest rate.

• Credit rating reports like the recent ICRA/CARE report are inconsequential. Almost all banks have their own

internal credit analysis teams.

• Government auction delays are a negative and create uncertainty. More effort is spent on announcements

than actually executing and following a strict timeline.




STATE PROGRAM UPDATES

Uttar Pradesh: Currently, three different batches of projects totaling more than 500 MW are in various stages of

development in the state.

1. Uttar Pradesh signed PPAs for 130 MW of PV projects in December 2013, of which 40 MW have been

cancelled and 90 MW are currently in operation.

2. A Request for Proposal (RFP) to set up 300 MW of solar PV projects through reverse auction was

announced in August 2014. PPAs were signed for 105 MW of projects in April 2015 with tariffs ranging

between ₹8.93-9.27 (~$0.129-0.143)/kWh. Projects under 20 MW in size are expected to be commissioned

in 13 months; projects above 20 MW are expected to be commissioned in 18 months.

3. Another Request for Proposal (RFP) to set up 215 MW of solar PV projects was announced in June of this

year. The letter of intent (LoI) was announced in September 2015; PPAs are expected to be signed this

month. Projects under 20 MW are expected to be commissioned in 13 months and projects above 20 MW

are expected to be commissioned in 18 months.

Andhra Pradesh: About 750 MW of Solar projects are being developed under two different programs in Andhra

Pradesh.

1. Developers were allowed to build solar projects in the state at a fixed tariff of ₹6.49 (~$0.099)/kWh under the

first program in 2013; 140 MW of these projects are still under development. About 59 MW has been

commissioned to date and 65 MW is expected to be commissioned by March 2016. Another 2 MW project is

expected to be commissioned by the end of 2015. The status of the remaining 11 MW is undetermined as

the developers have been unavailable for comment.

2. Andhra Pradesh DISCOMs have signed PPAs to develop 619 MW of solar projects with a first-year tariff of

₹5.25 (~$0.081)/kWh at an annual escalation of three percent for 10 years. They are expected to be

commissioned by April 2016.




Punjab: In Punjab, more than 1,000 MW of PV projects are in various stages of development.

Phase I – About 195 MW of solar projects have been commissioned to date as part of the 250 MW phase I program.

Phase II – A LoI has been signed to develop 282 MW of large-scale solar projects this year, and another 53 MW of

rooftop projects are expected to be commissioned by the end of 2016.

In another program, RfPs for 500 MW of projects were announced in June. Five developers won the bids with tariffs

ranging from ₹5.09-5.98 (~$0.078-0.092)/kWh; PPAs are yet to be signed.

Kerala: 11 MW of rooftop solar projects have been commissioned this year with another 1 MW expected to be

commissioned by the end of 2015.

Madhya Pradesh: There are 260 MW of solar projects installed under Madhya Pradesh’s state policy (200 MW –

RPO and 60 MW – Phase II). Another 60 MW of projects under Phase II are expected to be commissioned by early

2016.

Haryana: A tender inviting bids for 50 MW of solar PV projects was issued by the utility Uttar Haryana Bijli Vitran

Nigam (UHBVN) in May of 2014 but PPAs were signed for only 23 MW.

Haryana Power Purchase Centre on behalf of UHBVN and Dakshin Haryana Bijli Vitran Nigam (DHBVN) invited

tender for 150 MW of solar projects with the deadline for opening financial bids extended until the end of November

2015.

Maharashtra: The state recently announced a renewable enery policy through which they expect to develop 7,500

MW of solar power by 2020. New bids are expected to be invited only in 2016.

5.0

9

5.2

7

5.5

7

5.6

2

5.6

3

5.6

4

5.8

0

5.9

5

5.9

7

5.9

8

4.6

4.8

5.0

5.2

5.4

5.6

5.8

6.0

6.2

0

10

20

30

40

50

60

Photon Photon Photon Azure

Power

Azure

Power

Azure

Power

Prayanta Prayanta Mytrah Hindustan

Clean

Energy

MW ₹/kWh


Avg Bid - ₹5.65/kWh

Punjab Auction Winning Bids




Chhattisgarh: Chhattisgarh State Power Distribution Company Limited (CSPDCL) announced bid results for 100

MW of solar projects in early 2014. We have confirmed only 66 MW of projects that have signed PPAs as of Nov

2015. Of the 66 MW, 32 MW are commissioned and 34 MW are expected to be commissioned by March 2016.

Karnataka: More than 1,300 MW of solar projects have been announced so far by the state.

Batch I. PV projects totaling 40 MW have been commissioned to date; 20 MW are likely to be cancelled. A 10 MW

Concentrated Solar Power (CSP) project under Batch I is expected to be commissioned at the end of 2016.

Batch II. PPAs were signed to develop 120 MW of solar projects in early 2014. Of this, 59 MW has been

commissioned and 10 MW have been cancelled. Projects totaling 30 MW are expected to be commissioned by the

end of November 2015 and a 3 MW project is due to be commissioned by January 2016. We have confirmation that a

10 MW project was abandoned and another 10 MW project has filed a petition for a tariff revision. The status of

another 8 MW is unavailable.

Batch III. Under this batch, PPAs were signed for projects totaling 50 MW; a 10 MW project has been commissioned

and the remainder is expected to be completed in 2016.

Batch IV. Karnataka Renewable Energy Development Ltd. (KREDL) signed PPAs for 500 MW in early 2015. They

are expected to be commissioned by the end of 2016.

Karnataka announced 600 MW of projects to be developed especially by farmers and unemployed youth. Under this

scheme, the state allotted solar energy projects of 258 MW to farmers and signed PPAs in July 2015 for a tariff of

₹8.40 (~$0.129)/kWh. The projects are expected to be commissioned within 18 months. Another 300 MW is expected

to be announced for allotment to unemployed youth.

The government of Karnataka has announced the exemption of Value-added-Tax (VAT) with immediate effect on the

tax payable by a dealer under the Karnataka Value Added Tax act, 2003 on the sale of solar panels and solar

inverters.

Telangana: 515 MW were auctioned off in March 2015 through reverse bidding; of this, a 25 MW project has been

commissioned and the remaining projects are expected to be commissioned in the first half of 2016.

The Southern Power Distribution Company of Telangana (TSSPDCL) invited 2,000 MW of solar bids on a 'Build-Own-

Operate' basis in April 2015. The LoI was expected to be issued in August 2015 but there is a delay due to technical

issues regarding transmission.




Bihar: 100 MW of solar projects are expected to be commissioned by the second half of 2016. Project financing is

difficult in Bihar due to offtaker risk.

Tamil Nadu: According to our sources, Tamil Nadu Generation and Distribution Corporation (Tangedco), the state

utility, was to develop projects of more than 2,000 MW for a tariff of ₹7.01 (~$0.108)/kWh with the projects expected

to be commissioned by March 2016. The PPAs were supposed to be signed on the basis of a priority list but we were

informed that the state is overriding this priority list and signing the PPAs randomly. This action has caused enormous

concern among the developers who have already started work on the projects because they would not be eligible to

receive the attractive ₹7.01 (~$0.108)/kWh tariff after March 2016. It has also been reported that one project

developer is opposing this issue legally.

Delhi: Delhi recently released a draft solar policy with the aim to generate 1,000 MW of solar over five years and

2,000 MW by 2025.

0 100 200 300 400 500 600 700 800 900 1,000 1,100 1,200 1,300 1,400

Arunachal Pradesh

Tripura

Chandigarh

Uttarakhand

Goa & UT

West Bengal

Kerala

New Delhi

Jharkhand

Haryana

Chhattisgarh

Odisha

Telangana

Uttar Pradesh

Karnataka

Punjab

Tamil Nadu

Andhra Pradesh

Maharashtra

Madhya Pradesh

Gujarat

Rajasthan

PV

Thermal


Cumulative Solar Installation

4,816 MW

India Solar Installations (MW) By Location (Nov 2015)




Uttarakhand: Uttarakhand Renewable Energy Development Agency (UREDA) issued an RfP on Oct 03, 2015 to

develop solar projects. The list of selected bidders was announced to set up 181.4 MW of solar projects. The lowest

tariff was ₹5.57 (~$0.086)/kWh and highest ₹5.99 (~$0.092)/kWh.

Note: Dollar-Rupee conversions were calculated at $1 = ₹65

Uttarakhand Auction Winning Bids

5.5

7

5.5

8

5.5

8

5.6

0

5.6

3

5.6

4 5.6

7

5.6

7

5.6

9 5.7

4

5.7

5 5.7

8

5.7

8

5.7

9 5.8

2

5.8

4

5.9

1

5.9

3

5.9

5

5.9

7

5.9

8

5.9

9

5.9

9

5.3

5.4

5.5

5.6

5.7

5.8

5.9

6.0

6.1

0

5

10

15

20

25

MW ₹/kWh


Avg Bid - ₹5.78/kWh




About Mercom Capital Group

Mercom Capital Group, llc, is a global communications and consulting firm focused on Cleantech, Healthcare IT and

financial communications. Mercom’s consulting division advises companies on new market entry, overall strategic

decision-making, and provides custom market research. Mercom delivers highly respected industry market

intelligence reports covering Solar Energy, Wind Energy, Smart Grid and Healthcare IT. Our reports provide timely

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visit: http://www.mercomcapital.com.




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