Mercom Capital Group India Solar Market Update

Transcription

1 India Solar Quarterly Market Update Too Much Too Fast? Falling Tariffs Causing Concern in The Indian Solar Market May 2016 KEY FINDINGS Mercom forecasts approximately 5 GW of solar installations in India for CY 2016 With 2.2 GW installed to date; cumulative installations have surged to 7.5 GW as of May 2016 Solar energy now represents 2.5% of total installed power capacity in India, up from 1.4% a year ago - and was the fastest growing new renewable energy source The solar development pipeline now stands at 22 GW with over 13 GW under construction Module prices have declined slightly over the last three months Currently, 19 developers have bid below 5 (~$0.0735) for 2.9 GW worth of solar capacity across 46 projects. About 1.2 GW of these projects have signed PPAs Low bids through reverse auctions continue to be a major issue List of Charts/Tables India Solar Installations (MW) Utility-Scale Solar Projects in India... 3 India Solar Policy Map Domestic Interest Rates for Solar Project Financing (%) All India Cumulative Solar Installations By Policy Type (MW).. 6 India Solar Project Pipeline (MW).. 6 JNNSM Phase II, Batch 2 Tenders/Auction Results... 8 JNNSM Phase II, Batch 3 Tenders/Auction Results... 9 JNNSM Phase II, Batch 4 Tenders/Auction Results Details of Funds Sanctioned Under Solar Park Program Indian Module ASP Developers Bidding for Solar Projects Below Solar Bids in Reverse Auctions in India ( /kwh) Clean Energy Cess Fund Status Ministry-wise NCEF Fund Allocation by Year Developers Over 1% Market Share of Operating Projects in India Developers Account for ~71% of the Project Pipeline in India India Installed Power Capacity Mix (%) Karnataka List of LoAs Issued Jharkhand List of LoAs Issued India Solar Installations (MW) By Location (May 2016) Mercom Capital Group, llc. ALL RIGHTS RESERVED. I I solar@mercomcapital.com I Page 1

2 Cumulative solar installations in India crossed 7.5 GW as of May 2016 with about 2.2 GW already installed so far this year, more than all of the solar installations in India s solar project pipeline has now surpassed 22 GW with ~13 GW under construction and ~9 GW in the Request for Proposal (RfP) process. We are projecting solar installations in India to total approximately 5 GW for calendar year India Solar Installations (MW) May ,000 Annual Solar Installations 60,000 Annual Installations (MW) 10,000 8,000 6,000 4,000 Cumulative Solar Installations 5,068 9,015 9,040 9,500 10,000 50,000 40,000 30,000 20,000 Cumulative Installations (MW) 2, , , F 2017F 2018F 2019F 2020F 10,000 0 Data derived from MNRE, Mercom Project Tracker & Public Sources Source: Mercom Capital Group The Indian solar market is growing in size but many challenges remain, and the industry is asking: is it too much too fast? Focusing on the positives first, the solar market clearly is much larger than ever before with over 22 GW in various stages of development. The NDA government has shown a strong commitment towards solar and is working hard to achieve its goal of 100 GW by 2022 it has to be commended for getting the market moving as witnessed with the growing numbers of reverse auctions. However, there are several challenges on the ground that need to be addressed for sector to move from 2 GW a year to a 10 GW a year market. Low bidding levels through reverse auctions have been a major issue. We reported in our previous update that most banks are unwilling to lend to projects below a 5 (~$0.0735)/kWh tariff. Since then, this subject has been discussed widely, but the fact still remains that reverse auctions are driving bids to unsustainably low levels and lenders are shying away from these risky projects. Developers are relying on optimistic assumptions to justify low bids but, unless banks can be convinced that these assumptions are realistic, financing will continue to be an issue. Government agencies are trying to meet installation goals as mandated, but it does not look like they have the processes and infrastructure in place yet to do so. The auction process is constantly delayed, causing developers grief; evacuation delays are costing developers; land acquisitions have long been an issue and may get worse; there is a lot of hype around solar parks, but most are not completely developed; DISCOM finances are still a mess; banks 2016 Mercom Capital Group, llc. ALL RIGHTS RESERVED. I I solar@mercomcapital.com I Page 2

3 saddled with non-performing assets (bad loans) are risk averse; and, several large developers are currently in the market looking for buyers for their project pipelines due to these tough conditions. Utility-Scale Solar Projects in India Operational and Under Development May 2016 Capacity (MW) In-Operation Solar PV 7,324.5 Solar Thermal Total 7,533 Under Development Solar PV 13,512 Solar Thermal 280 Total 13,792 Source: Mercom Capital Group Another issue, which has been there since the beginning of India s solar policy history, is the lack of technical qualification requirements. The bar is very low when it comes to required competency and experience building solar projects as long as you show the required finances and make the necessary deposits. There is a lack of incentives for top performers and disincentives for companies that don t execute. It is difficult to imagine inexperienced developers, having the technical knowledge to factor in all the variables necessary to bid in a rational manner (though this can also apply to pure-play developers). Currently, there is a perception in the market that all of the risks have been dumped on the developers. While developers go through a cumbersome regulatory regime to build a project, they don t feel that the government has done its part to make things efficient. A common theme is the hefty fines developers have to pay if they are delayed on any of the multitude of steps in the project development process, but if the delays occur on the government side the risk still falls on the developer. There is a urgent need for Government agencies to be held accountable for timely execution. To address these issues MNRE recently invited comments by stakeholders on "Draft Guidelines for Tariff Based Competitive Bidding Process for Grid Connected Solar PV Power Projects". Some of the issues that need to be addressed are: Delays Some government agencies are overwhelmed and frequent delays are common which puts unnecessary pressure on developers. On Time Payments There is no mechanism to ensure timely payments which would bring down borrowing costs and reduce risks. A billion dollar fund out of coal cess collections could act as a reserve backstop against non-payments. Evacuation Delays should not become a risk to the developer and should be compensated. Payment for grid unavailability should be compensated for instead of deferring it. Less hype, more execution many solar parks are not complete; parks need to be 100 percent complete before the projects are auctioned and costs to develop in these parks must be priced competitively; the initial goal of governments for solar parks was to simplify project development, not make a profit. Many developers feel that solar parks are actually increasing the cost of projects as park fees are quite high compared to what the developers get in return Mercom Capital Group, llc. ALL RIGHTS RESERVED. I I solar@mercomcapital.com I Page 3

4 Phase I India Solar Policy Map Batch 1 620MW (270 MW CSP pending) Batch MW (In Operation) Phase II Batch MW (20 MW pending) Batch 2 -Tranche I 3,000 MW (Tender/Auction) Batch 3-2,000 MW (Tender/Auction) 2,785 MW Batch 4-5,000 MW (Tender/Auction) 1,900 MW Batch 5-1,000 MW (CPSU) Batch 6-50MW (High Visibility Areas) 500 MW Ghani Solar Park (AP) - Auctioned 500 MW Maharashtra Solar Projects TI - Auctioned 250MW Gujarat Solar Park TI (Gujarat))- Tendered Approved 17 CPSUsunder seven different Ministries 2 MW West Godavari Solar Projects (AP) - Tendered 500 MW Gani Sakunala Solar Park (AP) - Auctioned 250 MW Gujarat Solar Park TII (Gujarat) - Shifted to Batch 4 500MW Odisha Solar Projects (Odisha) - Tendered 420 MW Bhadla PII Solar Park (Rajasthan) - Auctioned 440 MW UP Solar Park TIII (UP) MW Auctioned 315 MW Retendered 500 MW Maharashtra Solar Projects (Maharashtra) -Yet to Announce 100 MW UP Solar Projects (UP)- Auctioned 500 MW Ananthapuram Solar Park TIV (AP) -Tendered (400 MW Open - Auctioned) 650 MW Andhra Pradesh Solar Park (AP) -Yet to Announce 230 MW Rajasthan Solar Projects 1,000MW Karnataka Solar Others (Rajasthan) -Tendered (100 MW Projects TV (Karnataka) - DCR - Auctioned) Tendered 600 MW Pavagada Solar Park (Karnataka)- Tendered (500 MW Open - Auctioned) 100 MW Chhattisgarh Solar Projects TVI (Chhattisgarh) - Tendered Solar Parks -20 GW Defence Establishments 300 MW Canal Solar Projects 100 MW SECI - EPC Solar Projects 2,000 MW NTPC Self Owned Projects -10 GW 400 MW Telangana Solar Projects (Telangana)- Auctioned 160 MW Uttar Pradesh (Non- Solar Park) (UP)- Tendered MNRE Approved 33 Solar Parks in 21 Stateswith 19.9 GW 250MW Ananthapuram PI Solar Projects (AP) -50 MW Under Construction 250 MW Kadapa Solar Park (AP) - 50 MW Himachal Pradesh (Non- 260 MW Rajasthan Solar Tendered Solar Park) (HP) - Tendered Projects -Rajasthan (Auctioned) 35 MW Puducherry (Non-Solar 250MW Madhya Pradesh Park) (Puducherry) - Tendered Solar Projects (MP) - Auctioned 750 MW Ananthapuram PII Solar Projects (AP) - Tendered Source: Mercom Capital Group (May 2016) 1,000 MW Pavagada Solar Park (Karnataka) Tendered 2016 Mercom Capital Group, llc. ALL RIGHTS RESERVED. I I solar@mercomcapital.com I Page 4

5 A Challenging Banking Environment The Indian banking sector is going through some challenging times, which could make borrowing much more difficult in the short-term. According to Reserve Bank of India (RBI) data, bank loans worth 7 lakh crore (~$103 billion) were under stress as of the end of Bank lending, on the other hand, grew to its lowest level in five months with only 9.2% year-over-year growth. In this tough atmosphere, banks are very hesitant to take on any debt that is considered risky, especially with the low bids we are seeing in solar. There is no set rule which suggests tariffs below 5 (~$0.0735) cannot be financed, some banks are seriously looking at projects in the (~$ ) tariff range, but it depends on the developer's ability to service debt, sound project economics, borrower credibility and having a corporate parent with a strong balance sheet is always a big plus. Domestic Interest Rates for Solar Project Financing (%) Highest Average Lowest Q2'15 Q3'15 Q4'15 Q1'16 Q2'16 Source: Mercom Capital Group Policy Updates JNNSM - Phase II Batch 1 (SECI) Seven-hundred MW of solar projects were scheduled to be completed by May 2015 under this batch. We have confirmation that, so far, 680 MW have been commissioned Mercom Capital Group, llc. ALL RIGHTS RESERVED. I I solar@mercomcapital.com I Page 5

6 All India Cumulative Solar Installations By Policy Type (MW) 1,100 1,056 1,034 1, Cumulative Solar Installations 7,533 MW Source: Mercom Capital Group (May 2016) India Solar Project Pipeline (MW) 3,000 2,500 2,000 Total Pipeline ~22 GW Projects To Be Auctioned (~9 GW) Projects Under Development (~13 GW) 1,500 1, Source: Mercom Capital Group (May 2016) 2016 Mercom Capital Group, llc. ALL RIGHTS RESERVED. I I solar@mercomcapital.com I Page 6

7 JNNSM - Phase II Batch 2 State Specific Bundling Scheme (NTPC) The MNRE has called for tenders under Batch 2 for all 3,000 MW of PV projects targeted under this scheme, implemented by the National Thermal Power Corporation (NTPC) through open competitive bidding. The Ministry has been spreading these projects among various states including Andhra Pradesh, Karnataka, Rajasthan, Telangana and Uttar Pradesh. The auction results for 2,520 MW (1,000 MW in Andhra Pradesh, 520 MW in Rajasthan, 500 MW in Karnataka, 400 MW in Telangana and 100 MW in Uttar Pradesh) have been announced. Of the 2,520 MW, only 300 MW are under the Domestic Content Requirement (DCR) category. We have confirmation that PPAs have been signed for 1,330 MW to date and these projects are expected to be commissioned in early Mercom Capital Group, llc. ALL RIGHTS RESERVED. I I solar@mercomcapital.com I Page 7

8 JNNSM Phase II, Batch 2 Tenders/Auction Results JNNSM Phase-II, Batch-2, Tranche-I NTPC 3,000 MW under State Specific Bundling Scheme Jan MW Bhadla Phase II Solar Park Jodhpur, Rajasthan Open Category [70 MW x 6 Projects] Fortum (70 Rising Sun (140 Solairedirect (140 RattanIndia (70 Jan MW Uttar Pradesh (Non-Solar Park) Uttar Pradesh Open Category [10 MW x 10 Projects] Adani (50 Azure ( MW Rajasthan (Non-Solar Park) Rajasthan Open Category [10 MW x 13 Projects] Results Pending DCR Category [10 MW x 10 Projects] Janardan Wind (20 Suzlon (60 Maharashtra Seamless (20 Mar 2016 Apr MW Telangana (Non-Solar Park) Telangana Open Category [10 MW x 35 Projects] ReNew Power (100 Karvy (50 Azure (100 Adani (50 ACME (50 DCR Category [10 MW x 5 Projects] Adani (50 May MW Pavagada Solar Park Tumkur, Karnataka Open Category [50 MW x 10 Projects] RattanIndia (50 Adani (100 Fortum (100 ACME (100 Tata Power (100 ReNew Power (50 DCR Category [50 MW x 2 Projects] Results Pending 500 MW Ghani Solar Park Kurnool, Andhra Pradesh Open Category [50 MW x 10 Projects] SunEdison ( MW Ghani -Sakunala Phase II Solar Park Kurnool, Andhra Pradesh Open Category [350 MW x 1 Project] SBG Cleantech (350 DCR Category [50 MW x 3 Projects] Azure (100 Adani (50 Dec 2015 Nov MW Kadapa Ultra Mega Solar Park Kadapa, Andhra Pradesh Open Category Source: Mercom Capital Group (May 2016) 2016 Mercom Capital Group, llc. ALL RIGHTS RESERVED. I I solar@mercomcapital.com I Page 8

9 JNNSM - Phase II Batch 3 (SECI) The Solar Energy Corporation of India (SECI) has called for tenders amounting to 2,785 MW under JNNSM Phase II Batch 3, State Specific VGF Scheme. Auction results for 1,025 MW of projects to be developed in Andhra Pradesh, Maharashtra and Uttar Pradesh have been announced. JNNSM Phase-II, Batch-3 SECI - 2,000 MW under VGF Scheme JNNSM Phase II, Batch 3 Tenders/Auction Results 50 MW Himachal Pradesh (Non-Solar Park), Tranche-VIII, Himachal Pradesh Open Category [10 MW x 5 Projects] Mar MW UP Solar Park, Tranche-III Uttar Pradesh Open Category Bid Results for 125 MW Solairedirect (75 MW) Rs Lakh/MW/@Rs.4.43 RattanIndia (50 MW) Rs Lakh/MW/@Rs MW Retendered Open Category [265 MW] DCR Category [50 MW] 250 MW Gujarat Solar Park Projects, Tranche-II Charanka, Gujarat Shifted to Batch MW Uttar Pradesh (Non-Solar Park), Tranche-VII Uttar Pradesh Open Category [10 MW x 16 Projects] 100 MW Chhattisgarh Solar Projects, Tranche-VI Chhattisgarh Open Category [10 MW x 10 Projects] Jan ,000 MW Karnataka Solar Projects, Tranche-V Karnataka Open Category [10 MW x 95 Projects] DCR Category [10 MW x 5 Projects] 500 MW Maharashtra Solar Projects, Tranche-I Maharashtra Open Category [10 MW x 45 Projects] Bhageria Industries (30 MW) (VGF-0)@Rs.4.41 Talettutayi Solar (50 MW) Rs.46 Lakh/MW/@Rs.4.43 Orange Renewable (100 MW) Rs.47.7 Lakh/MW/@Rs.4.43 Sepset Constructions (40 MW) Rs.48.9 Lakh/MW/@Rs.4.43 Krishna Windfarm Developers (10 MW) Rs.53.5 Lakh/MW/@Rs.4.43 AMPL Cleantech (50 MW) Rs.53.7 Lakh/MW/@Rs.4.43 Welspun Renewables (100 MW) Rs.53.7 Lakh/MW/@Rs.4.43 Suzlon (70 MW) Rs.54 Lakh/MW/@Rs.4.43 DCR Category [10 MW x 5 Projects] Tata Power (30 MW) Rs.65 Lakh/MW/@Rs.4.43 Apr 2016 Adani (20 MW) Rs.1 Crore/MW/@Rs MW Puducherry (Non-Solar Park), Tranche-IX, Puducherry Open Category [5 MW x 7 Projects] 500 MW Ananthapuram Solar Park, Tranche-IV Andhra Pradesh Open Category [50 MW x 8 Projects] FRV Solar (100 MW) Rs.44.5 Lakh/MW/@Rs.4.43 ACME (150 MW) Rs.55 Lakh/MW/@Rs.4.43 Tata Power (100 MW) Rs.73.9 Lakh/MW/@Rs.4.43 Azure (50 MW) Rs Lakh/MW/@Rs.4.43 DCR Category [50 MW x 2 Projects] May 2016 Source: Mercom Capital Group (May 2016) 2016 Mercom Capital Group, llc. ALL RIGHTS RESERVED. I I solar@mercomcapital.com I Page 9

10 JNNSM - Phase II Batch 4 (SECI) Under this program, 5,000 MW of grid-connected solar PV projects with Viability Gap Funding (VGF) benefits will be developed on a build-own-operate basis. The final guidelines for this batch were announced by MNRE in March. A tender for 250 MW of projects to be developed in Gujarat under this scheme were announced. A new tender for 500 MW of projects in Odisha were announced recently. Tenders for another 1,150 MW are expected to be issued soon. JNNSM Phase-II, Batch 4 Tenders/Auction Results SECI - 5,000 MW under VGF Scheme Solar Park/Projects Location/State Total MW MW Category Capacity Breakdown Gujarat Solar Park Projects, Tranche-I (Shifted from Batch 3) Charanka, Gujarat 225 Open Maharashtra Solar Projects Maharashtra 500 to be tendered shortly Andhra Pradesh Solar Park Andhra Pradesh 650 to be tendered shortly 250 Odisha Solar Projects, Tranche-II Odisha 500 Source: Mercom Capital Group 40 MW x 5 Projects 25 MW x 1 Project 25 DCR 25 MW x 1 Project 450 Open 10 MW x 45 Projects 50 DCR 10 MW x 5 Projects JNNSM - Phase II Batch 5 - (SECI CPSU) Under Batch 5, there is a target to set up 1,000 MW of grid-connected solar PV power projects by the Central Public Sector Undertakings (CPSUs) and Government of India organizations self-use or third-party sale or merchant sale, with VGF over a span of three years from FY to , DCR will be mandatory. MNRE has sanctioned the entire 1,000 MW of projects to be developed by 17 CPSUs under 7 different ministries. Of the total 1,000 MW, a 200 MW project developed by NTPC is commissioned and another 50 MW worth is expected to be commissioned by October The remaining projects to be developed by other PSUs including Coal India, BHEL, GAIL and SECI are all expected to be commissioned in In the next phase, there is a proposed target to set up 5,000 MW of grid-connected solar PV power projects by the CPSUs. This proposal is awaiting cabinet approval and is expected to be announced in a month or two Mercom Capital Group, llc. ALL RIGHTS RESERVED. I I solar@mercomcapital.com I Page 10

11 Other Announced Solar Programs Solar Projects by Defense Sector Under this plan, grid-connected and off-grid solar PV power projects were proposed to be set up by Defense Establishments under the Ministry of Defense with VGF over a span of five years, from DCR will be mandatory. According to our sources, 340 MW have been approved by MNRE. The Ordnance Factory Board is developing 100 MW, Bharat Electronics Ltd. (BEL) 50 MW, Bharat Dynamics Ltd. (BDL) 25 MW, Hindustan Aeronautics Ltd. (HAL) 15 MW and the Department of Defense is developing 150 MW, 10 MW of which is being developed by the Border Security Force (BSF). Auction results for 7 MW to be developed by the Ordnance Factory Board in the state of Maharashtra were announced in March Grid-Connected Solar PV Power Projects on Canal Banks and Canal Tops The 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). According to sources, 49 MW of these projects are expected to be commissioned this year (10 MW in West Bengal, 25 MW in Gujarat, 6 MW in Andhra Pradesh, 3 MW in Kerala, and 5 MW in Punjab). Another 26 MW are expected to be commissioned in Mercom Capital Group, llc. ALL RIGHTS RESERVED. I I solar@mercomcapital.com I Page 11

12 Ultra Mega Projects in Solar Parks MNRE has approved 33 solar parks with a total capacity of 20,000 MW to be set up in 21 states; approximately crore (~$79.4 million) has been approved for this purpose including SECI's fund handling charges of 4.60 crore (~$0.7 million). Details of Funds Sanctioned Under Solar Park Program Sl. No. State Name of the Solar Park Capacity (MW) Name of the Implementing Agency Grand Total ( in Million) (~$M) 1 Andhra Pradesh Ananthapuramu Solar Park 1500 AP Solar Power Corporation Pvt. Ltd Andhra Pradesh Kurnool Solar Park 1000 AP Solar Power Corporation Pvt. Ltd Arunachal Pradesh Solar Park in Tezu, Lohit District Chhattisgarh Solar Park in Rajnandgaon, Janjgir Champa districts 500 Arunachal Pradesh Energy Development Agency Chhattisgarh Renewable Energy Development Agency Gujarat Radhnesada Solar Park 700 Gujarat Power Corporation Limited Haryana 7 Himachal Pradesh Solar Park in Hisar, Bhiwani and Mahindergarh districts Solar Park in Spiti Valley of Lahaul & Spiti District 8 Karnataka Pavagada Solar Park Kerala Kasargode Solar park Saur Urja Nigam Haryana Ltd (Sun Haryana) HP State Electricity Board Limited Karnataka Solar Power Development Corporation Renewable Power Corporation of Kerala Limited Madhya Pradesh Rewa Ultra Mega Solar park 750 Rewa Ultra Mega Solar Limited Madhya Pradesh Neemuch-Agar-Mandsaur Solar Park 1000 Rewa Ultra Mega Solar Limited Maharashtra 13 Maharashtra 14 Maharashtra 15 Meghalaya 16 Nagaland Solar Park in Sakri, Dhule district of Maharashtra Solar Park in Dondaicha, district Dhule, Maharashtra Solar Park in Taluka Patoda, district Beed, Maharashtra Solar park in West Jaintia Hills & East Jaintia Hills districts Solar park in Dimapur, Kohima and New Peren districts 17 Rajasthan Bhadla Phase-II Solar Park M/s Pragat Akshay Urja Ltd M/s K. P. Power Pvt. Ltd Maharashtra State Electricity Generating Company Ltd Meghalaya Power Generation Corporation Ltd Directorate of New & Renewable Energy, Nagaland Rajasthan Solar Park Development Company Ltd Rajasthan Bhadla Phase-III Solar Park 1000 Surya Urja Company of Rajasthan Ltd Rajasthan Bhadla Phase-IV Solar Park Rajasthan Fatehgarh Phase-1B Solar Park Rajasthan Phalodi-Pokaran Solar Park Telangana Gattu Solar Park Uttar Pradesh 24 Uttarakhand 25 West Bengal Solar park in Jalaun, Allahabad, Mirzapur and Kanpur Dehat districts Solar park in Sitarganj and kashipur Industrial Area Solar park in East Mednipur, West Mednipur, Bankura M/s Adani Renewable Energy Park Rajasthan Limited M/s Adani Renewable Energy Park Rajasthan Limited M/s Essel Saurya Urja Company of Rajasthan Limited Telangana New & Renewable Energy Development Corporation Ltd. Lucknow Solar Power Development Corporation Limited State Industrial Development Corporation Uttarakhand Limited West Bengal State Electricity Distribution Company Limited Fund Handling charges to SECI Source: MNRE Total Mercom Capital Group 2016 Mercom Capital Group, llc. ALL RIGHTS RESERVED. I I solar@mercomcapital.com I Page 12

13 Other Updates Solar Bids Time to Move Past 5 (~$0.0735) Aggressive bidding in reverse auctions is a challenge, especially at a time when banks are dealing with nonperforming assets (NPA) and are very risk averse. Banks are open to considering projects with a tariff of 5 (~$0.0735) and below, if they are convinced that the numbers work and the developer has the experience, skills and resources to execute them (see investor section). Developers are split as to whether a project can be built at a tariff below 5 (~$0.0735). Some developers are assuming project costs of 5 crores (~$0.7 million) or below in some cases, while banks are not convinced that is possible. The feeling among lenders is that at these low tariff levels, the margin for error is razor thin in a market where unpredictability is common and there is a fear of ending up with nonperforming assets. We are finding that there is a disconnect between the project cost assumptions of developers (optimistic) and the conservative estimates of financial institutions. Banks need to get deeper in the trenches and improve due diligence in order to narrow the assumption gap. On the other hand, developers will need to sell their optimistic assumptions to the banks in a way that is transparent in order to make lenders comfortable. Module prices have declined slightly over the last three months. With the module costs accounting for about 60% of project costs, the market is very sensitive to price movements. There are indications that Chinese module prices may decline further in the 2 nd half of 2016 due to softening demand in China. Manufacturers complain that tier 2 and tier 3 Chinese panels are being dumped on the market to meet these low cost requirements. Interest rates have remained about the same over the last three months but solar companies that have larger corporate parents with good balance sheets definitely have the advantage of lower borrowing costs which can be about 2% or more cheaper. Indian Module ASPs have dropped by ~13% over the last 12 months Indian Module ASP ($/W) May 2015 Aug 2015 Nov 2015 Feb 2016 May 2016 Source: Mercom Capital Group Currently, 19 developers have bid for 2.9 GW of solar projects below 5 (~$0.0735). About 1.2 GW of these projects have signed PPAs. After the 4.34 (~$0.0638)/kWh bid by Fortum, subsequent bids have been higher which is a relief to many Mercom Capital Group, llc. ALL RIGHTS RESERVED. I I solar@mercomcapital.com I Page 13

14 Developers Bidding for Solar Projects Below 5 To date 19 developers have bid for 2.9 GW of solar projects below 5 /kwh Total Bid Capacity (MW) High Bid/Range ( /kwh) Low Bid ( /kwh) MW Source: Mercom Capital Group (May 2016) Solar Bids in Reverse Auctions in India ( /kwh) High Tariff ( /kwh) Low Tariff ( /kwh) Tariff ( /kwh) AP PII Bihar Karnataka PIII Telangana PI Uttarkhand UP B2 Karnataka PIV-Nov 14 MP PIII-Jul 15 Punjab PII (C1)-Feb 15 Punjab PII (C2)-Feb 15 Punjab PII (C3)-Feb 15 Telangana PII G1-Aug 15 Telangana PII G2-Aug 15 UP B3-Sep 15 Punjab PIII-Sep 15 Uttarkhand (Type-I)-Nov 15 NSM PII B2 (AP)-Nov 15 NSM PII B2 (AP)-Dec 15 NSM PII B2 (Raj)-Jan 16 NSM PII B2 (UP)-Jan 16 Haryana-Jan 16 NSM PII B2 (Kar)-Apr 16 NSM PII B2 (Telangana)-May 16 Jharkhand-May 16 Karnataka PV (Gen)-May Note:APPhase II -The range of first-year tariff offered by the successful bidders was Rs /kWh with a 3% per annum escalationfor the first 10 years, then flat thereafter. Source: Mercom Capital Group (May 2016) 2016 Mercom Capital Group, llc. ALL RIGHTS RESERVED. I I solar@mercomcapital.com I Page 14

15 NCEF The National Clean Energy Fund (NCEF) was created in 2010 to fund the cost of research and innovative projects using clean energy technologies by public and private sector entities. The fund has evolved under the NDA administration and is now rebranded as Clean Environment Cess from the earlier Clean Energy Cess to include river cleaning and other projects. The Cess, which was 50 (~$0.74) per ton when it was introduced in 2010, was raised to 100 (~$1.5) per ton in 2014 and to 200 (~$3) per ton in the budget. It was again doubled from 200 (~$3)/ton to 400 (~$6)/ton in the budget. Of the estimated $8 billion (~ 54,400 crore) collected under the Clean Environment Cess, only about $3 billion (~ 20,400 crore) of it is expected to have been transferred to NCEF. MNRE will only be allocated 23 percent of the total amount collected so far under the Clean Environment Cess. With late tariff payment problems, rooftop subsidy delays and overcharged solar parks, it is inexplicable that such a large amount is sitting unused. As we have mentioned several times, creation of a reserve backstop fund against nonpayments or delayed payments by DISCOMs using NCEF funds could have an immediate positive impact, eliminating offtaker risk, reducing interest rates and increasing lending. Clean Environment Cess Fund Status Year Clean Energy Cess [Clean Environment Cess] Collected Amount Transferred to NCEF % of Cess Collected NCEF Fund Allocation to MNRE % Diff - Funds Collected vs. Spent in Crore US$ in Million in Crore US$ in Million % in Crore US$ in Million % , , , % % , , % % , , % 1, % , , % 1, % (RE) 12, , , % 4, % (BE) 26, , , , % 4, % Total 54, , , , % 12, % RE - Revised Estimates; BE - Budget Estimates Note: Dollar-Rupee conversions were calculated at $1 = 68 Source: PIB, MNRE, Ministry of Finance Mercom Capital Group Ministry/ Year in Crore MNRE US$ in Million Ministry of Water Resources, River Development & Ganga Rejuvenation US$ in in Crore Million in Crore US$ in Million in Crore US$ in Million in Crore US$ in Million , , , , (RE) 4, , , (BE) 4, , , , , Total 12, , , , , , Source: PIB, MNRE, Ministry of Finance Ministry-wise NCEF Fund Allocation by Year Ministry of Drinking Water & Sanitation Ministry of Environment & Forests Total Note: Dollar-Rupee conversions were calculated at $1 = 68 Mercom Capital Group 2016 Mercom Capital Group, llc. ALL RIGHTS RESERVED. I I solar@mercomcapital.com I Page 15

16 Market Share Developers With Over 1% Market Share of Operating Projects in India 19 developers account for approximately 55% of the projects in operation 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% Welspun SunEdison ACME Adani Azure NTPC ReNew Power Hindustan Power Reliance Solar First Solar Torrent Power Mahagenco Essel Malpani Group Shapoorji Pallonji Solairedirect Ujaas Energy Waaree Lanco Source: Mercom Capital Group (May 2016) Large scale project development in India is highly fragmented. There are about 300 developers with at least 5 MW or more in the project pipeline, including recent auction winners who are expected to sign PPAs shortly. 20 Developers Account for Approximately 72% of the ProjectPipeline in India Some of these developers do not have any operating projects yet 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% ReNew Power SunEdison Adani ACME Azure NTPC Suzlon Mytrah SkyPower SBG Cleantech Welspun Hero Future Energies Tata Power Solairedirect RattanIndia Hindustan Power OPG Power Fortum Photon Charisma Energy Source: Mercom Capital Group (May 2016) 2016 Mercom Capital Group, llc. ALL RIGHTS RESERVED. I I solar@mercomcapital.com I Page 16

17 Installed Power Capacity Mix The government s push towards solar is beginning to show results. As of the end of FY with over 7 GW of solar energy installed to date, solar represented 2.5% of the net installed capacity in India - up from 1.4% a year ago - and was the fastest growing new energy source. Solar accounted for 17.4% of all renewable energy generation in FY compared to 10.5% in FY Renewable energy sources including small hydro grew from 13.1% in FY to 14.4% in FY India - Installed Power Capacity Mix(%) Renewables comprise14% of India's totalinstalled capacity, with solar accounting for 2.5%. Among renewables, solar accounts for almost 17% of the installed capacity. Hydro 14.1% Gas 8.1% Nuclear 1.9% Diesel 0.3% Solar 2.5% Bio-Power 1.6% Renewable Energy 14.4% Small Hydro 1.4% Coal 61.3% Wind 8.8% Waste to Power 0.04% Source: MNRE, CEA Mercom Capital Group (May 2016) 2016 Mercom Capital Group, llc. ALL RIGHTS RESERVED. I I solar@mercomcapital.com I Page 17

18 Industry Feedback Below are the takeaways from our recent conversations with major developers, manufacturers and investors. Developers Several developers are not bidding at the current low levels and are waiting for the market to stabilize. According to developers, many projects are coming up for sale; the auctions are extremely competitive and winning bidders are finding it tough to get funding. Bid viability depends on location. According to a few developers, bids below 5 (~$0.0735) are currently viable in Rajasthan, Gujarat, Madhya Pradesh and some southern states. In all other states, the economics for bids below 5 (~$0.0735) are not feasible. Some developers are seeing bid prices stabilize. Most developers believe that SunEdison s issues will not affect the larger solar market. There are a lot of delays in the auction process, starting from the initial announcement and continuing to signing PPAs, making on-time execution a challenge. Solar parks are expensive at lakhs/mw (~$51,471-58,824/MW) and are delayed in many cases. The Uttar Pradesh solar park, for example, is not complete and has no roads. Developers question why auctions are announced in solar parks that are not complete. Instead of solar parks, some developers would rather have the government provide land to the developers. The high costs of expensive solar parks are making project economics tougher. Developers are critical of SECI s handling of auctions. Bids in Jharkhand are a concern considering insolation levels, land issues, DISCOM ratings, and law and order issues. Trackers are becoming common and improving project economics. Domestic interest rates were between %. Buyers credit and refinancing are helping bring borrowing costs down by 2-3%. Some developers believe the sector is headed towards consolidation as projects start coming up for sale. Rajasthan has had some grid failures resulting in 1-1.5% loss in generation for some projects. Generally, grid availability has been over 95%. Payments are usually on time except in Tamil Nadu and a few instances in Rajasthan. Project costs vary between 5-6 crores/mw (~$735, ,353/MW) with another 50 lakhs (~$73,529)/MW for trackers. Developers mentioned that there is a disconnect between banks when it comes to solar project costs, and banks are out of touch when it comes to realities on the ground. There is some concern over VGF projects as they are taxable and open up their books to scrutiny. Also, there is worry that if a new government takes office, that they may not honor the current payment structure. There is a consensus that CERC benchmarking is off and should be done by states (like the wind sector) instead of one tariff for the whole country. This would give states better guidance. There is some fear about how NPAs will affect the solar sector Mercom Capital Group, llc. ALL RIGHTS RESERVED. I I solar@mercomcapital.com I Page 18

19 Land acquisition and payment security need to be addressed to attract foreign investors. With low bids and razor thin margins, it is imperative for the government to address payment security and strict timelines. In addition, curtailment and evacuation issues need to be factored in the PPAs, without which IRR calculations will be meaningless. Developers have to deal with too many government agencies (state nodal agencies, offtakers, implementing agencies, etc.) which makes on-time execution challenging. Developers are of the opinion that the government is quick to penalize but does not look at the big picture, that are creating delays and hurdles with unnecessary bureaucracy. Some companies are bidding aggressively because they are trying to build their pipelines quickly to reach a critical mass and look for an exit. Rooftop Installers Most of the growth in rooftop space is in commercial and industrial segments. Industrial power tariffs, which are 20-30% more expensive, make solar attractive for this segment. Many rooftop customers feel that 25-year PPAs are too long; some want PPAs as short as five years. Commercial and industrial rooftop customers are more knowledgeable than residential customers about solar and its benefits. Interest rates vary from %. Net metering implementation is haphazard. It takes six to eight months in some states just to process paperwork. Some states have unsustainably high net metering rates, which may lead to rate cuts in the near future. There is a large demand for accelerated depreciation (AD) among commercial and industrial customers, which will not be available beginning next year. Timely disbursement of subsidies is a problem; in some instances, they are delayed two to four years. The rooftop solar sector creates a lot of jobs. Installers see a need for government support through subsidies and AD for two to three years, after which they are confident that the market will take off without incentives. Without subsidies or AD it will be a difficult road ahead Mercom Capital Group, llc. ALL RIGHTS RESERVED. I I solar@mercomcapital.com I Page 19

20 Manufacturers The market for domestic manufacturing has picked up. There is a long time cycle (~18 months) between tenders and panel delivery, with a lot of delays in between. DCR cell functional manufacturing capacity is very small at 500 MW against 1.2 GW on paper. Most of the production lines are old and need to be upgraded. Delays are expected due to this fact, causing concern among developers who might get hit with penalties as a result. Domestically manufactured cells with lower prices are selling out first. Prices can vary between 10-15%, depending on the supplier, after negotiations. Price pressure is high due to aggressive bidding. Average selling prices (ASP) for modules are in the $ /W (~ 31-33/W) range. ASP s for DCR modules are $ /W (~ 35-41/W). ASP s for solar cells are $ /W (~ 28-29/W) for DCR projects. Chinese Tier 1 cells are available for $ /W (~ 19-22/W) depending on order volume. Manufacturers are not expecting prices to drop significantly for the rest of Net margins were 0-10%. Capacity utilization was reported at %. Local manufacturers allege that Chinese modules are being dumped at ~$0.47/W (~ 32/W), below the $0.50/W (~ 34/W) price sold in China Mercom Capital Group, llc. ALL RIGHTS RESERVED. I I solar@mercomcapital.com I Page 20

21 Investors Lenders are in a wait-and-see mode due to aggressive bids. With some of the recent troubles in the market, banks want to do a better job when it comes to promoter/developer due diligence. Some lenders think it will be difficult for developers to raise money at the current low tariff levels unless they increase the equity ratio. Banks are concerned that developers are not disclosing actual margins to lenders, which is making it tough when it comes to decision making. There is a difference of crore (~$ million) between project cost estimates from banks and those of developers. Some banks may require a greater portion of equity upfront in the future. Some banks are comfortable lending at (~$ ) tariff levels as long as they are confident in developers experience, capacity to execute and ability to repay debt. The IRR expectations of foreign developers are much lower than those of domestic developers. Generally, banks feel that developer assumptions are too optimistic. They want to see successful financial closings for these low bid projects before venturing in. There is a lot of talk about refinancing projects to bring down the cost of financing. Buyer s credit is helping developers a lot. RBI has allowed foreign investors to extend three years credit to developers with the help of an Indian bank which could be extended two years. According to some financial institutions, there is no margin for error when executing projects. Standard domestic interest rates are hovering around 11-12%. Companies with a good balance sheet can borrow at %, and large conglomerates can borrow at less than 10%. Capacity factor has not been an issue; projects are achieving an average of 18-19% without trackers and 21-23% with trackers. Banks are still waiting to see the impact of UDAY. They recognize that it may solve short term liquidity issues but are unsure if DISCOMs will start accumulating debt again. According to most banks, rooftop projects are too small to finance. Rooftop PPA bankability, roof structures and the strength of contracts are still an issue Mercom Capital Group, llc. ALL RIGHTS RESERVED. I I solar@mercomcapital.com I Page 21

22 State Programs Uttar Pradesh: There are about 90 MW of solar projects in operation under Uttar Pradesh State Solar Policy and about 320 MW of projects under construction. Of this, 105 MW are expected to be commissioned in 2016 and 215 MW in Andhra Pradesh: Andhra Pradesh DISCOMs have signed PPAs to develop 619 MW of solar projects with first year tariffs ranging from (~$ )/kWh and 3% annual escalation for 10 years. Of these, 506 MW have been commissioned to date and the remaining 113 MW are expected to be commissioned by the second half of Punjab: 1. Phase I - Punjab signed PPAs for 250 MW of solar PV projects in December of 2013 with average tariffs ranging between (~$ )/kWh. Of these, about 223 MW have been commissioned. 2. Phase II - There were 277 MW of solar projects with signed PPAs in 2015 under three categories; 1-4 MW (29 MW), 5-24 MW (100 MW) and MW (95 MW). Another 53 MW of rooftop projects are also estimated to be developed under this phase. Of this, 189 MW including 12 MW of rooftop projects, have been commissioned. The remaining 88 MW are expected to be commissioned by the end of Phase III - Punjab also issued RfPs for 500 MW of projects in June; five developers have won the bids with tariffs ranging from (~$ )/kWh. PPAs were signed in December of 2015 and the projects are expected to be commissioned early in Madhya Pradesh: Rewa Ultra Mega Solar Limited (RUMSL), a joint venture of SECI and Madhya Pradesh Urja Vikas Nigam (MPUVNL), invited online bids to select developers for the 750 MW (3 X 250 MW) Rewa Ultra Mega Solar Project under the Open Category in Gurh Tehsil, District Rewa in Madhya Pradesh. Madhya Pradesh Power Management Company Limited (MPPMCL) & Delhi Metro Railway Corporation (DMRC) are the proposed power purchasers while International Finance Corporation (IFC) is the Lead Transaction Adviser. Kerala: A Kerala State Electricity Board (KSEB) tender for 200 MW of solar projects through tariff-based competitive bidding for Renewable Purchase Obligation (RPO) of KSEB has been cancelled. A new tender is expected in the near future. Haryana: Haryana Power Purchase Centre on behalf of Uttar Haryana Bijli Vitran Nigam (UHBVN) and Dakshin Haryana Bijli Vitran Nigam (DHBVN) invited tenders for 152 MW of solar projects. The list of bidders is finalized and PPAs are expected to be signed shortly Mercom Capital Group, llc. ALL RIGHTS RESERVED. I I solar@mercomcapital.com I Page 22

23 Karnataka: 1. Under Batch 3, PPAs were signed for projects totaling 50 MW. A 23 MW project has been commissioned and the remaining projects are expected to be commissioned by the end of Under Batch 4, Karnataka Renewable Energy Development Ltd. (KREDL) signed PPAs for 500 MW in early 2015; these projects are expected to be commissioned by the end of Under Batch 5, tenders were issued for 1,200 MW. This tender was unique as it sought bids for up to 20 MW on a taluk-by-taluk (county-by-county) basis across 60 taluks in an effort to distribute solar capacity evenly across the state. One hundred MW of capacity was reserved for solar cell and module manufacturers located in Karnataka. Letters of Award (LoA) have been signed for 910 MW by bidders with tariffs up to 5.50 (~$0.0809)/kWh under the general category and up to 6.10 (~$0.0897)/kWh from local solar cell and module manufacturers. The winning bidders have 60 days to sign PPAs. Projects of 260 MW in 14 taluks which had been retendered have now been awarded LoAs. Karnataka: List of LoAs Issued to the Successful Bidders for 1,170 MW Solar Projects in 60 Taluks In the general category bids ranged from MW 250 Total Bid Capacity (MW) High Bid/Range ( /kwh) Low Bid ( /kwh) /kwh Adani (13 Projects) Hero Future Energies (9 Projects) ReNew Power (9 Projects) Essel (4 Projects) OPG Power (4 Projects) Aditya Birla (3 Projects) First Solar (3 Projects) Mytrah (3 Projects) Asian Fab Tec (2 Projects) Atha Group (1 Project) GRT (1 Project) SunEdison (1 Project) Rishabh Buildwell (1 Project) Rays Power Experts (1 Project) Karvy Consultants (1 Project) Asian Fab Tech (1 Project) Krishi Technlogies Jindal Aluminium (1 Project) Sukhbir Solar Energy (1 Project) GS Consultants (1 Project) Tata Power (3 Projects) Emmvee (3 Projects) Swelect Energy (1 Project) Microsun Solar (1 Project) General Category Module Manufacturer Category Source: Mercom Capital Group (May 2016) Telangana: The Southern Power Distribution Company of Telangana (TSSPDCL) invited 2,000 MW of solar bids on a build-own-operate basis in April PPAs were signed for 1,988 MW in February and March of These projects are expected to be commissioned in the second half of Tamil Nadu: According to our sources, Tamil Nadu Generation and Distribution Corporation (Tangedco), the state utility, has signed PPAs at a tariff of 7.01 (~$0.1031)/kWh with the projects expected to be commissioned by March 2016 Mercom Capital Group, llc. ALL RIGHTS RESERVED. I I solar@mercomcapital.com I Page 23

24 of We have confirmed that 982 MW have been commissioned. Projects commissioned after April 2016 are expected to receive a tariff of 5.10 (~$0.0750)/kWh. Uttarakhand: 1. The Government of Uttarakhand signed PPAs in March 2015 to develop 30 MW of solar projects through a tariff-based competitive bidding process. All of these projects were commissioned by March Uttarakhand Renewable Energy Development Agency (UREDA) signed PPAs to develop MW of projects in March These projects have a strict deadline of October 2016 for commissioning. Jharkhand: Jharkhand Renewable Energy Development Agency (JREDA) had issued a tender to develop 1,200 MW of solar projects in December of The Letter of Intent (LoI) have been recently awarded for 1,101 MW. Jharkhand: List of LoAs issued to successful bidders for 1,101 MW across 30 Projects ReNew Power was by far the most successful bidder bagging almost 50% of the total projects approved MW Total Bid Capacity (MW) High Bid/Range ( /kwh) Low Bid ( /kwh) Suzlon (2 Projects) OPG Power (1 Project) Renew Power (2 Projects) Madhav Infraprojects (2 Projects) Karvy Solar Power (1 Project) ReNew Power (12 Projects) SunEdison (3 Projects) Suzlon (3 Projects) OPG Power (2 Projects) ACME (1 Project) Adani (1 Project) /kwh Category I (1-25 MW) Category II ( MW) Source: Mercom Capital Group (May 2016) Odisha: Green Energy Development Corporation of Odisha (GEDCOL) invited a tender for the development of 20 MW of grid-connected solar PV projects in Odisha. The last date for bid submission is June 4, Mercom Capital Group, llc. ALL RIGHTS RESERVED. I I solar@mercomcapital.com I Page 24

25 India Solar Installations (MW) By Location(May 2016) Rajasthan Tamil Nadu Gujarat Andhra Pradesh Madhya Pradesh Telangana Punjab Maharashtra Karnataka Uttar Pradesh Chhattisgarh Total Solar Installations 7,533 MW Odisha Uttarakhand Haryana New Delhi Jharkhand Kerala Goa & UT West Bengal Chandigarh Tripura Jammu & Kashmir Arunachal Pradesh ,000 1,100 1,200 1,300 1,400 Source: Mercom Capital Group Note: Dollar-Rupee conversions were calculated at $1 = Mercom Capital Group, llc. ALL RIGHTS RESERVED. I I solar@mercomcapital.com I Page 25