Indian credit rating agency ICRA Limited says India will add 2.7 GW of solar in 2016 and 5.7 GW by 2017. It calls the recent amendment for solar renewable purchase obligations (RPO) from 3% to 8% by 2022 in the National Tariff Policy (NTP) as key for growth of the Indian solar energy sector.ICRA believes this should facilitate capacity additions in line with the country's target of 100 GW by 2022.
These estimates are based on project awards and tenders floated as of December 2015. Final installation numbers will depend on timeliness in awarding the projects at state and central level and subsequent signing of power purchase agreements (PPAs).
High and low energy demand
The ICRA study basis its report on a 7% annual energy demand growth scenario, under which an additional 78 GW of solar energy capacity would be required from 2016 to 2022 to hit the revised RPO target of 8% by 2022. The Top 10 states with high solar potential will add about 70% of the additional solar capacity. These are Andhra Pradesh, Gujarat, Karnataka, Telangana, Madhya Pradesh, Maharashtra, Punjab, Rajasthan, Tamil Nadu and Uttar Pradesh.
If the energy demand remains lower – at 5% and the solar RPO level too at 5% by 2022, the incremental solar capacity would be 41 GW over the seven-year period.
With bidding tariffs coming down, from 6.8 INR per kWh in 2014 to 4.34 INR per kWh in 2016, ICRA points out that it is a sign of significant improvement in the tariff competitiveness of solar energy, which is a favourable for buyers that happen to be state-owned utilities. Shorter construction periods for solar power plants have an edge over conventional thermal projects. However, the viability of such tariffs depends on structuring of debt with longer tenures, competitive funding costs, and the ability of IPPs to keep module cost within budgeted levels.
Challenges to solar growth
The major challenge comes from the regulatory side, especially with regard to
compliance with RPO norms. ICRA believes that timely alignment of the modified solar RPO trajectory under NTP by the State Electricity Regulatory Commissions (SERCs) remains crucial. These norms also differ from state to state, and there is no penalty imposed in case of non-compliance with RPO norms by the obligated entities in states. This makes it easier to skip this part. It does suggest monitoring of RPO compliance on a quarterly or monthly basis by designated nodal agencies.
The ICRA report can be downloaded here