Global solar market has record 2016, but shows signs of a slowdown – 2016 was a record year for global solar installations. Although final numbers are still being tallied, estimates suggest a number around 76,000 MW (or 76 GW). China drove the train, with 22 GW in the first half of the year before stalling out in the second half. The U.S. also had a solid year, with around 14 GW. However, both of these key markets show signs of slowing in 2017, with the total global market retrenching to perhaps around 70 GW. China will scale back owing to a reduction in feed-in tariffs (the guaranteed price paid for solar output). For its part, the U.S. is expected to see a hangover as a consequence of the late 2015 extension of the federal Investment Tax Credit, which resulted in developers jamming projects into 2016 to beat a deadline which was then extended. So 2017 U.S. installations will fall off somewhat.
India picking up speed – By contrast, India is set to emerge as the next solar market superpower. The country already lays claim to the largest solar farm in the world – a 648 MW plant covering 10 square kilometers (over 3.5 square miles) and includes 2.5 million modules. Mercom Capital Group, which tracks India closely (along with the global solar market), reported in December that the country installed 4 GW in 2016, and is on track to add another 9 GW this year. When that 9 GW is connected to the grid, solar will make up slightly less than 6% of India’s total nameplate capacity. (Solar also made up 16.7% of new generation added in the first eight months of FY 2016).
In an effort to better understand the emergence of India as one of the world’s leading solar markets, I contacted Mercom’s CEO Raj Prabhu. His company, a global cleantech research and communications firm tracks global solar activity. It has been also monitoring India’s solar aspirations since 2010, when it all started. With offices in the U.S. and India, Mercom is a leading resource for energy companies going into India, as well as Indian companies going abroad. So Prabhu has a valuable perspective on how this market first started, and where it is likely to head in the foreseeable future.
Prabhu notes that the impetus for solar energy in India first emerged in 2010 as a response to the country’s acute coal and power shortages, and that the then-government set an aggressive goal of 22,000 MW by 2022.
“India had to import a lot of coal, and energy security was a big issue. Everybody was cognizant of climate change and environmental impacts and the government was beginning to understand – after the U.S. and Europe got into renewables – that it was going to be a significant sector going forward.”
By 2012, the country had come close to installing its first GW, but the industry remained relatively flat for the next two years until Prime Minister Modi arrived on the scene. Prabhu notes that Modi – who had been pro solar as Chief Minister in the state of Gujarat – made the expansion of solar energy one of his chief platforms upon being elected to the country’s highest office. Modi quickly re-set the goal to 100 GW by 2022, an aggressive target but one that is being embraced. The country has placed a strong focus on pushing hard in 2017, with the intention of more than doubling last year’s numbers. Prabhu sees this commitment as very real.
“I was just there a couple months ago and it’s palpable… India will install 9 GW, which is everything they have done to date… This is a level they have not installed at before and it’s important for them to execute.”
The Indian market structure – In contrast to countries like Australia, China, and Germany, or Japan, which have traditionally relied on fixed feed-in tariffs, or the U.S., which has a federal tax subsidization policy, India is increasingly relying on an auction mechanism. Under this rubric, the government puts out a quantity to be achieved and developers respond with bids. Prabhu cautions that the aggressive responses are not without risk, as they are sometimes below market.
“The challenge there is that the government wants to pay just enough. But with auctions, the bidding gets aggressive, so returns come down. In the last couple of years, companies have been so aggressive they wonder how they are going to make money. Many developers were recently saved by falling Chinese panel prices (note: Mercom’s report indicates these are now in the high 30 cent-per-watt range). But that is a very dangerous game to play, bidding and hoping that in 6-8 months panel prices will fall.”
Other auction markets, such as Chile and Abu Dhabi, have recently seen record prices between two and three cents per kilowatt hour, and Texas has seen long-term contracts at four cents, but Prabhu indicates that Indian solar generally settles much higher, in the six to seven cent range. Part of the higher price, he says, has to do with inherent issues related to the market and getting paid.
“The risk factor is high. Here in Texas (where Mercom is based) if you sign a contract with the utility, you know you are going to get paid. In India, there are payment delays in some states, plus interest rates are higher.”
Where will the panels come from? – Looking from the outside, one might imagine that the budding solar industry would be a prime opportunity for India to develop its own domestic panel manufacturing industry, and in fact India was one of the earlier manufacturing players in the global module market. Indeed, the industry has had some limited success, but Mercom estimates operating capacity at only about 3 GW. Prabhu comments that the World Trade Organization finding against India in favor of the United States was a real setback for the industry’s efforts to grow utilizing domestic content rules. India does not have an established supply chain compared to neighboring China, making Indian modules more expensive. Despite the need to import, Prabhu comments that relying on China does have some advantages.
“It’s not all bad, because China is basically subsidizing solar for the rest of the world. India modules are about 10% higher, so developers are happy with the price of Chinese panels. A cheaper product means the consumer pays less. They (project developers) can use domestically contained modules only if the consumption is by the government. That’s the catch with the WTO.”
What are the biggest challenges to growth? – Prabhu expresses some concerns about the country’s ability to integrate solar quickly, owing mostly to constraints in the transmission and distribution sector. With distribution companies, the challenge is that solar increases the costs somewhat to distribution companies, but they don’t want to raise rates.
“They (the utilities) depend on the government for subsidies because most refuse to increase the power prices to the customer, since governments are worried about winning elections. So you see some states having payment delays to solar developers, along with other transmission and distribution issues.”
The intermittent nature of solar is also an issue that needs to be addressed. Here, Prabhu indicates that the government is working to develop green corridors to develop the necessary infrastructure, while also looking to energy storage as a reliability play. He sees future auctions for combined solar plus storage plays (similar in nature to the 28 MW solar array combined with 20MW/100 MWh project recently announced in Kauai). India has tendered 322 MW of projects with battery storage systems to date, though none of them have been auctioned. Prabhu views this solar/storage opportunity as particularly ripe for U.S. and European companies, since many are rapidly gaining experience in this area.
Where will India rank in the foreseeable future? – Prabhu says India’s commitment to solar is currently quite strong, and if Modi wins re-election it will definitely remain so. The country lacks sufficient power generation resources, while simultaneously suffering acute air pollution issues. Climate change is also on the radar.
“Mr. Modi is into the 3rd year of a 5 year term, and if he wins again, solar is going to have a great run and will become one of the foundational energy sources for India. Fundamentally, India is in a good place for solar, because they lack power generation and solar is being incorporated into the system. They are trying to hit a goal of 100 GW, which is tough, but going from 0 to 9 GW in 6 years is significant.”
Prabhu believes that the next year or two of growth will confirm India’s role as one of the world’s leading solar marketplaces. The U.S., China, and India he notes, will represent the triad of important solar countries for some time to come.