India to add nearly 4,000 MW of solar power in 2016: Mercom Capital

New Delhi: Global clean energy communications and research firm Mercom Capital Group on Wednesday said India will add nearly 4,000 MW of solar power in 2016, much higher than 2,133 MW it added in 2015.

“The Indian solar sector is finally coming out of hibernation. Solar installations in 2015 increased by 142% after three years of remaining flat, and we expect 2016 and 2017 to record strong growth,” said Raj Prabhu, CEO and co-founder of the Mercom Capital Group in the firm’s quarterly update.

Just over 10 GW of solar projects are currently under development and projects worth about 8.4 GW are expected to be auctioned in the next few months, the report said.

In June 2015, Prime Minister Narendra Modi had revised India’s solar power target from 20,000 MW to 100,000 MW by 2022. At present, India has a total of 5,547 MW grid-connected solar power projects. As per estimates, India needs ₹ 6 trillion to scale up capacity to 100 GW.

The report said aggressive bidding at solar project auctions remains a cause of concern. Tariffs have hit a low of ₹ 4.34 per kWh, a drop of about 6% in the last three months. Projects with tariffs under ₹ 5 per kWh, unless built at ₹ 5 crore or less, are considered extremely risky and difficult to finance by lenders and most developers.

“Most of these projects are, however, expected to be commissioned in 2017 and developers hope that in the time period between bidding and procurement, module and balance of system costs will continue to drop along with interest rates to make these projects feasible,” it emphasized.

Tariff of ₹ 4.34 per unit was quoted by a Finland-based energy firm Fortum Finnsurya Energy in a 420 MW NTPC project in Rajasthan.

The report also acknowledged that the clean environment cess, which has been increased in 2016-17 Union budget from ₹ 200 to ₹ 400 per tonne of coal will make solar more competitive by increasing the cost of coal.

“But increased costs are expected to be eventually passed on to consumers in the form of higher electricity bills. Furthermore, nearly half of this tax in the past has gone to the ministry of water resources for the Ganga rejuvenation project and we cannot assume that the entire amount collected from the new coal tax will go towards renewable energy,” it added.

Experts agree with the forecast.

“If one looks at the way commissioning of solar power projects is happening, actually 4 GW forecast seems to be on point. It is likely to increase if solar parks are commissioned in this year. Also, solar rooftop will be in addition,” said Kanika Chawla, a researcher at the Council on Energy, Environment and Water, a Delhi-based think tank.

“I think the caution about low tariff is what we have been hearing from developers. I actually disagree. I don’t think there is any loss of investor confidence. As more commissioning happens and the sector develops, the risks perceived by financers are likely to go down,” she added.