While the Ministry of New and Renewable Energy has offered developers a six-month extension for completing under-construction projects that have been impacted by the national lockdown, industry experts said this might have to be extended further
MumbaiThe pace of execution of solar energy projects has slowed to a crawl as developers struggle to cope with a shortage of labour and restrictions on imports solar cells and modules.
While the Ministry of New and Renewable Energy (MNRE) has offered developers a six-month extension for completing under-construction projects that have been impacted by the national lockdown, industry experts said this might have to be extended further.
One indicator of this slowing pace is in trade data on solar imports, which shows that project execution is failing to keep up with last year’s pace. India’s solar imports during the September quarter stood at around $140 million, 77% less than the $598 million that imported during the year-ago period. In the April-June quarter, Indian industry imported only $69.2 million, compared to $399 million the previous year, falling 83%, according to industry data compiled by Mercom India Research, as pandemic-related restrictions have slowed the movement of both goods and people both domestically and globally.
“The impact of these project delays on developers is fairly damaging," Vinay Rustagi, managing director at renewable energy consultancy Bridge to India, said “The government has been accommodating with time extensions, but the developers are still bearing additional costs arising from delays including interest, higher working capital and overheads. The deadline extension only protects the developers from delay penalties, but all other costs still have to be borne. There is also a higher risk of increases in module costs, unfavourable changes in the exchange rates etc. For now, the developers have been given a six-month extension, but given ongoing execution constraints and challenges in getting workforce mobilized, the deadlines may have to be extended further.
“With solar tariffs falling to new lows in recent auctions, there’s very little headroom for extra costs," Rustagi said. “Small and mid-sized developers often struggle to survive but the larger ones, backed by large utilities or by private equity, can hope to see out the crisis."
The Indian government is running what will become the world’s largest clean energy programme, targeting 175 gigawatts (GW) of capacity by 2022, of which 100GW will come from solar power. India is heavily dependent on imported solar cells and modules to meet these capacity targets. According to the trade data, solar imports from China accounted for 88% of the total imports, followed by Thailand at 3.4%, Taiwan at 3%, Vietnam at 2.2% and Singapore at 1.7%.
While the government has spoken of reducing dependence on China for solar imports and giving a fillip to domestic manufacturers by introducing a basic customs duty, this has not happened yet. Even domestic module manufacturers, which depend on imports for raw materials, have struggled through the first half of this fiscal.
Saibaba Vutukuri, chief executive officer of one of India’s largest domestic solar cell manufacturers, Vikram Solar, said that the reduction in imports has not led to an increased demand for modules produced within India. “Because of covid restrictions, domestic manufacturers are also struggling to get raw materials, and the prices of inputs are rising. Developers are not fully executing projects, which will lead to cost overruns on these projects. We have asked for a basic customs duty to be introduced to reduce developers’ dependence on imports, but this hasn’t happened yet."
Vikram Solar is currently investing in capital expenditure to expand its manufacturing capacity from 1.2 GW to add another 3-4GW capacity of ingots, wafers, cells and modules over 3-4 years. “We are going ahead with our expansion plans, but other manufacturers are still waiting for the government to give clarity on whether it will support the domestic industry through a customs duty," Vutukuri said.
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