India’s second wave of solar tendering offers market entry opportunity

Low tariffs and the increasing dominance of Indian corporates have made entry into the India solar market increasingly tricky over the last year, but a market correction could open up new opportunities. Major international firms started flocking to India once the Narendra Modi-led government turned talk of a 100GW solar target into a concrete action last year. However, players showed a voracious appetite for the massive capacities being tendered across the country and aggressive competition led to low tariff records being broken on a monthly basis. Even during the early stages, many industry commentators claimed the tariffs had already become too low to make viable projects. More worrying for overseas developers was a recent market update from analyst firm Bridge to India showing that Indian corporates had started to dominate the auctions.

However, speaking to Solar Power Portal at Clean Energy Live, Bob Smith, executive vice president of India-based renewables firm Mytrah Energy, said that most of the major players have now got their foot in the door and will need to focus on actually building their projects in time for strict deadlines before considering bidding for more capacity. As a result the next wave of solar auctions may see a slowing down in the involvement of these large players that have the means to bid so low. Smith even forecast that tariffs would soon stabilise and possibly even start to rise again.

“For me that initial flurry of activity is sort of over and I think there’s an opportunity now in the next round of tariff auctions,” said Smith. “There’s an opportunity now for some smaller players to come in and grab some action and probably to grab some action at a slightly better price. From our point of view we are not chasing the current round because we think it’s just too low.” 

As a result, the big players taking huge swathes of capacity is no reason to be put off trying to enter India, but the unique challenges of India need to be understood.

For example, choosing whether to aim for capacity inside the government-built solar parks or to construct a standalone project is a choice faced by new developers. Smith said that a foreign developer may enjoy the easy development process offered by a solar park where the government sorts out land acquisition, off-taker and transmission, but only by having a standalone project can one take advantage of the margin opportunities presented by having autonomy over these elements of development. For this reason domestic players may prefer to aim for standalone projects, while foreign players may avoid the extremely challenging land acquisition process but for lower project returns.

One plus point of the Indian market is that it is less reliant on the input of the government. “You are selling a product that people fundamentally want and you are selling it at a price that they are willing to pay, because you are essentially at grid parity already with solar in India. The starting point for all this is you don’t actually need that much help from the government.”

As a result, with ingenuity, players can find a way into the market regardless of government policy, which as it happens is already very favourable to the solar market.

While much of the focus has been on utility-scale solar and there are still a huge amount of greenfield sites available for development, the commercial solar opportunity is beginning to rise. The average consumer pays a very low rate for electricity, which is subsidised by the very high rate that commercial consumers pay for electricity. This means solar firms can come in and offer a tariff to commercial entities that competes with these higher prices, said Smith. The only trouble is getting funding for commercial solar at present as the off-taker credit rating can come into question.

Even with the unique challenges posed by India’s market and its strong competition, there are clearly still plenty of avenues to build successful projects across India and in the various segments. Even with multiple Gigawatts already tendered this year, this is a country that plans add roughly 12GW every year in the run up to 2022 so the impetus is there.

Smith added: “India as a country is fundamentally short of power and that gives you a sense that there will always be demand for the projects.”

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