What led to the glut in Indian solar power?

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The post is written by our EZPP partner Manu Jindal with relevant edits and changes by our editorial team. We routinely partner with high-quality industry professionals to develop content for our platform. If you're interested in joining the program, please apply here: EZPP

3000x over 9 years. If one had to describe solar in India over the last decade, that would be the summary with our solar capacity surging from 10MW to 30GW! (Thank you, low base effect!). In today’s post, we understand the factors that led to the growth in solar, the issues that plague the sector today, and what lies ahead for the sector.

What drove the growth?

Let us begin by looking at what drove this astronomical rise. The first factor here is the steady drop in the price and increase in efficiency of solar panels globally, and the liberal import terms set by a government keen on boosting renewables that made it possible for domestic players to access the cheap supply. The second came in terms of direct financial support from the government which included subsidies on cost of goods, relaxed depreciation terms, and healthy tax breaks. The third was much higher utilization levels of solar in India driven by higher number of sunny days, and higher intensity of light especially in specific belts. And last, but not the least was the availability of cheap labour in the country. The combination of these factors led to the perfect mix for the sector to thrive in the country.

What’s changed since then?

A very short primer on power. You generally have regulated power - where the power generator signs a PPA (Power Purchase Agreement) to provide units of electricity at a set rate, and unregulated power, where power is purchased in the open market (generally used to satisfy peak demand.).

One of the critical points for the solar space was the INR 2.44 bid for the Rajasthan project that came on the back of excellent weather conditions at the project site and relatively cheap financing from the operator. The low rates had two negative impacts - first states started pushing firms for lower bids in areas where it wasn’t feasible, and second power discoms began reneging on their PPAs leading to financial stress to firms who had already invested the capital while also reducing the overall attractiveness of the space.

Other major factors that have affected the space are the imposition of GST that wasn’t accounted for in the initial calculations, PSUs that have limited ability to invest in these projects, and the imposition of duties on solar panels when the domestic industry wasn’t equipped to bridge the demand.

What lies ahead?

In a country as hungry for energy as India, and in a world where the move to solar has become more of a need than a choice, the long term story for renewables will be strong. That being said, there will be steps required to ameliorate the pain for this space, either via reducing cost pressure, providing GST refunds on ensuring that the discoms honour their contracts. We will continue to track the space closely and give you regular updates as and when something interesting emerges.

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