After a somewhat disappointing year, the domestic solar industry’s hopes are pinned on 2020. Towards the end of 2019, Mercom revised its estimates for the calendar year (CY) 2019 down to ~7.3 GW and forecasts a stronger 2020 assuming stable market conditions.

Indian solar industry stakeholders mostly agree with this outlook for next year. Provided there is sufficient government support, encouraging policies, and improved market conditions, the sector is poised to see one of its strongest years yet.

“The improved outlook for 2020 is due to a stronger existing project pipeline and not because the market fundamentals have changed. Even though it will take time for the economy to stabilize, enforcing renewable purchase obligations, shoring up finances of DISCOMs so they can pay the developers on time, and facilitating lending will put the solar industry back on the growth path so it can continue generating clean power, decrease pollution, and create jobs,” said Raj Prabhu, CEO of Mercom Capital Group.

Outlook:

Industry representatives and executives whom Mercom spoke with said they expected the solar power base in the country to rise by over 10 GW, a number the country has struggled to achieve so far.

“After a relatively muted 2019, India is expected to install 11-12 GW in 2020. The successful completion of these targets is dependent on successfully addressing the supply and demand nuances,” said Rajaram Pai, Business Leader – South Asia, DuPont Photovoltaic Solutions.

Some of the new government programs focusing on solar pumps and the agriculture sector are also helping propel growth in the sector.

“After consecutive negative growth of the solar industry in the last two years, more than 10 GW solar projects are in the pipeline to be executed in 2020. The GW scale tenders, along with new schemes such as SKY, KUSUM, agri-feeder, and residential tenders by some of the states, will further augment the demand. As we look forward to 2020, we hope for a more stable, predictable policy and regulatory regime for the solar industry in India,” said Sunil Badesra, Business Head, Sungrow (India) Pvt. Ltd.

Domestic solar manufacturers are upbeat following the safeguard duty imposition on imported cells and modules. A better forecast bodes well for these companies with plans to expand production.

“In the short term, we predict module manufacturing capacity going above 12-13 GW in the next 5-8 months from the current levels of 10 GW, and another 5-7 GW of capacity in the next 36 months. We might see an additional cell capacity of 2-3 GW in the next 12 months and an increased 5-7 GW of capacity in the next 36 months,” said Adani’s CMO Prashant Mathur.

“India has tremendous potential in renewable energy and the government’s goal of installing 175 GW of renewable energy, 100 GW of which is solar capacity, by 2022 looks achievable with the right policies and participation of the industry,” Mathur added.

We are also seeing numerous solar inverter companies trying to make a mark in a price-sensitive market like India. According to Mercom’s India Solar Market Leaderboard 1H 2019, the top five inverter suppliers made up over 73% of the Indian market share.

“We have high expectations for India’s rooftop solar market. In 2020 we are seeing increasing competition in the pricing of solar inverters, and we’ll continue to cope with these challenges by strengthening our advantages in R&D and product innovations,” commented Rucas Wang, regional director at Growatt.

The rooftop solar market continues to be weak due to a lack of policy support, and there is general consensus in the industry that unless there is significant growth in rooftop solar, it will be almost impossible to reach the national solar goals.

“The non-utility sector is expected to drive up capacity expansion to allow India to achieve the 100 GW target by 2022. India has the huge untapped potential of non-utility solar, and the right policy environment could unlock India’s growth in this space,” said Pinaki Bhattacharyya, CEO of AMP Energy India.

There is a desperate need for foreign investment in the renewable energy sector in the country. In 2019, financial institutions like the Bank of America, Asian Development Bank, Masdar, Goldman Sachs, and Abu Dhabi Investment Authority (ADIA) made investments in the sector. However, it is imperative to create a much more conducive policy environment in 2020 to attract more foreign financial institutions and pension funds that are sitting on the sidelines.

“We estimate that installations in 2020 will be about 12-13 GW conservatively. However, the government has announced an unprecedented policy push and states are providing the necessary infrastructure. Annual investments in solar could surpass investments in coal by 2019-20, with $35 billion (~₹2.48 trillion) committed by global players,” said Mukesh Mishra, Manager at Hanwha Q Cells.

While markets across the globe have already transitioned to monocrystalline PERC cells, the shift in India has just begun. The next year is likely to see an increasing number of projects utilizing PERC cells as the supply ramps up and the prices slide consequently. Mercom previously reported that the shift to mono-PERC modules is rapid as they are more efficient and can help reduce land and other balance of system (BoS) costs for developers, leading to higher returns.

“On the supply side, project developers will be offered higher efficiency (including mono-PERC and bi-facial) modules from both Indian and overseas manufacturers with demand peaking post the tenure of the safeguard duty in the second half of 2020. This is positive for the industry with improved cost per watt and better yields,” added Pai.

Challenges:

There are, however, several challenges to overcome, including regulatory and policy inconsistencies, changes in duties, and payment delays by distribution companies (DISCOMs), among others.

Domestic manufacturers expressed concerns over ending the safeguard duty in 2020. The duty, which was imposed on imports to promote domestic manufacturing, is set to end in July 2020.

“Ending the safeguard duty will be a big challenge for Indian manufacturers who will have to rely only on projects under the Domestic Content Requirement (DCR) category. Since [it] is about to end in 2020, the government needs to strongly consider extending the duty further to promote more indigenous manufacturing, said D.V. Manjunatha, Managing Director at EMMVEE.

A 25% safeguard duty was announced on solar cell and module imports from China and Malaysia between July 30, 2018, and July 29, 2019. The duty was set at 25% for the first year, followed by a phased down approach for the second year, with the rate set to be lowered by 5% every six months until July 2020.

On the other hand, many companies in the Solar Micro, Small, and Medium Enterprises (MSMEs) segment told Mercom that these policies had created more hurdles rather than simplifying issues. Manufacturers of solar modules, ancillary products, system integrators, and raw material suppliers in the solar photovoltaic space complained that the government’s protectionist policies were increasing costs for smaller local manufacturers and had loopholes.

Additionally, solar developers with projects that were auctioned before the imposition of the safeguard duty say that they have been struggling to get reimbursement for their additional expenses as a result of the duty. This has adversely affected their business and the pace of project development in the country.

Policy swings, regulatory bottlenecks are also currently weighing down the rooftop solar industry in India, according to Badesra.

“We are cautiously optimistic about the Indian solar industry in 2020. Previously, tender cancellations, tariff re-negotiations by a few states had increased the uncertainty of some of the large-scale projects and hence delayed their executions,” he added.

Payment disputes by DISCOMs were also rampant, slowing down any progress made by developers. The government’s introduction of credit mechanisms and amendments to policies has done little in the way of negating these issues.

Domestic manufacturing concerns took center stage for most industry players in 2019.

“Some of the main concerns from a manufacturing standpoint is the large dependency on the import of raw materials, the incremental costs for transportation and the lack of support for major technology and capital expenditure upgrades, or depreciation subsidy which is, in turn, increasing the overall costs of the products,” said Mathur.

“The scale at which Indian manufacturers operate is 1/20th and 1/10th of our neighboring countries in the cell and module capacities respectively, and we are not able to capture all benefits available to them on the cost side due to economies of scale,” Mathur added.

The outlook for 2020 remains mostly positive. Hope remains for the government to achieve its ambitious target of 100 GW of solar capacity by 2022 as long as it works in tandem with the industry to create a more conducive and consistent policy environment.

“The demand in 2020 looks a lot stronger, and we should see the solar market resume year-over-year growth again. But a lot will depend on the economy getting back on track, which will affect both lending and power demand,” added Prabhu.