The outbreak of COVID-19 has brought the world to a standstill, disrupting businesses globally. To fight the outbreak, the Government of India ordered a complete lockdown from March 24, 2020, to April 14, 2020. All solar manufacturing and project development have completely come to a halt.

Power demand has significantly dropped following the lockdown, and most of the projects are now operating at 50-55% capacity. Stakeholders are hoping for demand to increase once the lockdown is lifted. The Ministry of Finance (Department of Expenditure Procurement Policy Division) has issued a clarification that the Coronavirus (COVID) will be covered in force majeure clauses and should be considered a case of natural calamity.

While this announcement helped to calm the nerves of the stakeholders, the future seems uncertain, and it will take some time before the industry gets back to business on April 15, 2020 (unless extended). We interacted with the entire solar supply chain to get a grasp of where things stand in the solar sector in India.

Projects In Operation

For projects in operation, the most significant challenge has been payment delays and curtailment of power by DISCOMs. The DISCOMs in Uttar Pradesh, Madhya Pradesh, and Andhra Pradesh issued letters disclosing their inability to collect dues from their consumers and inability to pay generators and claiming recourse under the force majeure clause. Punjab DISCOM announced that it is unable to procure power due to a load crash because of the force majeure event (COVID-19 outbreak).

The Ministry of New and Renewable Energy (MNRE) has stepped in and asked for the ‘must-run’ status to be maintained for all renewable energy generating projects and has clarified that all DISCOMs must make timely payments. The Solar Energy Corporation of India also clarified that curtailing and not paying for power citing force majeure clause is null and void.

Developers that Mercom spoke to said that the greatest concern at this time is cash flow considering payment delays by DISCOMs. In their opinion, the DISCOMs have a three-month moratorium to pay generators, but for developers, banks do not offer a blanket moratorium. In the case that the banks do offer a moratorium, the concern is that it could negatively affect developer credit ratings, followed by higher costs of debt in the future. Important considerations like this have been overlooked as all of these orders were issued without consulting stakeholders.

O&M activity has also slowed drastically during the lockdown.

Projects Under Construction

Project construction activity has stopped, and only administrative work is being done from home. There are no services or supply activities. Most workers have gone back to their respective towns and villages, and companies estimate that it may take a few weeks to as long as 3-4 months before they are back working at normal levels. Project completion timelines are expected to witness delays of 4-6 months.

The MNRE had earlier said that all renewable projects currently under implementation would be given an extension of time in light of the lockdown. Even with the extension, developers have to bear the fixed cost of managing the project sites and the cost of debt accumulation until the projects are commissioned.

Though the production of solar modules in China is back to about 80% capacity, developers are stuck in their homes and can’t place and receive solar component orders. Module shipments for projects under construction are either stuck in ports or unable to reach project sites due to the restrictions on logistics during the lockdown. The major ports in the country have been directed to ensure that no penalties are imposed due to the delays, which is good news.

The lockdown is also coinciding with the busiest time of the year for solar installations.

According to a developer, “once the lockdown ends, developers will face monsoons during which construction activity generally slows down or stops completely in many instances. We are hoping to be back on track resuming construction work after the monsoons have ended.”

For developers, foreign exchange is another big concern. Rupee depreciation is expected to affect module and other imported component prices. On the other hand, inventory build-up in China and low demand in major world markets could mean a decline in module and component prices going forward.

Manufacturing

Indian manufacturers have shut down their units and production while the majority are waiting for shipments of raw materials, mostly from China.

“We are planning to go full speed as soon as we are allowed to work. Most of our workers are in the same city and can join work immediately. Also, the supply chain from China is now restored, and we had some of the consignments delivered to our facilities already before the lockdown, and some are in the dock. Once the lockdown is lifted, we can start operating at 50% of the capacity. To get up to 100% capacity will take time,” said one of the manufacturers

Even the modules that have already been manufactured are facing delays in transit to the project sites on account of restrictions on inter-state logistics.

The manufacturers are worried about the supply chain remaining stable both in terms of availability and pricing. Demand slowdown is a big concern for manufacturers. Many expect prices to come down in China due to a lack of demand in global markets.

Rooftop Solar

The rooftop solar segment has been severely affected. Factories and commercial units are not expected to resume activities before the end of May. So the C&I segment, which is the most attractive market in rooftop, is shutdown.

Speaking to Mercom, a senior executive at a solar company said, “Workers are not available due to the lockdown. Everything has been stopped, many of our modules were at the port, and we are not able to transport it to the project location as we are not unable to get state permits to reach the project location. Even though Chinese factories have started, we are not booking any orders as we don’t know the current situation in the country. If we place the order, we have to pay for the consignment before the dispatch.”

Echoing similar sentiments, a senior official from a government agency said, “Due to the lockdown, everyone is facing problems, including rooftop installers, and large-scale developers. As there is a lockdown, nothing is going on in the industry. We are working from home up to our level best; nothing is happening on the ground.”

Most of the stakeholders believe that even if the markets open after the lockdown, it will be a slow process to normalcy, and the workers who left the field after the lockdown will take some time to come back.

Finance

Lenders are rattled by the Minister of Power order allowing DISCOMs to delay payments and has severely dented their confidence in the ability of government agencies to handle a crisis. The first instinct seems to be to protect the government entities at the expense of the industry, which does not look good to foreign investors.

According to a large lender, DISCOM payments to generators is the deciding factor. DISCOM flouting payment obligations have dented investor confidence. Foreign investors are watching events unfold before they decide on the fate of the Indian solar sector in their investment portfolio.

Lenders are also looking for power contracts in the future, which could eliminate counterparty (DISCOM) risk.

Contracts

While India is in lockdown, developers and EPC players have started talking about the future and how they are going to deal with the market when it opens, and construction starts. Developers have started talking to their Chinese counterparts about the shipment of solar modules, inverters, and other components.

As the solar sector resets its strategies to cope with derailed businesses due to the COVID-19 outbreak, it is unclear how long it will take for normalcy to return. Will the lockdown continue or be lifted? Will the industry across the board start operations, or will it be up in phases? What restrictions are going in place under the new normal? These are questions that the sector is trying to figure out.

“It is extremely important for the government to do everything in its power to facilitate the normal functioning of the markets over the coming months. It is critical to ensure timely payments from DISCOMs, disallow curtailment, assure liquidity in the markets, formulate clearly thought out policies with stakeholder input, and provide flexibility when it comes to deadlines to stabilize the renewable energy industry,” said Raj Prabhu, CEO of Mercom Capital Group.

Image credit: General Electric