PV Talk: Price sensitivity and the solar park model in India

Ashish Khanna: We are very price sensitive as a culture and this is reflected across India’s industries. Price sensitivity raises the question about whether we are also compromising on quality.

All the way from design to execution there are opportunities to compromise, and we have to ascertain whether overlooking quality happens unintentionally, through ignorance, or due to individual companies knowingly compromising on areas such as module imports. This is a possibility when the project margins keep reducing.

Given the whole impetus that has been given towards ‘solarization’ in this country, we have to ask whether this price game is the right thing at this moment.

Even just a few examples of poor practice could leave a negative impression of the industry and cause larger collateral damage. We are talking currently of adding 9GW in a year, and looking at 100GW in such a short time, so it is all the more important that in the initial stages we only have success stories.

I have seen countries in the neighbourhood of India still facing a deficit in confidence after an initial perception was created about inferior quality.

How will developers behave in the coming auctions?

All these open tenders are primarily dependent on sourcing costs from China. People are speculating on prices lowering over a period of 9-12 months and some of those speculations in the past have come true, but will those assumptions hold true for the next 9-10 months?

Let’s understand the fact that any change in solar pricing in China will have a direct impact on some of the developers in India.

Aside from module price declines, the prices of steel and copper have actually gone up in a very short time, so balance of system (BOS) costs won’t necessarily come down in the same manner.

But I also feel that now Indian developers are more mature, because a lot of them have already tested projects. They have transformed the excel spreadsheet into a reality at site and understand the other costs that can come into the picture. For example, working capital cost might change depending on when you are getting land and transmission lines ready. There are so many things which affect a project when the rubber hits the road.

Will Indian firms continue to dominate?

I think it will be a mixed bag. Foreign firms have generally bid more where land is already secured. Strategically, they are not keen on developing projects where they are taking the land and transmission line risks. On the other hand, Indian companies are more aggressive where local land issues are coming up.

It’s still an opportunity available for all. For example, we are doing EPC for Finnish company Fortum for a project with a tariff of INR 4.34/kWh (US$0.065) and we are very pleased with the way they are maintaining their standards. Other partners with low tariffs have also gone ahead without compromising on quality.

What do you make of reports that solar park infrastructure is being delayed and affecting development costs and deadlines?

Some people are not getting land on day one even with PPAs signed long back and we as an EPC contractor are aware of this.

Taking the larger picture we have to see whether parks or standalone projects are a better model for this country. By taking the complete development costs into account, solar park projects do come out slightly more expensive than those outside solar parks, but the timeframes are shorter.

Let us understand that completing a project in a shorter time can help save a lot on the working capital costs, since cost of capital is so high in India relative to many other countries. That is a better model than buying something cheaper and then spending a lot of time on it.

So, my point of view is that it is not right to consider only one element while calculating the total development cost

Furthermore, foreign developers are still more attracted towards solar parks. So, on a macro level, if we have to grow and we have options on both sides then in my view solar parks are still a better option.

Is enough being done on the transmission side?

We should be worried about it right now because it will soon become an issue. There are plans towards it, but how much of that is actually becoming a reality? We have to understand whether curtailments arise because of decisions by the distribution company (Discom) or because of a technical issue in the transmission line. These are two separate issues.

The technical side is easier to address. The larger issue is the health of the Discoms and that is something for which the government has taken certain initiatives such as the UDAY scheme. It’s too early to comment on UDAY’s success, but the government has been very positive about it and on paper it’s a very good scheme.

Ultimately if Discoms remain in the state they are in today, then solar power, or even any power, will become unviable as an overall business model – let’s be honest about that.