COVID-19 and Indian PV: ACME talks curtailment and construction risks

Big solar in India remains steady but face difficulties as the mass exodus of migrant workers unfolds under COVID-19 lockdown. Credit: Tata

Large-scale PV projects under construction are likely to feel the most profound impact from India’s COVID-19 lockdown, according to the CEO of major PV developer ACME Solar.

In the early days of the national shutdown, as millions of migrant workers flee cities towards their home villages across India, the country already saw a significant drop in energy demand with the closure of factories and offices.

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Sidharath Kapur, CEO of ACME Solar, told PV Tech the country had yet to see any major curtailment of solar power generation. However, he added this is a major concern for the industry going forward, as energy demand tumbles.

Nonetheless, the solar sector has not been impacted by the virus in the same direct way that, for example, aviation, hospitality, entertainment and retail sectors have and the power industry has also benefited from receiving ‘essential’ services categorisation from the Indian government last week, allowing all power generation to continue unhindered in spite of the lockdown.

However, “there will be an indirect impact because the demand for power is going to drop very sharply,” said Kapur. “We are hoping that this is short-term because, once the lockdown is lifted, then offices, factories will start cranking up again and that would again bring the power demand back to normal.”

Kapur is hoping that PV’s classification as ‘essential’ will also stop revenues from being severely impacted, allowing companies to meet their debt servicing obligations.

Backing down

Curtailment, or backing down as it is known in India, is another concern for utility-scale projects although renewables enjoy a must-run status in the power sector, coupled with a mandate to be the last-in-line power sources to be curtailed by Discoms.

“We have to ensure that happens,” said Kapur. “We haven't seen anything major happening on that front, but it's very early days.”

Termination threats

The more long-term and profound impact is likely to be on projects that are under construction, of which there are plenty, said Kapur.

The government has declared coronavirus as a force majeure event meaning the authorities would give extensions to construction timelines where projects are hit by the long-term impact on supply chains.

But, in many power purchase agreements (PPAs), if the delays reach a certain threshold then any of the parties would have the right to terminate, said Kapur. In such cases, developers would have to reassess their projects – looking at the Indian rupee-US dollar rate and construction and supply costs – while taking a fresh assessment of the liability they face and the tariff rates at which they initially bid for the solar capacity.

If this force majeure scenario were to continue for much longer than two or three months, then the long-term PV targets of the government could well be pushed back also, Kapur forecasted.

India’s virus struggles

Ultimately, the government’s lockdown represents an attempt to prevent community transmission of the now infamous virus and avoid the situation getting out of hand, said Kapur – adding: “Our healthcare system is just not geared up to handle the size of the population and if this goes out of hand, then it could be a major disaster.”

In recent days, reports have emerged globally of the human tragedy of India’s mass exodus of migrant workers, whose work has dried up in the cities. Many of them face enormous walking distances back home with food scarcity.

Labour is not available, even for businesses in the 'essential' sector, said Kapur, so such businesses are also working at a lower capacity.

“Right now, in India, it's a 21-day shutdown,” he added. “I'm hoping and praying that it doesn't go beyond it because for a country like India a prolonged shutdown like this will have a very deep impact on its economy. And there is a very large section of the population which is dependent on daily wages. These people ultimately have no place to go and therefore India may not be able to afford a very large and long-term shutdown.”

Kapur noted that it could take at least four-to-five months for business cycles to become normalised again, which would have a direct impact on power demand and therefore knock-on effects to supply chains, new PV projects and the threat of curtailment.

ACME’s luxury

Sitting on 1.8GWac of solar capacity under development, but with no projects under construction, ACME Solar is, to some extent, safe from the worst impacts of the virus. It has carried out various land acquisitions through long-term leases and reached financial closures on the projects, but has not yet ordered modules and equipment nor started building.

This, Kapur said, gives ACME Solar the luxury of reassessing its projects and deciding the next course. Meanwhile, its operational plants are running normally, despite a few disturbances in the first few days of the shutdown.

“There was a little bit of disturbance initially because messages had not been percolated down to the local levels, but now things have stabilized and people know that this is essential service and it has to continue,” Kapur added.

This publication has also set up a tracker to map out how the COVID-19 pandemic is disrupting solar supply chains worldwide. You can read the latest updates here.

If you have a COVID-19 statement to share or a story on how the pandemic is disrupting a solar business anywhere in the world, do get in touch at [email protected] or [email protected].

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