India solar power investment could surpass coal by 2019-20 – Deutsche Bank

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Investment in solar power in India could surpass investment in coal by 2019-20, with US$35 billion already committed by global players, according to a Deutsche Bank report.

The report ‘India 2020: Utilities & renewables’ said the focus on solar would be driven by prime minister Narendra Modi’s ambitious target of deploying 100GW of solar capacity in the country by 2022.

The report stated: “Private sector interest is decisively moving towards solar from coal power, and we foresee numerous opportunities of fund-raising, yieldco structuring and M&A activity.”

Furthermore, Deutsche Bank raised its forecasts for solar capacity additions to 34GW by 2020, up 240% from its previous 14GW projection. Therefore, by 2020 annual solar power capacity additions could also surpass those in coal power projects, which are slowing down.

Research suggested that solar could significantly impact on day power rates, with generation peaks between 9am and 6pm. This could reduce coal requirement by around 8% by 2020 and result in significant savings of approximately US$17 billion per year.

The report said solar has to be “an inherent part” of the expansion strategies of local independent power producers’ (IPPs) as renewable energy obligations become more enforced and as the price of producing power from coal rises.

It also forecast that domestic manufacturers are unlikely to be benefitted as the majority of PV cells are still likely to be imported “given the small scale of domestic PV industry”.

Meanwhile, state governments are seen to be putting in the necessary frameworks to achieve the 100GW target, which has attracted interest from domestic companies as well as global players including utilities, renewable energy giants and private equity firms.

The report stated: “Solar fundamentals are becoming compelling in India, and investments are bound to grow dramatically, in our view. But there are numerous challenges which still need to be addressed.”

The main risks cited included dealing with the challenges of higher penetration, transmission constraints and integration of diurnal power into the grid, along with a lack of peak-load management capability.

A further risk is a lack of enforcement of Renewable Energy Purchase Obligations (RPOs), because state distribution companies are weak financially and have little incentive to take on more solar energy.

Others issues include: financing, land acquisition, limited domestic manufacturing, and reliability of baseline data.

Importantly, however, solar tariffs have dropped 60% in four years from INR 14.90 per kWh in 2010 to INR 5.75 per kWh in 2015. Deutsche Bank said this is almost at parity with other conventional power sources.

Meanwhile market expectations are that solar equipment prices could drop a further 30-40% due to technological and efficiency improvements.

Tarun Kapoor, joint secretary of the Ministry of New and Renewable Energy (MNRE) said: “By next year, solar installations will overtake those for wind by several-fold.”

Finally, one of the main findings of the report was that India could become one of the largest renewable energy producers in the world by 2022.

Referring to the huge 100GW by 2022 solar target the report said: “Technically this is achievable – if administrators are willing to put enough support behind it. Realistically, challenges of weak financials of distribution companies and grid constraints need to be addressed.”

India had 4.5GW of solar installed as of end of June this year, according to Deutsche bank.

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