Developers who have bid for projects under the domestic content part of India’s JNNSM national solar programme may not sign power purchase agreements, industry body the National Solar Energy Federation of India (NSEFI) has warned.
The NSFEI wrote a letter 24 March, to India’s Ministry of New and Renewable Energy (MNRE) and its national solar mission departmental organiser, the Solar Energy Corporation of India (SECI), stating the DCR has made projects “economically unviable”.
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The letter accuses India’s manufacturers of using the DCR to raise solar cell prices “by a whopping US$0.06-08 per watt, within a few days of award announcement”.
The letter called the price rises “completely unethical”.
NSEFI concludes manufacturers’ price rises have made it “impossible” for developers to execute DCR projects, and the movements are a “serious threat to the solar mission”, and could deter developers from future DCR projects.
NSEFI predicted a maximum of only 35% of the current pipeline for DCR projects could be completed as a result of low manufacturing capacity.
In turn with cell prices rising, module manufacturers have increased prices by up to 16% more than the quotes produced prior to developers’ bids, NSEFI claims.
Bids for the national mission work on a reverse auction mechanism, so the lowest project bid wins the tender; this and manufacturers’ higher pricing has made DCR projects economically unviable, NSEFI claims. Because of this, developers are “debating if they should sign the PPA or not”.
Because of low bidding, low credit ratings from utilities and uncertainty surrounding the viability gap funding (VGF) mechanism, which offers a government grant for up to 30% of project costs, observers have said DCR developers will apply for more VGF, as they struggle with narrow profit margins.
In turn developers seeking finance for DCR projects is problematic, due to the lack of confidence in the sector from manufacturing capacity concerns.
A 15-16% hike in prices by module manufacturers could even make projects loss-making, Pradeep Palelli, managing partner at energy research firm, EfficientCarbon told PV Tech, adding that “developers would have to withdraw their bids or look for alternative module manufacturers” to keep the projects viable.
As competition in megawatt-scale development has soared, Palelli said even minor changes to pricing “can put you out of the game”.
“Surely the government did not visualise a situation where opportunities like this would be taken advantage of to extract higher prices,” the letter states.
Another major concern is India’s manufacturing capacity is too low to meet the DCR demand. NSEFI claims the capacity quotes from manufacturers are exaggerated to be higher than actual nameplate capacity – which NSEFI approximates has a maximum of 150MW.
NSEFI claims some manufacturers are running at zero capacity, and would take months to ramp operations, with instability because of a lack of finance.
Solar energy analyst for Bridge to India, Jasmeet Khurana told PV Tech the NSEFI criticism of domestic manufacturers “is fair but too late”.
Khurana argued and that Indian manufacturers “don’t match up to their international counterparts on either scale or technological improvements” and the DCR “subsidies and protectionism are not the answers to promoting or even protecting domestic manufacturing”.
However, Palelli said better testing and simpler technology explanations might improve domestic module manufacturers’ reputation for quality.
In its letter, NSEFI proposed the “win-win” solution of extending the time line awarded to DCR projects, from the current 13 months till completion, to 24 months.
NSEFI has argued a timeline extension would benefit manufacturers by allowing more start-up time and leniency for dealing with bankruptcy and restructuring.
An extension would also allow projects outside of the JNNSM pipeline to use domestic manufacturing capacity, and enough time for new manufacturing facilities to be opened, NSEFI proposes.
Extending the timeline of DCR projects from 13 months to 24 months “can certainly help a few bidders in the DCR category to renegotiate their terms with existing suppliers, or find alternate suppliers to make sure the projects are viable”, said Palelli.
An extension would also allow time for “the ongoing supply-demand imbalance to stabilise, resulting in less volatile prices”, Palelli told PV Tech.
Khurana has also previously told PV Tech’s sister site Solar Business Focus that the JNNSM deadline and a “liquidity crunch” could lead manufacturers to “cut corners”.
“Many manufacturing lines have been shut for a while and when they begin production, there might be quality issues,” said Khurana.
Palelli said there are two module manufacturing plants in Andhra Pradesh running at below 40% capacity.
Due to debts, restructuring, and bankruptcy, domestic cell manufacturers also struggle to promise future business. However, developers “expect to procure modules from companies that have been around for a long time and have healthy balance sheets”, said Palelli.
Developers are now seeking open competition to gain cheaper modules, said NSEFI, adding that manufacturers are “denting the country’s image severely” as the World Trade Organization (WTO) and US anti-dumping investigation ensues.
“DCR is obviously opposed by developers who want to source good quality components at the least cost, from anywhere,” said energy research firm, RESolve’s consultant, Madhavan Nampoothiri.
Longer term, Khurana told PV Tech one solution to the DCR issue would be for government to create a long-term roadmap of “how the domestic industry will be promoted by way of ensuring domestic and export demand”.
The Indian domestic market has been reasonably successful in the past when it supplied demand from Europe; however since China overtook demand Khurana said the industry had started underperforming and scaling up came to a halt. “This is unlikely to change unless long-term policy clarity is provided to the sector to kick start a new investment cycle,” said Khurana.
A clear long-term policy roadmap for domestic manufacturing should include: “tax incentives, cheaper finance, more domestic demand and a fair market competition” says Khurana.
Bridge to India predicts the MNRE and SECI are most likely to “wait and watch” in response to the NSEFI letter.
Urging the ministry to reconsider the implementation timeline, NSEFI said developers should also be able to pull out of the DCR, without losing deposits or credit ratings.
Khurana said to PV Tech: “If there is a genuine reason to believe that the projects under the DCR category are not going through, they might allow an extension. However, this will mean that there might not be any DCR for the next round of allocations. Therefore, it is in the manufacturers’ interest to ensure timely deliveries at fair prices.”
SECI held the JNNSM phase II, batch one tender auction on 20 January of this year. The DCR element of the auction received 36 project proposals amounting to 700MW for the allocated 375MW.
Under the DCR, those likely to sign PPAs soon are: Welspun, Tata Power, SunEdison, SolaireDirect, Azure Power, Waaree, IL&FS and Hero Future Energies.
Figures will not be final until PPAs are signed, which is predicted to happen in April.
Edit: Moser Baer has been deleted from being previously listed with companies to sign DCR PPAs soon. Also the US$0.06-08 per watt tariff, has been corrected from US$0.6-8.