Quest for low cost solar jeopardising Indian market: Mercom

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Anti-dumping cases, local content requirements and cost-dominated tendering processes are limiting India’s solar energy growth, according to the latest quarterly report by the Mercom Capital Group.

Many state governments have commissioned gigawatt-scale tenders but so-called L1 bidding processes, where all potential suppliers must match the lowest bid, are driving down quality and discouraging investors.

Tamil Nadu’s 1GW tender in December 2012 resulted in a price of US$0.09 per kWh that had to be revised to US$0.11 per kWh after the original rate was deemed unviable. Despite this several financial institutions told Mercom that even the higher rate was too low to attract their interest. Letters of intent for 698MW of this have been signed so far but question remain over how these will be financed.

Mercom also warned that anti-dumping measures have “paralysed” the sector.

Mercom estimates that 622MW of solar capacity has been installed in India in the last seven months but just 73MW of that has occurred in the past three months.

“With the government desperately looking to attract foreign direct investments due to deteriorating economic conditions, India is sending the wrong message to investors with the anti-dumping case and domestic content rules,” said Raj Prabhu, CEO of Mercom. “Instead, they should provide long-term policy visibility and a growth roadmap.”

“It is naïve to think that India can impose DCRs [domestic content rules] and anti-dumping tariffs without negative repercussions and at the same time look to increase exports to and attract investments from these same markets,” he added.

The report states that while many developers are happy to use local products, the absence of sufficient warranties is making it more difficult to do so.

Recent inflation has also driven up costs for developers.

The failure of electricity regulators to enforce renewable obligations is also slowing the growth of solar.

Mercom hopes more boards will follow the example of Maharashtra’s Electricity Regulatory Commission (MERC) which has announced fines for energy producers that fail to meet their renewable obligations.

An attempt to reduce the rate paid for solar electricity in Gujarat was recently rejected by the state's electricity commission.

Prime Minister Manmohan Singh is a vocal supporter of solar energy. The country is planning a US$7.9 billion investment in its electricity grid as it prepares to bring more solar online.

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