The Sunday RE Brunch 2 : 29 January 2017 (Budget 2017, lending rates, EVs and more)

Lending rates in India have been among the highest in the world. The high cost of capital has been a major challenge for solar project developers for a long time, but it has been gradually inching down. According to Mercom Capital, the average interest rates for  solar projects fell below 11% during the last quarter of 2016(Oct-Dec’16). About a year earlier, it was above 11.5%. Read more here.
Last week saw the REC trading for the month of January 2017, and according to REConnect, the total transaction value of RECs increased from Rs. 74.4 Crores in December 2016 to Rs. 244.7 Crores in January 2017. Full details available here.
The Union Budget 2017 is just a few days away, and some of the key recommendations from the industry for the growth of the solar industry include

  • Providing tax rebates on solar loans for residential customers just like rebates for housing loans(views put forth by Mr. Gagan Vermani, MYSUN here and Mr. Saini, Su-Kam here). This will help government achieve its target of 40 GW of rooftop solar installations by 2022.
  • Accelerated Depreciation(AD) – The AD benefits will reduce from 80% to 40% from April 2017. There is no doubt that this will negatively affect the renewable energy sector, and Mr. Vermani recommends that the government continue with the 80% AD benefit for a few more years, at least for solar projects in the commercial and industrial establishments. He suggests that safeguards can be put in place to prevent misuse of this incentive. Mr. Manish Aggarwal of KPMG suggests that government should take suitable measures to help the developers to overcome the increase in cost of projects as a result of reduction of AD.
  • Tax Holiday(80 IA) for infrastructure projects – This tax holiday will expire during this financial year, and Mr. Manish Aggarwal suggests that the Tax Holiday provisions be made available for another two years.
  • Goods and Services Tax(GST) – With the rollout of the GST regime, it is expected that the cost of renewable energy projects will go up, and one of the suggestion is to keep renewables in the lowest tax bracket.
  • Dedicated renewable energy evacuation – Another important suggestion is to expedite the Green Energy Corridor programme to fortify renewable energy infrastructure(from Anand Pattani)

We expect some sops for the rooftop solar sector, especially since the target of 40 GW by 2022 is extremely difficult to achieve without liberal incentives from the government.
Last week saw the first round of bidding for the 750 MW of capacity allocation in the Rewa solar park in Madhya Pradesh. Bids totally more than 7500 MW were received, and some of the prominent IPPs like ReNew Power, SBG Cleantech, Hero Future Energies and Mahindra Renewables put in bids for substantial capacity(read more here and here). According to Bridge to India, the tariffs are expected to fall below Rs. 4/kWh, the lowest ever for any utility scale project in India.
While on the subject of falling tariffs, Mr. Vikram Kailas, MD and CEO of Mytrah Energy expects “solar power with storage” to hit Rs.5/kWh in another five years. Currently, solar + battery cost is around Rs. 12-14 /kWh for those seeking 24 hour solar power.
Energy storage is expected to play a very crucial role in two areas – grid-management and mobility. On the former, the Central Electricity Regulatory Commission(CERC) has released an exhaustive staff paper on Energy Storage systems. This paper examines how energy storage systems can be deployed in utility scale projects, and looks at potential business models where the energy storage systems can be owned/operated by transmission licensees, generating companies, distribution licensees, merchant power plant or even the end users(bulk users). The staff paper can be downloaded here.
When it comes to energy storage and mobility, we may be at the early stage of take-off of electric vehicles(EV) in India. In this long read(almost 1500 words), we look at how the EV market is shaping up globally and in India. The article is available here.
Coming back to solar, when we started in 2010, utility scale solar projects in the USA were quite expensive at $4/W(in India, the CERC benchmark tariff was Rs. 17.91/kWh in 2010). In 2011, the Obama Administration announced the SunShot Program which set a goal of reducing solar project costs to $1/W by 2020. Guess what? The target has been met 3 years ahead of the target year- in 2017. The natural question is, did the solar costs dropped because of the SunShot program, and Greentechmedia answers that question as follows.
“GTM Research solar analyst Ben Gallagher acknowledges that it was “pure market forces” such as “scaling in China” and, more recently, “global macro supply-demand imbalances” that have forced a drastic drop in the solar system cost stack.
But Gallagher emphasized that the signals, monetary and otherwise, that SunShot sent to investors and entrepreneurs “made the market more efficient.” He said that SunShot helped accelerate this industry and allowed vendors and customers to be able to tolerate a bit more risk.”
So, if there were another SunShot Program, what could be the target? $0.25/W by 2020? We will never know, thanks to Donald Trump.
And that brings us to the end of this edition of the RE brunch and we hope that you found this edition useful.Let us know your feedback and comments.
(This blog series is supported by Aspiration Cleantech Ventures)