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Capacityadditionsalmostquadrupledto593MWinH1201516

InH1201516,593MWofsolarpowerprojectscommissioned,whichisalmostfourtimesincreaseoverthesameperiod
lastyear.CapacityadditionswerelargelydrivenbycommissioningofprojectsallocatedundertheJNNSMPhaseIIBatchI
(750MW)scheme.ConstructionoftheseprojectswasspedupasthelastdateofcommissioningwasApril2015,post
whichtheirperformanceguarantees(Rs.3million/MW)wouldgetencashed.However,governmentallowed2monthsof
extensiontodevelopersbeforetheliquidateddamages(LD)clausecouldbeevoked.HenceasonJuly2015,555MW
projectswerecommissionedunderthisscheme,ofwhich~400MWcommissionedinH1FY2016.

Overandabove400MWcapacityinstalledunderNSMscheme,~152MWcommissionedundervariousstatepolicies,
particulalryMadhyaPradeshandPunjab.Stategovernmentsproactivelyhelpeddevelopersinlandacquisitionwhich
facilitatedcommissioningofdelayedprojectsinthesestates.Forinstance,DepartmentofRuralDevelopmentand
PanchayatsinPunjabpassedanotificationinMay2014,allowingpanchayatsandfarmerstoprovidelandonlease(for30
years)forsolarprojects,whichledtocommissioningof~100MWprojectsinH1FY2016.Further,MadhyaPradesh
introduceda'righttouse'conceptforgovernmenttoreducetimeandcostoflandallotment,whichsupportedcapacity
additionsinthestate.CapacityadditionundertheRECroutewasrestrictedto35MWinH12016,owingtopoorRECoff
takefromexchanges,whiletherooftopbasedcapacityadditionswerecloseto10MW.

Solarpowercapacityadditions(MW)

JNNSM:JawaharlalNehruNationalSolarMission

Source:MinistryofNewandRenewableEnergy(MNRE),CRISILResearch

SomeofthemajorcapacityadditionsinH1201516wereasfollows:

150MWpowerplantsofAcmesolar(J.VofACMECleantechSolutionsLtdandEDFEnergiesNouvelles),were
commissionedin,Rajasthan(120MW)andSikuanareainOdisha(30MW)inJuly2015.
80MWofpowerplantsofIL&FSwerecommissionedinagarMalwainMadhyaPradeshinMay2015.
86MWofpowerplantsofWelspunrenewableswerecommissionedinMansa,Punjab(34MW)andinPunedistrict
 (54),MaharashtrainAugust2015.
A50MWofsolarprojectcommissionedbysunEdisoninMandasaur,MadhyaPradeshinJune2015.
A30MWofsolarprojectcommissionedbycleansolarpower(Dhar)(aSPVofHerofutureenergies),inDhar,
MadhyaPradesh.
A31.5MWofsolarprojectcommissionedbyPanIndiaInfraProjectsinPunjabinMay2015.
A31.5MWofsolarprojectcommissionedbyEsselInfraProjectsinMansa,PunjabinMay2015.
20MWofpowerplantswerecommissionedbyAzurepowerinChitradurga,Karnataka(10MW)andDurg,
Chhattisgarh(10MW)inJune2015.
Further~90MWofprojectswerecommissionedunderJNNSMPhaseIIBatchIbyvariousplayerssuchasSwelect
energy(10MW),cleansolarpower(10MW),OmegaSolar(10MW),Enersanpower(20MW),Governmentof
Gujarat(5MW),Shardaconstruction(10MW),Sunilhitechsolar(5MW)andPalimarwarsolargroup(11MW).

PLFsinlinewithexpectations
AttheendofMarch2011,wheninstalledcapacityofsolarpowerwasonly20MW,therewaslimitedestablisheddataon
PLFs,whichledtouncertaintyregardingeconomicviabilityamongdevelopersandlenders.Withcommissioningof
capacitiesunderJNNSMPhase1(in201112and201213)andGujaratstatepolicy,confidenceamongindustry
participantshasincreasedasmostplantsareoperatingbroadlyinlinewithexpectations.

TheaveragePLFunderJNNSMPhaseI(Batch1andBatch2)was21percentfortheApril2013March2015period
withmorethan85percentprojectsachievingPLFsofover19percent.Consequently,healthyPLFs,decliningcapital
costsandlowcostforeignfundingledtoreturnsof16.3percentinPhaseI.

Incomparison,averagePLFofplantsunderGujaratpolicywasabout18percentfortheApril2013March2015period.
ItwaslowerascomparedtoJNNSMphaseI(Batch1andBatch2)asmostprojectsunderthatschemewerelocatedin
Rajasthan,whichenjoyshigherirradianceascomparedtoGujarat(globalhorizontalirradianceis6.86.9kwh/m2/dayin
Rajasthan,asagainst6.46.5kwh/m2/dayinGujarat).DespitelowerPLFsinGujarat,returnsoftheseprojectsare
estimatedtobeveryhealthyastheseprojectswereawardedatanattractivefixedtariff(Rs.10.412.54perunitdepending
ondateofcommissioning)attimewhencapitalcostswereonadecliningtrend.

RooftopprojectsunderRooftopPhotovoltaicandSmallSolarPowerGenerationProgramme(RPSSGP)operatedatPLFs
of16.4percentfortheApril2013October2014periodastheseprojectsaresmallersizeprojects(upto2MW),which
typicallyhavelowerPLFs.Moreover,theseprojectsarespreadacrossvariousstatesincludingJharkhand,Maharashtraand
Haryanawherethesolarirradianceislower.

AveragePLFsofplantsunderJNNSM(Batch1and2)andGujaratSolarPolicy

Note:PLFsisbasedondataprovidedtoMNREbydevelopersandaccountsfor~40percentofthetotalcommissionedcapacity
Source:MNREStateLoadDispatchCentre(SLDC)Gujarat
Further,PLFsofplantsbasedonthinfilmtechnologywerehigherthancrystallineby100150bps.Thisisbecausethin
filmhasahighercapabilitytoabsorbdiffusedsunlight,makingitmoresuitableindustyandfoggyconditionsalsoithas
thelowertemperaturecoefficientsthatmakeitssuitableforhightemperaturezonesofRajasthanandGujarat.Lackof
restrictiononimportsforthinfilmtechnologyundertheJNNSMPhase1encouragedplayerstooptforthinfilm
technology(AsFirstSolar,aUSbasedcompany,ismajorsupplierforthinfilmmodules,playersoptedformodulesfrom
UStoobtainlowcostfinancingfromUSEximBank).

Overhalfcapacitiesoptedforlowcostforeignfunding

Typically,playersimportingmoduleshavebeenabletoobtainlowcostforeignfundingatabout810percent(including
hedgingcost)asfinancingislinkedtoequipmentprocurement.Infact,playerswithastrongexecutiontrackrecordand
financialbackinghavealsobeenabletoobtainprojectfinancingfromforeignlendingagencies.Thekeyforeignfunding
agenciesincludeInternationalFinancecorporation(IFC)andAsiandevelopmentbank(ADB),USEXIMbankand
GermanybasedKfW.Whileforeignfundingagenciestypicallytake69monthstoprocessloanrequests,playersinitially
obtaindomesticfunding(asperiodallowedforfinancialclosureistypically67months)andsubsequentlysubstituteitwith
foreignfunds.

Indianbankshavefinancedmostsolarpowerprojectsonrecoursebasisatinterestratesof1213percent.Bankershave
beenwaryofextendingprojectfinancingtotheseprojectsduetolimitedoperationalperformancedata.Consequently,the
shareofbankfinancingtosolarprojectsisonly3035percentofthetotalinstalledcapacity,whilefinancingforremaining
projectsisdonethroughequipmentlinkfinancing,EXIMbankfinancingandthroughtheprivateequityroute.However,
theconfidenceofbanksislikelytoimprovewithsatisfactoryperformanceofmostoperationalsolarpowerplants.Someof
thekeybankslendingtothesolarsectorincludeICICI,SBIandAxisbank.AmongNBFCs,IIFCL(IndiaInfrastructure
FinanceCompanyLtd),IREDA(IndiaRenewableEnergyDevelopmentAgency),PFCGreenEnergyareactiveinthesolar
powermarket.Infact,IREDAfunded224MWofsolarcapacitiesin201314atinterestratesof12.2513percent.Further,
RuralElectrificationCorporationLtd.(REC)providesloanstorenewableenergyprojectsat75basispoint(bps)lowerrate
ofinterestascomparedtoloansforconventionalfuelbasedpowerprojectsandwithextendedloantenureof15years

Keyforeignfundingagencies

Source:CRISILResearch

Note:*Theabovementionedinterestratesandloantenurearenotprojectspecificbutrepresenttypicalvalues

6670percentRPOcomplianceatnationallevelinFY15Gujarat
RajasthanandMadhyaPradesh,keydrivers

RPOtargetvsestimatedRPOcomplianceforstatesin201415

Source:MNRE,CRISILResearch
Note:Complianceofmostotherstatesisclosetozero

NationalActionPlanforClimateChange(NAPCC)whichwaslaunchedin2008specifiedaminimumRPOtargetof5per
centin200910,tobeincreasedby1percenteveryyearforaperiodof10yearstoreach15percentby201920.
Consequently,severalstateshadsetRPOtargetsbasedontheirrespectiverenewableenergypotential.

Theoverallsolarrenewablepurchaseobligation(RPO)compliancewas6570percentin201415.Gujarat,Rajasthan,
MadhyaPradesh,AndhraPradeshandPunjabwerethefewstatestomeettheirsolarRPOtargetsastogethertheyaccount
forclosetotwothirdofthetotalinstalledbaseatendofMarch2014.

Despitecontinuingnoncompliancebymoststates,therehasbeenlackofenforcementonobligatedentitiesdistribution
companies(discoms),openaccessandcaptivepoweruserstomeetRPOtargets.Webelievethatthisisprimarilyon
accountoftheweakfinancialhealthofstatediscoms.Consequently,therehasalsobeennoinstanceofpenalty(forbearance
priceofRs5.8/unitw.e.f.January2015multipliedbyshortfallinachievementofRPOtargetsinnumberofunits)being
leviedontheobligatedentities.Whilefewstateshavetakensomeaction,thesuccesshasbeenlimited.Forexample,
MaharashtraElectricityRegulatoryCommission(MERC)hasdirectedallobligatedentitiestomeettheirsolarRPOforthe
period201115cumulativelyby201516.Despitethat,MSEDCLfailedtopurchaseRECstofulfillitsRPOobligation.
PunjabdiscomearmarkedfundsRs.800millionandRs.1billionfor201213and201314respectivelytobuyRECs,but,
utilisedthefundtobuynonsolarRECsonly.Similarly,HimachalPradeshERChasmandatedthestatediscomtomeetthe
RPOshortfallforyear201213by201617anddepositcompensationofRs.172millioninaseparatefundasRPO
CompensationfundfornoncomplianceofRPOin201314.

Goingforward,RPOcomplianceisexpectedtoimproveto7580percentin201718.Thiswillbedrivenbycapacity
additionsof1011GW(FY16FY18)undervariouscentralandstategovernmentpolicies(refertothe'Outlook'section
fordetails).Forouranalysis,wehaveassumedpanIndiasolarRPOtargetof1.2percent(from0.6percentin201415)of
totalelectricityconsumption.

Also,reducedsolarRECprices(tofloorpriceofRs3.5/unitfromRs.9.3/unitandforbearancepriceasRs5.8/unitfrom
Rs.13.4/unitwitheffectfromJanuary2015)onexchange,isexpectedtosupportincreaseincompliancelevels.Statessuch
asGujarat,Rajasthan,andMadhyaPradeshareexpectedtoexceedtheirRPOtargets,whilestatessuchasAndhraPradesh,
Maharashtra,KarnatakaandTelanganaareexpectedtomeettheirtargets.Formostotherstates,RPOcomplianceis
expectedtobeminimalmainlyonaccountofweakfinancialhealthofdistributionutilities.

However,forsignificantimprovementandfairdistributionofRPOcomplianceacrossstates,webelievethatstrict
enforcementwouldbecritical.

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