GST: The cherry on top of financial dearth is why India might not achieve its 100GW solar target by 2022. - Bonafide Research

While financing is seen as the biggest bottleneck to the growth story of India’s ambitious solar target, the latest decision of Goods and Service Tax council to impose 5 per cent GST on solar equipment is expected to push tariff by 4%. The target which already needs total investments of Rs. 6 lakh crore by 2022, has missed the yearly targets of solar power capacity additions set by the government in past. With already lower financial inputs and renewable energy companies far away from achieving their targets, financiers are now undetermined about cash outflow in upcoming years. 

The government's foremost surprise announcement that solar photovoltaic cells and modules will attract a levy of 18 per cent under the Goods and Services Tax regime that came into force on July 1st 2017 caught the industry by surprise. Later on, it was clarified by the revenue secretary of ministry of finance that it is placed under the 5 per cent tax bracket. Out of the total power generation target, 100 GW would be from solar power, 60 GW from wind, 10 GW from biomass and 5 GW from small hydro power. To achieve the proposed solar capacity of 100 GW target by 2022 with the said value of total investment required, it becomes obligatory for Indian government to keep the duties down on solar power equipment. Considering where India started from in 2010, when the Jawaharlal Nehru National Solar Mission became active, the growth of solar power in India has been phenomenal - from 2 MW in 2010 to 12,000 MW at present. However, this is not enough as India needs to intensify its capacity that requires a rate no other country has done before.  Currently, on an average, the country is adding 2000 MW of solar power annually. At this rate, 100,000 MW in six years looks farfetched even if one was to assume that India can match China which has added solar capacity at an ever-increasing rate. The Union ministry of new & renewable energy pegs the annual growth of solar power at 15,000-17,000 MW. 

According to recently published report of Bonafide Research, "India Solar Photovoltaic Market Outlook, 2027-28", a latest trend that has set its foot in the Indian market is the increasing demand for residential rooftop solar plant. For the large scale utility solar power plants, investment trackers are still maintaining their stand that there are big investors betting on India's renewable energy sector but are sitting on the fence awaiting clarity on policy (GST). The JNNSM target, as of now seems unattainable but may get achieved only if adequate capital and required infrastructure is procured every year. The target would have looked more reasonable if only the evacuation infrastructure was in place. The ambitious 'Green Energy Corridors' project envisaged in 2011 as an alternative transmission network has been a non-starter with no major lines being built or tendered out. It's only now that the government has decided to 'nominate' state-owned Power Grid Corporation to build it with assistance from the states. 

Power Grid Corporation, which designed and calculated total expenditure five years ago, is five-fold now with targets being revised in the same quantum. Amid all this, the point being ignored is that renewable energy like solar is an alternating power source and grid-connected solar energy would need the same amount of conventional energy as balancing power. Thus, there is equivalent coal or gas based capacity that needs to be built or fired along with solar energy. NTPC, for instance, can bundle thermal power and solar energy and sell at some average rate but then the bundling and the sale would also face tariff challenges. Solar power is priced at average Rs 6-8 a unit and bundled power would be Rs 3.5-4.0 a unit. Also, there are no buyers for expensive power. The financially stressed state utilities are not willing to buy even conventional power at Rs 3 a unit. The historic drop of price for solar power to around Rs 2.5 is actually scaring away investors. Moreover, there is an absence of financing options and the biggest financial challenge faced by developers has been access to low-cost finance. While developers using imported components and cheaper EXIM Bank loans (10 per cent interest for 18 years) have prospered but those using indigenously manufactured equipment have had to avail costlier loans (13 per cent for 10 years). This has diminished the confidence among the investor community. 

Major companies operating in the solar photovoltaic market of India are Vikram Solar Private Limited, Waaree Energies Limited, Tata Power Solar System Limited, Moser Bear Solar Limited, XL Energy Limited, Alpex Exports Private Limited, Renewsys India Private Limited, Emvee Photovoltaics Power Private Limited, Lanco Solar Private Limited and Saatvik Green Energy Private Limited.