Solar Power Dominates Our Renewables Forecast Revisions

BMI View : We have made several revisions to our estimates and forecasts for non-hydropower renewable energy generation and capacity in India based on information from the government and a number of private utilities. We have also made revisions to our medium-to long-term forecasts for solar and biomass energy to account for the government's targets, the increasingly bankable nature of renewable energy and demographic trends in the country.

These include a downward revision to our 2012 solar capacity estimates, as well as an upward revision to our 2013 solar capacity forecast. We have maintained our forecasts for other forms of renewable energy.

Mixed Revisions, 2013 Up Overall
India - Solar Capacity, MW

As mentioned above, we have revised down our 2012 solar capacity estimate from 1,200MW to 1,044MW. This revision is based on figures provided by the Indian Ministry of New & Renewable Energy (MNRE) which we have verified with information disclosed by the various state governments.

India - Installed Solar Capacity By State At End-2012, MW
State/Union Territory Installed Solar Capacity (MW) State/Union Territory Installed Solar Capacity (MW)
Source: MNRE
Andhra Pradesh 21.8 Punjab 9.3
Chhattisgarh 4 Rajasthan 201.1
Gujarat 690 Tamil Nadu 17.1
Haryana 7.8 Uttar Pradesh 12.4
Jharkhand 16 Uttarakhand 5.1
Karnataka 14 West Bengal 2.1
Madhya Pradesh 7.4 Andaman & Nicobar 0.1
Maharashtra 20 Delhi 2.5
Orissa 13 Lakshadweep 0.8
Total 1044.5

We have revised up our 2013 solar capacity forecast from 1,830MW to 1,930MW. This upgrade was prompted by our expectation for the completion of the first phase of the federal government's main solar initiative, the Jawaharlal Nehru National Solar Mission (JNNSM). In particular, we believe that approximately 470MW of solar thermal energy capacity under the first batch of Phase One will come online over the course of the year, along with 350MW of photovoltaic (PV) capacity under the second batch of the same phase.

Aside from the JNNSM, we also expect capacity from several solar projects being developed privately or by state governments to come online this year. In particular, we note that the Indian companies Lanco Infratech (the country's second largest privately -owned power generator) and Bharat Heavy Electricals have announced plans to develop sizeable solar projects ( see 'Lanco Infratech: Banking On Solar', February 28 and ' Bharat: Shortage In Solar Certificates Presents Opportunity', April 4). The state governments of Odisha and Madhya Pradesh have also awarded a total of 225MW of solar projects independently, and we expect to see a portion of this come online this year.

India - Non-JNNSM Solar Capacity Awarded By State Governments, MW
Announced Commissioned Awarded Planned
Source: MNRE
Gujarat 968.5 690
Maharashtra 205 40
Karnataka 8 600
Rajasthan 200
Odisha 50 25
Madhya Pradesh 200
Tamil Nadu 3000

We highlight that our 2013 forecast for solar energy could still be on the conservative end. This opinion is based on the increasingly bankable nature of solar energy (and renewable energy as a whole). This is because thermal generation in India has been plagued by numerous problems such as fuel shortages, highly regulated electricity prices and inefficient state distribution companies. These hurdles have led many traditional power utilities to expand their clean energy operations, including Lanco, which has been reducing its thermal generation assets since 2012 ( see ' Greenko: Clean Energy In India Increasingly Bankable', March 19). At present, our forecasts are based mainly on the project pipeline, but we note that there is a possibility for new projects to be announced and developed before the end of the year.

Medium- To Long-Term Also Up

We have also made revisions to our medium-to long-term forecasts for non-hydropower renewable energy. In particular, we have revised up our solar and biomass forecasts to account for the government's targets, the increasingly bankable nature of renewable energy, and demographic trends in the country.

Solar Increasingly Important
India - Non-Hydropower Renewables Capacity By Type, GW

We believe that the JNNSM will continue to be a driving force in the Indian solar sector. The JNNSM is divided into three main phases, and we note that the second phase (spanning from 2013 to 2017) is about to commence. In this second phase, the MNRE has stated its intention to reach a cumulative grid-connected solar capacity of 4,000 to 10,000MW of by the end of 2017, as well as 1,000MW of off-grid solar capacity. In April 2013, the MNRE has already issued a set of draft guidelines for participation in the second phase in April 2013 ( see ' New Solar Guidelines Generally Positive', April 24), which we find are relatively positive for solar energy producers, and symbolise the government's continued commitment to the sector. At present, we expect a first tender of 750MW capacity to be opened under this phase later this year.

India - JNNSM Targets
Segment Target for Phase 1 (2010-2013) Cumulative target for Phase 2 (2013-17) Cumulative target for Phase 3 (2017-22)
Source: MNRE
Utility grid power including rooftop 1,100MW 4,000-10,000MW 20,000MW
Off grid solar applications 200MW 1,000MW 2,000MW
Solar collectors 7mn sq m 15mn sq m 20mn sq m

At present, we are forecasting approximately 6.9GW of solar capacity in 2017 (up from 5.5GW), and 13.5GW in 2022 (up from 11.8GW). We highlight that these forecasts are relatively conservative compared to these JNNSM targets, but believe that the MNRE is likely to change targets in the medium-term.

That said, we highlight that the new system of awarding solar projects proposed by MNRE in April 2013 poses a risk to our forecasts as it does not solve the problem of overbidding. We had previously highlighted that the bids submitted in the two previous JNNSM auction windows (under phase one) were significantly lower than the base price, raising the question of profitability among some of these projects ( see 'Renewables Boom, But Not Without Risks', August 9 2012). In particular, bids in the first and second windows averaged discounts of 39% and 32% respectively, and we believe that companies participating in the JNNSM Phase 2 could submit similarly aggressive and possibly economically infeasible bids.

Bids Extremely Aggressive
Historical Bids/Tariffs For JNNSM Phase 1, Auction Windows 1 and 2

Waste-To-Energy To Grow

We believe that waste-to-energy (WTE) is set to grow in India. Studies conducted by the government have shown that up to 90% of municipal solid waste (MSW) is unsatisfactorily disposed, even in developed cities. This is because the country lacks the infrastructure - namely incineration plants and sanitary landfills - used by more developed countries to dispose waste, and WTE plants are viable alternatives for the proper disposal of MSW in India.

The amount of waste generated in India is expected to grow significantly over the long-term, making the case for WTE even more compelling. Waste generated in the country grew significantly over the last decade as a result of urbanisation and higher per-capita consumpt ion, and will continue to grow as these trends - and the country's population - grow further. To be sure, the country's Ministry of New and Renewable Energy (MNRE) has estimated that MSW generated in India will grow at a rate of 1-1.33% annually for the foreseeable future.

Demographics Driving Waste Generation
India - Population, Mn (LHS); Urban Population As A % Of Total, % (RHS)

We have already noticed a growing private interest in WTE energy. In May 2013, Ramky Enviro Engineers, an Indian waste management and environmental services company, began construction on a 48MW WTE facility in Jawaharnagar ( see ' Waste To Energy Picking Up', May 2). The US$115mn project will consume 2,400 tonne of waste per day, and is expected to be operational within two years of construction should all government approvals be secured. We expect to see more WTE projects in the near future, as urbanisation continues and the country finds it increasingly difficult to deal with waste.

This article is tagged to:
Sector: Renewables
Geography: India

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