Slowdown blues: New solar power installations decline 35% in the first half of 2019

New solar power installations, one of the fastest growing and most vibrant business segments in the country for the past few years due to liberal incentives, is facing a slowdown.

Solar installations in the first half (H1) of 2019 reached 3.2 gigawatts (GW), a decline of 35 per cent, compared to 5.1 GW of capacity added in the first half of 2018, says a report published by research agency Mercom India. Installations in the Indian solar market declined by 14 per cent in the second quarter of 2019 reaching 1,510 MW, compared to 1,761 MW in Q1 of 2019. Installations were also lower year-on-year (YoY) compared to 1,665 MW in Q2 of 2018. The current quarter capacity addition is the lowest since the first quarter of 2017.

India had added over 2000 MW of solar in all the quarters of 2017. The first quarter of 2018 witnessed a record 3500 MW new installations. Since then, the capacity additions had been gradually declining.    

"It has been a rough couple of quarters for the Indian solar market, exacerbated by tough lending conditions. Post elections, we expect the second half of the year to be slightly better, but the liquidity issues need to be resolved for market momentum to return," said Raj Prabhu, CEO, and co-founder of Mercom Capital Group. Further, tariff caps imposed by government agencies caused developers becoming reluctant to bid at the levels prescribed by state agencies, instead of a market-based auction in which the lowest bid wins. Land acquisition, transmission, and acquiring approvals are also troubling  project developers to commission large-scale projects on time. Developers are also objecting the move of imposing charges for forecasting and scheduling power during drastic changes in weather conditions.

Adding more woes, states like Andhra Pradesh is trying to renegotiate and revisit solar and wind power purchase agreements (PPAs) to get cheapest solar power. The issue is now before courts. "The industry is waiting for a ruling from the courts that sets a precedent for future cases and makes it difficult for government agencies to cancel or renegotiate signed contracts," added Prabhu.

The report says decline in large scale installations is the main reason for the decline in capacity addition. In Q2 2019, large-scale installations totalled 1,218 MW compared to 1,498 MW in Q1 2019 and 1,250 MW installed in Q2 2018. The large-scale solar project development pipeline has increased to 22 GW. About 34 GW of solar has been tendered and was pending to be auctioned at the end of the quarter.

However, rooftop installations grew by 11 per cent quarter-on-quarter (QoQ) in Q2 2019, totalling 292 MW compared to 263 MW installed in Q1 2019, though rooftop installations fell by 30 per cent YoY compared to 415 MW installed in Q2 2018. Total power capacity additions in the first half of 2019 was 8 GW in India from all power generation sources and of this, solar represented 41 per cent of the capacity, closer to 42 per cent accounted by coal fired power plants.

According to the report, India's cumulative installed capacity stood at 31.5 GW by the end of Q2 2019. However, rooftop installations only make up for 12 per cent of total solar installations and the country has achieved only 10 per cent of its target capacity addition of 40 GW by 2022. Mercom India Research estimates India to install over 8 GW of solar capacity in 2019 and solar installations will reach approximately 70 GW by the end of 2022 based on the current market dynamics.

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