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Summary:
• India is the third largest country for Solar Installation with an addition of 9.1 GW of capacity and the 6th largest
• With the advent of Chinese companies bringing the cost down to Rs. 2.44kWh, there is a slowdown in executing
of the PPAs where the price is between Rs. 4.0-5.5 kWh in the last 6-12 months.
• Two major factors can be: (a) market undercutting by Chinese suppliers; and (b) reluctance of purchasers
(which remain largely the governments – a form of state monopsony) to pay what is a sustainable market price
– both of this have led to a market situation tuned towards increasing consumer surplus artificially (myopic
• The profitability of the solar industry is questionable but there is inadequate data to make a quantified
assessment, but all other data seems to point in this direction. It is unclear if the coal lobby is also playing a
• A sustainable environment needs to be quickly put in place if the fledgling solar energy has to survive in the
• Long terms players need to invest in Research & Development to enhance their technology to attain market
differentiator because competing on the cost of manufacturing in not sustainable option for the future.
Introduction: Today, we import over 80 percent of oil & 20 percent of coal to meet our energy needs. India is targeting
GDP growth of 7-8 percent and to achieve it our energy demands are also expected to go up. (Maini 2016 ). India has a
huge potential to move into a fully renewable electricity system by 2050, (Praveer Sinha n.d.). If we achieve the target.
It will provide the right platform for sustainable growth for the next 25 years. It will increase our energy security, reduce
our dependence on fossil fuels, combat climatic change, besides creating a new industry and a significant number of
new jobs. (Maini 2016 ). Geographically, India is an ideal country for solar energy with 300 days of sunshine, with the
power demand being in the evening driven by cooling requirements matching the solar peak season in the summer.
(Maini 2016).
Authors: Sarah Quadri | Vidyuth Rajagopal | Om Ahuja | Lokho John | Abdul Rahman
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Solar Industry Analysis: Thermal power (coal) is currently the highest source of power generation in India accounting
for ~58% of power generation. (Mercom Communication India 2017) Renewable energy constitutes for >18% of energy
generation in India. Solar energy accounts for overall 4.5% of energy generation and 25% of installed capacity. In FY
2018, the country's cumulative solar capacity grew to 24.4GW. Solar capacity addition in 2017-18 was higher than that
of all other energy sources, both conventional and renewable, combined. However, this is still far short of the government
target of a 100GW target set in 2015, as part of an overall renewable energy target of 175GW for 2022. (Praveer Sinha
Producers (IPPs).
Government Regulations & Framework: The Government of India is providing Rs. 15,050 cr. subsidy to promote
solar capacity addition in the country. The Electricity Act 2003 promotes electricity generation from co-generation and
renewable energy sources have accelerated the process of renewable energy development in the country enabling to
dictate that prices are set by an auction and not by the market. The market demand is controlled by a single large
customer, which is the Indian Government through the various Transmission (TRANSCO) & Distribution (DISCOM)
companies. Private Power Distributors are looking to Solar as an opportunity, however, apart from one or two integrated
players such as Tata Solar, the majority are yet to enter the market. Based on the above we can conclude that since that
price is set by the government through a competitive bidding process, all firms in the industry are price takers. Demand
is largely inelastic as firms sign up for long-term power projects at a fixed rate, thereby removing their ability to influence
price and demand. The decision of the firms are based around the quantum of production i.e. capacity related decisions.
structures.
Authors: Sarah Quadri | Vidyuth Rajagopal | Om Ahuja | Lokho John | Abdul Rahman
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One can liken the present solar energy market to the Stackelberg version of industry competition. The basis of the above
is a situation where one firm acts as a capacity leader, with all other firms acting as followers. Capacity decisions are
made sequentially by firms. Profits for the Stackelberg leader are greater and followers are lower. The advantage of
being a Stackelberg leader is that of the first mover advantage, however, that is not a barrier to entry in of itself, hence
not being as powerful as the Monopoly market. (EFM Class Notes) . In June 2015, India announced that it would develop
175 gigawatts (GW) of renewable energy capacity by 2022. To this end, federal and state governments introduced several
tax and financial incentives to make India’s nascent solar and wind sectors appealing for investors, which helped attract
about US$2.05 billion (Rs 13,000 crores) in investments in India’s renewable energy sector between April 2014 and
December 2016. (Gonsalves 2018 ) The pace of new tender announcements and completed auctions has slowed down
significantly in the last year. Southern states have frontloaded capacity buildout – Karnataka (installed plus tendered
capacity of 69% as against March 2022 target); Andhra Pradesh (74%) and Telangana (70%) – and are bound to slow
down. Amongst other large states, Maharashtra and Gujarat, like many others, have surplus power availability and
Recent tender results have jolted the policymakers, DISCOMSs, project developers and investors. Greenfield solar
power at prices of Rs 3 to 3.5/KWH is very attractive and should create strong demand pull in the medium to long-term.
But it is also leading to buyer's remorse for projects already built and under development. States that have completed
auctions with prices of Rs 4-5.5/kWh in the last 6-12 months (Jharkhand, Andhra Pradesh, Hyderabad) are refusing to
sign PPA's which is creating uncertainty in the market. (Bridge to India 2017) .The cost of solar panels and the inability
of state power distribution companies to purchase solar electricity has eaten into profits as well. In 2017, India added
about 9.6 GW solar power capacity, with Telangana and Karnataka installing over 2 GW each. According to industry
experts, while falling prices and government support have helped in boosting demand, supply-side factors like land and
transmission remains a concern. (Praveer Sinha n.d.) The government's strong resolve to heightened quality standards
for imported solar photovoltaic (PV) modules, enforced through inspections will further help procurers get over 25 years
Opportunities: Every company needs to have access to cheap capital, as the capital-intensive nature of the products
requires significant capital expenditure. Only by getting bigger, and thus having more collateral in the form of projects,
can they bolster their financial positions and scale up. Solar companies must, therefore, find new ways to attract long-
Authors: Sarah Quadri | Vidyuth Rajagopal | Om Ahuja | Lokho John | Abdul Rahman
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term capital from institutional investors (either through public markets or private placements), to improve capital
efficiency, and to forge prudent growth strategies. (David Frankel 2016 ) . The slow down provides much-needed
breathing room to developers and investors, who need to consolidate, focus on capital raising and execution on the-
ground. The pace of fundraising transactions – IPO's, bond offerings and M&A's – has picked up and is bound to
accelerate in the coming years. (India Solar Handbook 2017). Solar players need to bring the pieces together and
aggressively manage costs in each area. A detailed cost roadmap can help to reduce costs and develop a realistic
forward cost curve against which developers and sales teams can bid for future projects. An effective cost analysis
begins with setting goals, based on the levelled cost of energy for each market. (David Frankel 2016 ). Lessons from
Germany: German companies retain an edge when it comes to research on the modules’ system integration and the
implementation of innovative applications while competing against low-cost Chinese products. Companies like
Solarwatt or Sonnen offer integrated solutions that allow for storing surplus solar energy at home and also sharing or
trading it with neighbors and other prosumers around the clock. Companies like British-German joint venture Oxford
PV offer alternatives that challenge the dominant silicon-based solar panels. They specialize in panels made with the
material perovskite, which are believed to have a much greater efficiency potential than silicon models. In 2018, Oxford
PV secured funding by the German government to move to large-scale production. (Germany Factsheet: Clean Energy
Wire)
Future Potential: India : The Solar industry remains a key focal point of interest for the Modi Government.
Having set an ambitious target to generate 100 GW of Solar power by 2022, industry bodies must focus on
removing industry-wide concerns related to falling prices, grid integration and PV dumping by Chinese
competitors & invest in innovation. Globally: A very hot area in solar R&D is Screening-engineered field-
effect photovoltaics (SFPV) – it has the potential to enable low-cost, high-efficiency solar cells to be made
from virtually any semiconductor material. The first goal for SFPV is to use it to further improve the
performance of existing high-efficiency solar cells. Another intriguing near-term prospect being worked on
by NREL is a SolarWindow that opens up a new niche market for organic solar cells (OSC). The work is being
conducted by Creative Research & Development Agreement (CRADA) with New Energy Technology Inc
Authors: Sarah Quadri | Vidyuth Rajagopal | Om Ahuja | Lokho John | Abdul Rahman
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Bibliography
David Frankel, Aaron Perine & Dickon Pinner. 2016. "Mckinsey ." Mckinsey. October.
https://www.mckinsey.com/business-functions/sustainability-and-resource-productivity/our-insights/how-
solar-energy-can-finally-create-value.
Maini, Chetan. 2016. "Business Today ." BT Anniversary 2016, January 17: 72-76.
Mercom Communication India. 2017. Indian Solar Market - Market Drivers & Challenges. Market Research, Mercom
Communication India.
Authors: Sarah Quadri | Vidyuth Rajagopal | Om Ahuja | Lokho John | Abdul Rahman