Key strategies to overcome bottlenecks in Indian solar market

HYDERABAD, INDIA: The second day of SOLARCON India 2011, at the Hyderabad International Convention Centre (HICC) provided insights on the realities and challenges faced on the ground by developers building solar PV projects in India.

A discussion panel comprising Inderpreet Wadhwa of Azure Power, Ravi Raina of Astonfield Renewable Resources, Alan Rosling of Kiran Energy, Pashupathy Gopalan of SunEdison, Srini Nagabhirava of AES Solar, Sunil Jain of Green Infra and Vish Palekar of Mahindra Solar, shared developer experiences in project implementations. The industry experts lauded the flexibility and responsiveness shown by the industry stakeholders and various government regulatory authorities in facilitating the growth of the PV market. The solar PV industry in India has come a long way over last two years. Many of the challenges in the industry have been addressed and the government and distribution companies have responded well to propagate the industry’s growth.

Permitting ambiguities
The states of Gujarat and Rajasthan, and MNRE have shown unprecedented flexibility in reducing the permitting time by improving the administrative process efficiency. The authorities have also offered a single-window approach to the permitting process. However, the complexity of the process has not been completely reduced. Regulatory authorities have not been able to resolve certain ambiguities in documentation and the roles of various government authorities which refer developers to other government divisions that often themselves have no specific guidelines or solutions for the cases they receive.

Sunil Jain of Green Infra stated that product developers have often faced such situations. Such lack of clarity among the authorities causes delays in permit applications and subsequently in solar PV development in its recent solar industry publication, GlobalData also stressed the need to reduce permitting time and associated processing ambiguities.

Meeting timelines
One of the major challenges for project developers has been implementing PV projects in one year when a typical permitting process takes eight to 10 months, while project construction takes about six months.

Inderpreet Wadhwa, CEO, Azure Power, believes that a strong focus on project management, execution and financing is key for timely and successful completion of PV projects. Moreover, providing complete and effective due diligence and documentation about a project’s approach and profitability to lenders helps build lender confidence and significantly reduces the time required to secure project financing arrangements. Additionally, it is also vital to a project’s success that developers consider and account for excise duty related delays, as well as local factors such as monsoons in the Gujarat coastal region and associated logistics challenges while planning the importing of equipment and take proactive measures to address these issues.

Lack of clarity on long-term project pipeline
An important operational challenge that project developers face is the lack of project pipeline limitations. Moreover, a lack of a long-term project pipeline in India also reduces the credibility of project developers. The government invites bids, selects developers and assigns 12 months to complete these projects in the eyes of lenders and financiers as they are unable to develop current project portfolios to secure more investment.

To resolve this issue, the government should provide clarity on bidding plans for the next two-three years, suggested Vish Palekar of Mahindra Solar. Such clarity would help the developers organize their workforces more effectively and allow companies to present future project implementation plans to potential lenders.

Land issues
Land issues have been key. The boundaries of PV projects are often not clear, and surveyors tend to change the approach and maps, and local villagers often cause issues despite the government providing the project’s land by purchasing it from villagers. Moreover, the land price in solar parks is about three times higher than the price of individual land acquisition.

Issues in obtaining excise duty exemptions
The Rajasthan and Gujarat governments have shown flexibility in enabling the import of equipment for solar PV projects. The governments have provided excise duty exemptions. However, the documentation required to acquire these exemptions needs to be rationalized. The importing firm has to provide packing list documentation to avail excise duties on the equipment imported. However, this packing list can be provided only when the equipment is received at the port.

As a result, the equipment is held up on the port until the packing list documentation is completed and the relevant excise duty clearance is obtained. This has often resulted in companies paying full excise duties anyway to avoid delays. Pashupathy Gopalan, SunEdison, claimed that his company had been through such instances, where they had to forego savings from excise duties exemption as the documentation process would have delayed the delivery of equipment.

Labor and logistical challenges
The regulatory authorities and distribution companies have been very responsive and flexible in providing grid interconnections. However, there remain specific challenges related to logistics and labor. Local factors such as festivities-related holidays often result in the delay of project work. Moreover, local environmental issues such as monsoons have also resulted in the delay of work or damage of equipment. Moreover, regional issues such as Telangana issue often result in the delay of equipment transport. Project developers should account for such issues in their project implementation plans.

Financing challenges
Some of the financing challenges in the industry have been addressed as banks have become more informed about the PV industry. The financial due diligence process of banks has become more efficient. Moreover, the PV developers believe that the government has done a very good job in significantly reducing the subsidy cost and the current subsidy level is considered fiscally very responsible. This has resulted in minimal costs to the exchequer.

The tariff levels in the country are among the lowest in the world. The environment for non-recourse financing has improved. However, there is need to improve the overall bankability of projects from an operational perspective. Another important challenge for securing financing is the availability of documented irradiance data. Lenders do not find irradiance data given by generic radiation databases reliable and consider on-location data more reliable.

In its recent analysis, GlobalData suggested that companies can use the operational data of active plants located near existing plants to get reliable estimates of irradiation data. Financing firms also consider the credibility of the EPC company, the developer, the nature of the EPC’s contracts and the track record of the EPC company in delivering projects in India while considering debt financing a PV project.

Key pointers for project developers
• Given the tight deadlines they are expected to meet, project developers are required to maintain a strong focus on project planning, financing, execution and management.
• Local factors such as logistical challenges associated with infrastructure, environmental factors such as monsoons and regional cultural influences such as festivities must be accounted for while developing project and logistics plans.
• Companies should take proactive measures to get the ambiguities around permitting processes resolved in order to avoid delays in project development.
• A local inclusiveness approach should be followed by developers by involving community and village bodies in project development and planning, and by being responsive to local sensitivities.
• Project developers should provide detailed financial performance evaluations that enable smooth due diligence on the part of lenders. Moreover, the project analysis should be based on on-location data to enable the timely securing of project finance.