India is set to see a surge in solar installation in FY2022 and will likely add up to 8.5 GW PV capacity in the fiscal year, according to ratings agency ICRA.  

ICRA expects an aggregate 10.5-11 GW of renewable capacity addition in FY 2022, with solar constituting 8.5 GW, wind about 2 GW, and the rest coming from small hydro, biomass, etc. This compares to just 7.4 GW of new renewables (including about 5.5 GW solar, 1.5 GW wind, etc) in FY2021—a year when the project execution was impacted amid Covid-prompted disruptions.

The RE installation recovery in FY2022 will be led by a strong project pipeline of 38 GW (including about 9 GW wind and the balance from solar and hybrid, etc). This apart, more than 20 GW RE projects are under the tendering phase from various nodal agencies, providing visibility for capacity addition over the medium-term, stated ICRA. 

Girishkumar Kadam, senior vice president and co-group head-Corporate Ratings, ICRA Limited, said, “The RE sector is expected to witness investments of INR 3.5 trillion over the next four years, increasing the share of RE capacity to 34% of the overall installed capacity by March 2025 from 25% as of March 2021 led by the solar power segment.”

Tariffs

The delays in signing power purchase agreements and bid cancellation in expectations of reduced tariff rates remain key challenges before the RE sector. 

However, Kadam sees PPA signing activity for the earlier awarded tenders to pick up as solar bid tariffs are expected to rise in the upcoming auctions amid the rise in module prices and imposition of basic customs duty (BCD) on imported solar cells and modules from April 2022. 

Despite a rise, solar power tariffs are expected to remain below INR 3/kWh.

Modules

ICRA expects the demand outlook for domestic solar manufacturers to remain favorable. Strong policy support through BCD imposition on solar imports, the notification of the production-linked incentive (PLI) scheme, and a strong order pipeline of about 35-40 GW over the next three- to five-year period under various schemes mandating the use of domestic modules are factors working in domestic manufacturers’ favor. Delays in including the overseas suppliers in the Approved List of Models and Manufacturers (ALMM) would further support the demand for domestic module makers in the near term. 

Vikram V, vice president and sector head-Corporate Ratings, ICRA, states, “The policy push for the promotion of domestic module manufacturing is expected to improve the cost competitiveness of domestic OEMs and has led to new capacity announcements of more than 15 GW by various OEMs. The timely commissioning of these new capacities remains important to meet the growing demand from the developers, given the current capacity constraints. Moreover, the ability of the OEMs to achieve backward integration and build economies of scale would be important to remain competitive against the overseas suppliers on a sustained basis.”