India’s installed solar power capacity expected to hit 104 GW by March 2025

ICRA expects India’s installed renewable energy capacity (from solar, wind, and other RE sources) to increase to about 170 GW by March 2025 from 132 GW as of October 2023. Much of this capacity addition will be driven by solar installations, which will grow to 104 GW by March 2025 from 72 GW as of October 2023. New solar capacity addition in FY 2024 and FY 2025 is expected at 17 GW and 20 GW, respectively.

ICRA said RE capacity addition momentum will sustain after March 2025 due to a significant improvement in tendering activity in the current fiscal with over 16 GW of RE projects (including 11.2 GW solar) bid out so far and another 17 GW bids underway by the Central nodal agencies. This is in line with the 50 GW annual bidding trajectory announced by the Government of India in March 2023.

Vikram V, vice president & sector head – Corporate Ratings, ICRA, cited the sharp decline in solar PV cell and module prices, abeyance of the ALMM order till March 2024, and the timeline extension approved for solar and hybrid projects as the primary drivers for the improvement in RE capacity addition to 20 GW in FY 2024 from 15 GW in FY2023. This, along with the growing project pipeline, is likely to support the scale-up in capacity addition to 25 GW in FY 2025, mainly driven by the solar power segment.

However, the capacity addition prospects could be hampered by challenges on the execution front, such as delays in land acquisition and transmission connectivity, Vikram said.

The sharp decline in solar PV cell and module prices by 65% and 50%, respectively, over the past 12 months is leading to a healthy improvement in debt coverage metrics for the upcoming solar power projects. Benefitting from this, for a solar power project with a bid tariff of INR 2.5/kWh and sourcing modules from domestic OEMs using imported PV cells, the average DSCR has improved by over 35 bps.

Vikram said, “While this is a positive in the near term, the developers would remain exposed to movement in imported solar PV cell and wafer prices, till the development of fully integrated module manufacturing units in India.”

The rise in the RE capacity over the next six years is estimated to increase the share of RE plus large hydro in the all-India electricity generation from 23% in FY2023 to around 40% in FY2030. Given the intermittency associated with RE generation, the availability of RTC supply from RE sources remains important. This can be made possible through the use of wind and solar power projects complemented with energy storage systems.

Vikram said, “The tariffs discovered in the RE-RTC tenders so far remain highly competitive against the conventional sources, with recent bid tariffs in the range of INR 4.0-4.5 per kWh, well below the INR 5.2 per kWh discovered in the recent medium-term bid for supply from coal-based projects. The share of RE-based RTC projects is expected to rise in the upcoming bids as already seen from the tenders issued by the Solar Energy Corp. of India Ltd (SECI) in the current fiscal.”

“The returns for the winning developer under the RTC bids remain linked with the cost of the storage component, apart from the cost associated with the wind and solar components. Further, based on the prevailing capital cost of battery energy storage systems (BESS) and pumped hydro storage projects (PSP) projects, the viability of the RTC projects remains relatively better with the use of PSP capacity,” he added.