India continues to improve its performance on the solar energy front. The country added 2,835 megawatts (MW) of solar in the third quarter (Q3) of FY 2021, a 14% increase quarter-over-quarter (QoQ), compared to 2,488 MW installed in Q2 2021.

According to Mercom India’s newly released ‘Q3 2021 India solar market update’ report, the Year-over-Year (YoY), installations in Q3 witnessed a whopping 547% surge compared to 439 MW in Q3 2020. In 9M 2021, India added over 7.4 gigawatts (GW) of solar, a 335% increase YoY compared to the 1.73 GW installed in the same period last year.

India added close to 11.6 GW of power capacity in 9M 2021. Solar dominated the capacity additions accounting for about 60%, followed by thermal power, which contributed to 21%. Renewables (including large hydro) made up 79% of the total power capacity additions in 9M 2021.

The quarter also saw the largest QoQ increase in large-scale system costs of over 20% attributed to the increase in raw material and component prices. The project costs increased by over 10% QoQ, the largest increase to date. Solar dominated power capacity additions by accounting for close to 60% in 9M 2021.

On the policy front, there was one notable announcement – increase of GST (Goods and Services Tax) on all renewable energy devices and parts from 5% to 12% – running a foul of attempts to scale up renewable power capacity amidst all the other challenges facing the sector. With the increased support of the Government and improved economics, the sector has become attractive from investors perspective.

To encourage domestic production, customs duty on solar inverters has been increased from 5% to 20%, and on solar lanterns from 5% to 15%. India plans to add 30 GW of renewable energy capacity along a desert on its western border such as Gujarat and Rajasthan.

“Despite supply challenges, the Indian solar market is headed towards one of the best years on record, and a complete turnaround from 2020, which was one of the worst years for solar due to COVID-19,” said Raj Prabhu, CEO, Mercom Capital Group.

“We expect a strong 2022 despite the high price of components and uncertainties surrounding the Great Indian Bustard related transmission issue in Rajasthan. An increase in GST, curtailment, and payment issues are adding to the challenges facing developers and constraining growth,” commented Prabhu.

Investments into the solar sector increased by almost 50% QoQ. Tender announcements as of September increased by 16% and auction activity surged by 181% YoY. 16 utility scale project tenders aggregating 4,766 MW and six rooftop tenders aggregating 77 MW were issued in the quarter.

Auctions were conducted for seven project development and one EPC tenders, totaling 8,950 MW and 20 MW respectively. The auctions witnessed heavy participation by public sector units (PSUs) namely NHPC Limited, IRCON International, NLC India Limited, and NTPC Limited. Of late, a number of big ticket projects have been announced by leading players in the segment. 

In October 2021, Reliance New Energy Solar Ltd. (RNESL) announced two acquisitions to build more capabilities. Both acquisitions – REC Solar Holdings AS (REC Group), a Norway-based firm, and Sterling & Wilson Solar, based in India – exceeded US $1 billion and are expected to contribute to Reliance’s target of achieving the capacity of 100 GW of solar energy at Jamnagar by 2030. In the same month, Adani Green Energy Ltd. (AGEL) acquired SB Energy India for US $3.5 billion to strengthen its position in the renewable energy sector in India.

Installed renewable power generation capacity has gained pace over the past few years, posting a CAGR of 17.33% between FY16-20. As of September 2021, India had 101.53 GW of renewable energy capacity and represents around 38% of the overall installed power capacity.

 The Ministry of New and Renewable Energy (MNRE) has set an ambitious target to set up renewable energy capacities to the tune of 227 GW by 2022, of which about 114 GW is planned for solar, 67 GW for wind and remaining for hydro and bio. The government plans to establish a renewable energy capacity of 523 GW (including 73 GW from hydro) by 2030.