Why EPC are Treading in the Solar Race?

Solar has taken the momentum with a cumulative installed grid connected solar power capacity reaching 8,062 MW (8.1 GW) as of 31 July 2016. The ecosystem seems stable as analyst asserts that the solar market in India is set to clan the billion-dollar space. Not much appalling on the WTO setback, Indian Solar manufacturing capabilities are seeding and the results might not put much impact on the Indian solar run.

Developers and manufacturers has been supported by initiatives to bring the capital cost to a conducive rate to further provide solar energy at reasonable rates.

Though, all the initiatives seems to encourage solar but apparently silo the system integrators and engineering, procurement and construction (EPC) contractors.

EPC – The Acronym Searches Definition

System integration and project engineering are very important elements in solar power plant planning and implementation. The process of collecting energy from each module of the plant in an efficient manner through a network of cables is a very important component of system engineering. Equipment selection has to be done on the basis of its performance over the project life cycle while optimising plant layout. Since these basic issues are already addressed during the detailed engineering of a project, EPC contractors ensure optimal plant performance during the entire life cycle. EPC contractors also carry out periodic technical audits of the plant and take remedial measures for any decline in energy generation. Some Indian EPC contractors have developed these soft skills through their own engineering capabilities, supplemented by collaboration with globally reputed companies. These skills will help them in the current scenario, where the time available for project execution is reducing.

EPC contractors are being driven with critical risks and low margins as government tries to reduce the tariff (by reverse bidding) on one hand and imposes Domestic content requirement (DCR) restrictions on the other. As the module manufacturing capability of Indian manufacturer are not even close to the demand for the panels, it is sought that almost 70-80% of the panels will have to be imported from oversees.

Finance

Financing a project is also a key area in the EPC industry where banks are not too liberal and are concerned because of past performances of the power sector. Government has given a priority sector lending status to solar power sector, in which banks do hesitate to give nonrecourse finances to them. All in all the finance is being flowing in the solar industry and Solar EPC companies need not to worry as banks, IDFIs, IREDA etc. are issuing green infra bonds to fund their projects.

Reverse Bidding Competing EPC Sector

In recent time, EPC contractors have quoted the lowest ever prices of around Rs 5.6 crore a megawatt for solar power projects of NTPC in Rajasthan (260 MW) and Madhya Pradesh (250 MW) in the first-ever reverse auctions in the domestic content category.

The development comes at a time when global and domestic solar power developers have been aggressively participating in the auctions, pushing down solar power tariffs to the lowestever levels of Rs 4.34 a unit in the latest auctions in Rajasthan.

Companies like Fortum Finns-urya, part of Finland’s state-owned Fortum, emerged the lowest bidder in 420 MW of solar projects in the reverse auction by NTPC for its solar park in Rajasthan. The lowest tariff until now had been Rs 4.63 a unit, offered by Sun Edison (500 MW) and SB Energy (350 MW) – the joint venture of Soft Bank, Foxconn and Bharti Airtel – in the open category for projects in Andhra Pradesh.

Few experts also note that this chunk is all set to discover yet another competitive EPC price during the forthcoming reverse auction for 750 MW of NTPC’s opencategory project in Andhra Pradesh. With the open-category projects allowing use of cheaper imported cells and modules, they say the EPC prices may now see a new low of below Rs 5 crore a megawatt.

Is India That Skilled?

The ambitious target of renewable especially solar seems crony with India’s economic and energy sustainability. But, the trouble is the need of an elephantine structure of skilled people in the country to propel this ambition. It just took a voice from the government to Richter scale the magnitude of solar potential but on the skill-end it might need more than the usual. As the industry today needs skilled technicians, engineers, maintenance workers, solar panel installers and data monitors it marks an entail of 1 million new fresh hires.

According to the Natural Resources Defense Council, the breakdown of this new workforce is as follows:

•  624,000 construction and commissioning positions (semiskilled)

•182,000 construction and commissioning positions (skilled)

•  182,400 operations and maintenance (O&M) positions (semiskilled)

•  81,000 O&M positions (skilled) •  28,600 design and preconstruction positions

•  17,600 business development positions

Where is the Land?

Not just developers but also EPC companies toil for the non-agricultural and unused land availability at worthy irradiance geographic location. Traditionally, 5 acres of land has to be dedicated for a 1 MW of solar power plant thought it can proportionately vary according to growing efficiencies of solar panels.
The next phase has to be checked with free of undulations and trees after the phase-wise scrutiny acquisition is also major glitch as the land has multiple divisions indulging multiple landowners and improper records.

MNRE envisaged setting up of solar parks of capacities of more than 500 MW, leaving the responsibility of land identification and acquisition on states. Of course local politics and bureaucracy follows to make it more irk. Poor infrastructure, connectivity and security is also a major concern as reports asserts that local reliable security is of high challenge.

Growth opportunities and Projects to look-in

India has reached 2.8 GW in solar installations year-to-date and cumulative installations have reached 8.1 GW as of July, 2016. Mercom forecasts about 4.8 GW of solar to be installed in calendar year 2016. The solar project pipeline in India is now approximately 21 GW, with 14 GW under development and 7 GW scheduled to be auctioned.

Though grid congestion and transmission infrastructure is a problem in some regions, low power demand especially from lucrative industrial and commercial segments is negatively affecting DISCOMs and their revenues. DISCOMs have resorted to sporadic curtailment from some solar projects in Rajasthan and Tamil Nadu as cheaper power is available on the power exchanges. Grid connection and timely evacuation continues to be a big challenge considering solar project developers do not have the benefit of deemed generation.

In a welcome development, the Solar Energy Corporation of India (SECI) announced a Rs. 15 billion ($224 million) payment guarantee fund to ensure timely payment to developers for projects developed through Viability Gap Funding (VGF). Mercom has been calling for a payment guarantee fund for all projects using the National Clean Energy Fund (NCEF) for some time to help significantly improve the bankability of projects, reduce borrowing costs and development risks.

Solar Policy & Initiatives:

Government involved decisions are generally prone to some kind of volatility & uncertainly. In such situations industry will turn to stagnant state and bring bottlenecks within market. This type of experiences leaves the impression about solar as an unreliable industry and those who are entirely depending on the grid connect megawatt scale business.

The critical challenges pertaining to the govt. policies, participation & initiative are:

•  Govt. solar policies: Many states policies are not clear, have confrontation between SPDs in terms of policy decisions, obligation enforcement, energy prices, plant capacities, land acquisition, PPA signing & so on.

•  Participation of non-interested players: Nowdays non-serious players are bidding for the project without positive plans & required preparations. This unnecessarily creates false potential, hopes and misleads the industry.

Grid and Evacuation of Power

Transmission line, RoW issues, objections during line survey and construction by the local people for their unrestrained money demands. Unknown and uncontrolled reactive power demand by the grid. Un-determined Instability and reliability of the grid situations are few challenges associated with substations and transmission lines. Adequate and feasible grid interconnection feasibility has to be carried out to avoid consequences which may arise during execution.

Building consumer awareness about the technology, its economics and right usage, collaborative goals and R&D shall help India attain technology leadership in PV.

Regardless of all the above circumvent, still the chance of growth and opportunity in this sector is colossal. EPC players can look forward to $3 billion in annual sector revenues by 2017, thanks to a wide client base of utilities, small independents, and niche players.

With Government assistance and unifying business processes of the EPC players will help to come out of the deliverable turmoil and focus on growing the green demand across the country.