CEA Records 3.7 GW Solar Additions In Q1, But Higher Risks Loom Ahead

After recording over 4659 MW of solar capacity additions in Q4, driven largely by a burst of additions in March this year at 3.2 GW, solar capacity additions have slowed down in the new financial year. According to the figures from the Central Electricity Authority (CEA), fresh capacity in Apr-June quarter was at just over 3.7 GW or 3708 MW,  a significant slowdown over the previous quarter. More importantly, the slowdown has been accentuated by the June figures, at just 754 MW.

The slowdown should worry industry watchers, as wild swings in prices for key raw materials, coupled with the start of the customs duty regime in this financial year mean that going ahead, many of the projects bid out in the past few months cold face significant pressure on their margins. With a project pipeline of above 50 GW comprising projects awarded over the last two-year period in utility IPP segment, that leaves very little margin for comfort if India is to add it’s targeted 25 GW of new capacity every year. That all this is happening at a time when the sole relief, ie, lower interest rates is also fast evaporating, means project developers will face a shakeout of sorts soon.

As of now, looking at the Q1 numbers, even after factoring in the strong surge in the Corporate and Industrial (C&I) and residential segments, which could potentially add another 4 GW during the year, India will be hard pressed to hit the projected 15-16 GW capacity additions this financial year.

As of June 30, 2022, the total grid-connected capacity of renewables stood at 114 GW. Of this, the solar power segment accounted for 57.71 GW, followed by wind power at 40.79 GW and bio power at 10.21 GW. The small hydro segment accounted for 4.89 GW.

While that number is way lower than the 175 GW target for 2022, seen holistically, it’s not a bad achievement if India touches 130 GW by the end of 2022.  It is the next big target to reach 300 GW of solar capacity by 2030 that looks at risk, especially when solar is supposed to carry the maximum weight of the ambitious 500 GW renewable capacity target the country has been set by PM Narendra Modi.

Bid tariffs that have increased from the lows of Rs 1.99 per unit in December 2020 to Rs 2.2-2.5 per unit recently bear the pressure, but looking at current changes in prices and interest rates, tariffs could breach the Rs 3 barrier again very soon, a price that most state discoms have baulked at since 2019-20.