China’s solar power slowdown is great news for India

Rise and shine.
Rise and shine.
Image: Reuters/Gerard Cerles
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China is slamming the brakes on its solar power sector—the world’s largest—a move that could help India take the lead in global renewable energy adoption.

With its domestic solar industry seeing a downturn, the Chinese government has halted the allocation of quotas for new projects till further notice. It has also brought down clean-energy tariffs by at least 6%, the South China Morning Post (SCMP) newspaper reported.

The measure is aimed at “promoting the solar energy sector’s sustainable development, enhancing its development quality and speeding up reduction of subsidies,” a government statement reportedly said. It’ll also help bring down the 100 billion yuan (around $15.6 billion) deficit in a state-run renewable energy fund, the SCMP reported.

This is great news for India, coming at a time when the country is chasing a target of 100,000 megawatts (MW) of solar power capacity by 2022. That’s mostly because a slowdown in China’s solar industry could result in a fall in solar panel costs globally. Nearly 90% of all solar panels used in India are imported, predominantly from China.

“If they (China) are holding back, that means their manufacturing capacity would be available for the global market, which will have an impact on reducing the cost,” said Amit Kumar, cleantech partner at consulting firm PwC. ”If the availability (of panels) is increased and costs come down, tariffs will come down and it is a positive sign.”

Ready to take off

India’s solar power sector has exploded in the last few years in spite of multiple policy and regulatory hurdles. The country now has nearly 22,000 MW of solar power capacity. Last year, nearly 40% of all new capacity additions to the electricity grid came from solar projects. Meanwhile, solar power tariffs in Asia’s third-largest economy have crashed to record lows, making it cheaper than coal-based power.

A major regulatory headache—the proposed imposition of a 70% import duty on imported solar panels—has also been put off for now, providing temporary relief to solar power companies.

In the last few months, the sector has also witnessed a wave of consolidation, with large players acquiring smaller ones. In April, India’s largest renewable energy firm, ReNew Power, acquired Ostro Energy for around $1.5 billion. Last week, Greenko acquired Orange Renewables for around $1 billion. Industry analysts believe this will help build efficiencies in the market and allow companies to scale operations quickly.

Issues around funding, too, are beginning to get sorted. Power companies that used to rely on private equity investors are now heading to the public markets to raise funds. ReNew Power has filed for an initial public offering (IPO) and more such issues are in the offing. Global corporate funding into Indian companies, too, has been on the rise, with 30% of all funding into the solar sector coming to India last year.

And already India is beginning to move ahead of China in some segments. Although its northern neighbour is far ahead in terms of overall solar power capacity, India leads in terms of setting up new solar parks—five of the top 10 largest ones under construction in the world are in India.

However, there’s a flip-side to this Chinese pause.

It could mean that tariffs in India’s next solar auctions, scheduled for mid-June, may fall below the record-low Rs2.44 per, Sanjay Sharma, general manager at the government-run Solar Energy Corporation of India (SECI), told Bloomberg.

Investors were already concerned about the viability of plants when solar tariffs in India fell to Rs2.44 last year, and left many small players struggling.