Energy

How the renewable energy ministry’s new order will impact India’s solar energy target

The order will be effective from April 10, 2021

 
By Binit Das
Published: Friday 16 July 2021
How the implementation of ALMM will affect India's solar energy target

The Union Ministry of New and Renewable Energy (MNRE) released the first list of photovoltaic module manufacturers at the beginning of March 2021 under the  order. 

This is the ministry’s initial steps towards reducing India’s dependence on solar imports and self-reliance.

MNRE has made it mandatory for solar cell and module manufacturers to register under the Approved List of Models and Manufacturers (ALMM). The projects bid out under the standard bidding guidelines after April 10, 2021 are required to procure modules from the approved list. 

This, in turn, may pose near-term challenges for the Indian developers for planning the procurement of imported photovoltaic modules, especially given the capacity constraints for domestic manufacturers.

Further, the uncertainty on the timelines for the inclusion of module suppliers from China in the ALMM list may affect the incremental bidding activity in the solar power sector. 

Nonetheless, cumulative solar energy project awards to date remain strong at 28 gigawatts (excluding the capacity pending for signing of Power Purchase Agreement / Power Sale Agreement and including hybrid projects), which provides healthy visibility on the capacity addition over the medium term.

The credit outlook on the solar energy sector remains stable notwithstanding the near-term headwind related to module price levels, given the improved tariff competitiveness, supportive regulatory framework through must-run status for these plants. 

This leads to a satisfactory operating record of accomplishment as well as availability of liquidity buffer (a mix of debt service reserve account and access to working capital limits) for the issuers rated.

The ALMM was put in place to ensure the quality of solar products, but it overlaps the existing Bureau of Indian Standards (BIS) certification in many aspects. Many stakeholders are not sure about the viability of the whole process. 

BIS is more of product certification, whereas ALMM caters to facility certifications and the certification of manufacturers.

It can be argued that while BIS is related to product certification, ALMM is more of a process and manufacturing facility / original equipment manufacturer certification. 

It could have been better managed by combining these two objectives and making it a single-window process. A multi-layered regime has made it cumbersome.

Many developers believe that most Indian module makers have weak balance sheets, which might discourage lenders from funding projects. The PV module components comprise 50-55 per cent of the overall project cost and thus, a major part of the project finance goes towards manufacturers.

Lenders look at various aspects of the project before funding a program. ALMM protocols introduce new uncertainty in project execution and impact project timelines, making them more prone to penalties and tariff adjustments. 

These may impact the bankability of projects and push up the risk premiums while lending. Developers will be pricing this risk in the solar power tariffs that they quote. 

ALMM, if implemented in a cavalier manner, could raise tariffs and slow down India’s energy transition.

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