©2015 Mercom Capital Group, llc. ALL RIGHTS RESERVED. I www.mercomcapital.com I [email protected] I Page 1
Mercom Capital Group
India Solar Market Update
India Solar Quarterly Market Update – Market Heating Up, but Low Tariffs Posing a
Challenge
Nov 2015
KEY FINDINGS
� Year-to-date (YTD) solar installations have reached 1,652 MW with cumulative solar installations totaling
4,816 MW.
� We expect 2015 calendar year installations to total about 2,150 MW – which is slightly below our previous
estimate – and are forecasting that 2016 installations will reach approximately 3,645 MW.
� There are about 5,500 MW of projects that are due to be auctioned off over the next few months.
� The first auction under 3,000 MW Phase II Batch 2 JNNSM program was highly competitive, with SunEdison
coming out on top with a winning bid of ₹4.63 (~$0.071)/kWh for 500 MW, the lowest recorded bid in India
so far.
� In a positive development, the Union Cabinet just gave its approval for a new program called ”UDAY” (Ujwal
DISCOM Assurance Yojana) which is focused on the financial turnaround of power distribution companies.
List of Charts/Tables
India Solar Installations (MW)……………………………………………………………..……………….. 2
MNRE 100 GW Installation Target by Category………..…….………………….……..……………….. 3
Utility-Scale Solar Projects in India…………………………………………………………….................. 4
Status of 5,500 MW Solar Tenders - Auctioned/Pending……………………………………………… 5
5,500 MW Tenders – DCR/Non-DCR…………………………….………………………………….…… 6
Status of Solar Parks…………………………………………................................................................ 7
Lowest Bids in Reverse Auctions in India (₹/kWh)……………………………..……...……................. 10
Monthly Average Chinese Module Spot Prices……………………………………………..................... 10
Ministry-wise NCEF Fund Allocation By Year ……………………………………................................. 11
States To Take Over Future Losses of DISCOMs in a Phased Manner…………………...……..….. 13
India Green Bonds………………………………………………………….…………………..……….….. 14
Punjab Auction Winning Bids……………………………………………..…………………..……….….. 19
India Solar Installations (MW) By Location …………………………………………………………..….. 21
Uttarakhand Auction Winning Bids………………………………………..…………………..……….….. 22
©2015 Mercom Capital Group, llc. ALL RIGHTS RESERVED. I www.mercomcapital.com I [email protected] I Page 2
Mercom Capital Group
India Solar Market Update
We saw increased activity in the Indian solar sector over the last quarter with tenders and auctions beginning to occur
more frequently along with some important policy announcements. Year-to-date (YTD) solar installations have
reached 1,652 MW with cumulative solar installations totaling 4,816 MW. We expect 2015 calendar year installations
to total about 2,150 MW – which is slightly below our previous estimate – and are forecasting that 2016 installations
will reach approximately 3,645 MW.
After several delays, the National Thermal Power Corporation (NTPC) has begun calling for tenders as part of the
3,000 MW Phase II Batch 2 JNNSM program. The first auction under this program was highly competitive, concluding
recently with SunEdison coming out on top with a winning bid of ₹4.63 (~$0.071)/kWh for 500 MW, the lowest
recorded bid in India so far. There is widespread concern throughout the industry as to the direction the market is
headed; most agree that bids at these levels are unsustainable. Industry participants are worried that if this continues,
we might be headed in the same direction as infrastructure/road projects in India where a similar “lowest bid wins”
concept has been a disaster with many winning bids resulting in stalled or abandoned projects because they were
financially unviable from the start. In a fight for market share, bids are falling much faster than component prices and
interest rates. In fact, solar module prices have held steady this year and inventories are tightening, which could lead
to prices holding steady or even slightly increasing. We were surprised to find that many solar company executives
who openly stated that tariff levels below ₹5 (~$0.077)/kWh were unworkable, have not taken their own advice,
bidding below that mark. If one of these projects fail, it will set the industry back several years.
6 12172
986 1,004 883
2,154
3,645
4,952
6,350
8,100
0
5,000
10,000
15,000
20,000
25,000
30,000
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
2009 2010 2011 2012 2013 2014 2015F 2016F 2017F 2018F 2019F
Cu
mu
lati
ve I
nst
alla
tio
ns
(MW
)
An
nu
al I
nst
alla
tio
ns
(MW
)
Source: Mercom Capital Group, llc
Annual Solar Installations
Cumulative Solar Installations
Nov 2015
Data derived from MNRE, Mercom Project Tracker & Public Sources
India Solar Installations (MW)
©2015 Mercom Capital Group, llc. ALL RIGHTS RESERVED. I www.mercomcapital.com I [email protected] I Page 3
Mercom Capital Group
India Solar Market Update
MNRE 100 GW Installation Target by Category
Category I Proposed Capacity (MW) Category II Proposed Capacity (MW)
Rooftop Solar 40,000
Scheme for Decentralized Generation of
Solar Energy Projects by Unemployed Youth
and Farmers
10,000
Public Sector Units 10,000
Large Private Sector/ Independent Power
Producers 5,000
Solar Energy Corporation of India 5,000
Under State Policies 20,000
Ongoing Programs including past
achievements 10,000
Total 40,000 60,000
Source: MNRE
In our view, the lowest bid does not equal a decrease in project costs, as touted by both the media and government
officials. We have already seen some projects being abandoned as developers realize that they couldn’t build a
profitable project at the price they bid. There is significant pent up demand to build projects from a large number of
developers that have invested millions to set up operations in India, but have not seen many projects to bid for. When
projects do come up, competition at these auctions is intense, driving bids down. At these low tariff levels, project
funding will start becoming an issue according to the banks.
The Indian solar manufacturers association has mentioned that their anti-dumping complaint against foreign
manufacturers has been accepted. We believe that it is highly unlikely that the government will re-litigate this issue.
At the current bid levels we are seeing in the auctions, any increase in component prices will effectively kill the
market.
In a positive development, the Union Cabinet just gave its approval for a new program called ”UDAY” (Ujwal DISCOM
Assurance Yojana) which is focused on the financial turnaround of power distribution companies. The government of
India has recognized that unless the distribution companies are solvent and maintain good credit ratings, reaching
renewable energy installation goals and providing a 24-hour power supply to the country will be impossible.
Therefore, the government is proposing that individual state governments take over 75 percent of DISCOM debt and
a reduced interest rate for the remaining 25 percent. This is an improvement over the previous government’s
unsuccessful turnaround plan in 2013. If successful, this could remove one of the toughest obstacles that has
plagued the power sector in India for decades.
Between NTPC and the Solar Energy Corporation of India (SECI) there are about 5,500 MW of projects that are due
to be auctioned off over the next few months and we are hoping that some rationalization will kick into the bidding
process. If not, it will continue to be a race to the bottom.
©2015 Mercom Capital Group, llc. ALL RIGHTS RESERVED. I www.mercomcapital.com I [email protected] I Page 4
Mercom Capital Group
India Solar Market Update
Utility-Scale Solar Projects in India
Operational and Under Development
Nov 2015
Capacity (MW)
In-Operation
Solar PV 4,607
Solar Thermal 209
Total 4,816
Under Development
Solar PV 7,494
Solar Thermal 280
Total 7,774
Source: Mercom Capital Group, llc
Policy updates
JNNSM - Phase II Batch 1
700 MW were scheduled to be completed by May 2015 under this batch. We have confirmed that 650 MW have been
commissioned so far. The remaining 50 MW, including 20 MW in the DCR and 30 MW in the Open category, are yet
to be commissioned. According to our sources, a 10 MW project is likely to be cancelled and 30 MW of projects are
expected to be commissioned by the end of November 2015.
JNNSM - Phase II Batch 2 State Specific Bundling Scheme (NTPC)
MNRE has been calling for tenders for Batch 2 for 3,000 MW of PV projects, which will be implemented by NTPC
through open competitive bidding. These projects will be developed in solar parks established by central and state
agencies on land provided by state governments or on land identified by project developers in their respective states.
So far, tenders amounting to 2,750 MW have been announced, and a reverse auction has been completed for a 500
MW Ghani Solar Park. SunEdison won the auction at a tariff of ₹4.63 (~$0.071)/kWh. MNRE has been allocating
these projects to various states who had shown interest in or requested capacity allocation. The states of Haryana,
Punjab and Jammu & Kashmir, which had earlier requested projects, have now backed out; MNRE has been
allocating these projects to other states.
JNNSM - Phase II Batch 3 (SECI)
The SECI, the implementing agency setting up 2,000 MW of grid-connected solar PV power projects under JNNSM
Phase II Batch 3 - “State Specific VGF Scheme” in solar parks, has called for tenders amounting to 1,190 MW.
©2015 Mercom Capital Group, llc. ALL RIGHTS RESERVED. I www.mercomcapital.com I [email protected] I Page 5
Mercom Capital Group
India Solar Market Update
NTPC has been issuing tenders in batches:
Status of 5,500 MW Solar Tenders - Auctioned/Pending
Location MW Capacity Technical Bid Opening Date Auction/Status Result
JNNSM Phase II Batch 2: NTPC Tenders (State Specific Bundling Scheme)
Ghani Solar Park, Kurnool, Andhra Pradesh 500 Open 10 X 50 MW
July 2, 2015
Extension 1 - Jul 31, 2015
Extension 2 - Sep 10, 2015
Completed
SunEdison won the
auction with a bid
of ₹4.63
(~$0.071)/kWh
Gani-Sakunala Phase-II Solar Park, Kurnool,
Andhra Pradesh 500
DCR 3 X 50 MW
Open 1 X 350 MW
August 3, 2015
Extension 1 - Aug 12, 2015
Extension 2 - Sep 17, 2015
TBD NA
Bhadla Phase-II Solar Park, Jodhpur, Rajasthan 420 Open 6 X 70 MW
July 29, 2015
Extension 1 - Aug 20, 2015
Extension 2 - Sep 23, 2015
TBD NA
Rajasthan 230
DCR 10 X 10 MW September 7, 2015
Extension - Sep 28, 2015 TBD NA
Open 13 X 10 MW September 9, 2015
Extension - Sep 30, 2015 TBD NA
Uttar Pradesh 100 Open 10 X 10 MW October 14, 2015 TBD NA
Pavagada Solar Park Projects, Tumkur , Karnataka 600 DCR 2 X 50 MW November 4, 2015 TBD NA
Open 10 X 50 MW November 9, 2015 TBD NA
Telangana 400 DCR 10 X 5 MW December 16, 2015 TBD NA
Open 10 X 35 MW December 10, 2015 TBD NA
JNNSM Phase II Batch 3: SECI Tenders (State Specific VGF Scheme)
Maharashtra, Tranche-I 500
DCR: 50 MW
Open: 450 MW
Min 10 MW each
October 14, 2015
Extension - Nov 18, 2015 TBD NA
Gujarat Solar Park, Charanka, Tranche-II 250
DCR: 1 X 25 MW
Open: 5 X 40 MW,
1 X 25 MW
October 16, 2015
Extension - Nov 24, 2015 TBD NA
UP Solar Park, Tranche-III 440
DCR: 1 X 50 MW
Open: 2 X 50 MW, 1 X
65 MW, 3 X 75 MW
November 18, 2015 TBD NA
NTPC Tenders: (Self-owned and Developed Projects)
Anantpur Phase-I Solar Projects 250 DCR 5 X 50 MW PPA signed
PPA signed with AP
Power Utilities for
₹6.16 (~$0.095)
/kWh
Madhya Pradesh Solar Projects 250 DCR 5 X 50 MW July 30, 2015 TBD NA
Rajasthan Solar Projects 260 DCR 4 X 65 MW August 6, 2015 TBD NA
Anantpur Phase-II Solar Projects 750 Open 6 X 125 MW October 29, 2015 TBD NA
Source: NTPC, MNRE, SECI Mercom Capital Group, llc
©2015 Mercom Capital Group, llc. ALL RIGHTS RESERVED. I www.mercomcapital.com I [email protected] I Page 6
Mercom Capital Group
India Solar Market Update
5,500 MW Tenders – DCR/Non-DCR
500
350 420
130
100
500
350 450
225
390
750150
100
100
50
50
25
50
250
250
260
0
100
200
300
400
500
600
700
800
Gh
an
i So
lar
Pa
rk -
AP
Au
ctio
n C
om
ple
ted
Ga
ni-
Sak
un
ala
Ph
ase
-II
Sola
r P
ark
Ku
rno
ol,
An
dh
ra P
rad
esh
Bh
ad
la P
ha
se-I
I S
ola
r P
ark
Jod
hp
ur,
Ra
jast
ha
n
Ra
jast
ha
n
Utt
ar
Pra
de
sh
Pa
va
ga
da
So
lar
Pa
rk P
roje
cts
Tu
mku
r, K
arn
ata
ka
Te
lan
ga
na
Ma
ha
rash
tra
, T
ran
che
-I
Gu
jara
t So
lar
Pa
rk
Ch
ara
nka
, T
ran
che
-II,
Gu
jara
t
UP
So
lar
Pa
rk
Tra
nch
e-I
II,
Utt
ar
Pra
de
sh
An
an
tpu
r P
ha
se I
So
lar
Pro
ject
s -
AP
PP
A S
ign
ed
Ma
dh
ya P
rad
esh
So
lar
Pro
ject
s
Ra
jast
ha
n S
ola
r P
roje
cts
An
an
tpu
r P
ha
se-I
I S
ola
r P
roje
cts
An
dh
ra P
rad
esh
NTPC - JNNSM PII B2 SECI - JNNSM PII B3 NTPC - Self-owned
DCR Projects
Open Category
Source: Mercom Capital Group, llc
Note: Financial Bids have opened for Ghani Solar Park and Anantpur Phase-I Solar Projects
Su
nE
dis
on
₹4
.63
/kW
h
PP
A S
ign
ed
₹6
.16
76.4%
23.6%
©2015 Mercom Capital Group, llc. ALL RIGHTS RESERVED. I www.mercomcapital.com I [email protected] I Page 7
Mercom Capital Group
India Solar Market Update
Other announced Solar Programs –
Ultra Mega Projects in Solar Parks - According to the latest updates, 21 states have so far agreed to set up a total
of 27 solar parks with a combined capacity of 18,418 MW as part of MNRE’s plan to set up individual Solar parks with
capacities of 500 MW and above in order to fulfill the 20,000 MW capacity target within a five–year span beginning in
FY 2014-15.
Status of Solar Parks
No. State Capacity
(MW)
Name of the Solar
Power Park Developer Land Identified at
1 Gujarat 700 GPCL 1,407 hectares, Radhanesda, Vav, District
Banaskantha
2 Andhra Pradesh 1,500 AP Solar Power Corporation, JVC of SECI, APGENCO and
NREDCAP
3,058 hectares NP Kunta of Anantpuramu &
Galiveedu of Kadapa Districts
3 Andhra Pradesh 1,000 AP Solar Power Corporation, JVC of SECI, APGENCO and
NREDCAP
1,458 hectares at Kurnool
District
4 Andhra Pradesh 1,000 AP Solar Power Corporation, JVC of SECI, APGENCO and
NREDCAP Galiveedu Madal, Kadapa district
5 Uttar Pradesh 600 Lucknow Solar Power Development Corporation, JVC of
UPNEDA and SECI
1,038 hectares at Jalaun, Sonbhadra, Allahabad,
Kanpur & Mirzapur Districts
6 Meghalaya 20 Meghalaya Power Generation Corporation (MePGCL) 27 hectares at West Jaintia Hills & East Jaintia Hills
Districts
7 Rajasthan 680 Rajasthan Solar Park Development Company Ltd. (RSDCL) 1,797.45 hectares Bhadla Phase II, Bhadla
8 Rajasthan 1,000 Surya Urja Company of Rajasthan; a JVC between State Govt.
and IL&FS Energy Development Company
2,000 hectares
Bhadla Phase III, Bhadla
9 Rajasthan 1,000 Surya Urja Company of Rajasthan; a JVC between State Govt.
and IL&FS Energy Development Company
2,000 hectares
Jaisalmer Phase I, Jaisalmer
10 Rajasthan 500 Adani Renewable Energy Park Rajasthan (AREPRL); a JVC of
Government of Rajasthan and APEPRL Bhadla Phase IV, Bhadla, Jodhpur
11 Madhya Pradesh 750 Rewa Ultra Mega Solar Limited; a JVC of SECI and MPUVNL 1,400 hectares at Rewa
12 Madhya Pradesh 2,000 Rewa Ultra Mega Solar Limited; a JVC of SECI and MPUVNL 6,000 hectares at Neemuch, Agar, Mandsaur,
Shajapur, Rajgarh, Chhatarpur and Morena
13 Karnataka 2,000 Karnataka Solar Power Development Corporation (KSPDCL), JVC
of SECI and KREDAL 2,429 hectares at Pavagada taluk Tumkur District
14 Tamil Nadu 500 To be finalized 568 hectare at Ramanathapuram District
15 Telangana 1,000 SECI, Telangana GENCO and Telangana New & Renewable
Energy Development Corporation (TNREDC) 2,189 hectare at Gattu, Mehboob Nagar District
16 Kerala 200 JVC of SECI and KSEB 4,858 hectares at Paivalike, Meenja, Kinanoor,
Kraindalam and Ambalathara villages of Kasargode
17 Uttarakhand 39 UJVN 77.853 hectares at Almora District
18 Arunachal Pradesh 100 Arunachal Pradesh Energy Development Agency (APEDA) 2,700 acres of waste land Digaru Paya region in
Sonpura circle, Tezu Township, Lohit District
19 Nagaland 60 Directorate of New & Renewable Energy, Nagaland Dimapur, Kohima and New Peren Districts
20 A&N Islands 100 NTPC South Andaman
21 West Bengal 500 West Bengal State Electricity Distribution Company East Mednipur, West Mednipur, Bankura
22 Himachal Pradesh 1,000 HP State Electricity Board Spiti Valley of Lahaul & Spiti District
23 Assam 69 JVC of APDCL, APGCL & SECI Amguri in Sibsagar District
24 Maharashtra 500 To be finalized To be finalized
25 Chhattisgarh 500 To be finalized To be finalized
26 Jammu & Kashmir 100 To be finalized To be finalized
27 Odisha 1,000 JVC of GEDCOL & SECI To be finalized
TOTAL: 27 Solar Parks in 21 States with aggregate capacity of 18,418 MW
Source: MNRE Mercom Capital Group, llc
©2015 Mercom Capital Group, llc. ALL RIGHTS RESERVED. I www.mercomcapital.com I [email protected] I Page 8
Mercom Capital Group
India Solar Market Update
JNNSM - Phase II Batch 5 (New)
Under Batch 5, Central Public Sector Undertakings (CPSUs) and Government of India organizations’ self-use, third-
party sale or merchant sale calls for the development of 1,000 MW of grid-connected solar PV power projects with
mandatory DCR, and VGF over a span of three years from FY 2014-15 to 2016-17.
MNRE approved projects under this scheme in Categories A, B and C based on their stages of development.
Category A: Projects approved and already under development – NTPC – 50 MW and BHEL – 6.5 MW.
Category B: Projects to be approved in the next three months (70 MW) - SECI – 5 MW, Vishakapatnam Port Trust
(VPT) – 10 MW, NHPC – 50 MW and Rashtriya Ispat Nigam Limited (RINL) – 5 MW.
Category C: Projects to be sanctioned which have yet to issue tenders (778 MW) – The list of interested CPSUs
under this category will be officially announced once the tenders are issued.
Solar Projects by Defense Sector
Under this plan, more than 300 MW of grid-connected and off-grid solar PV power projects are proposed to be set up
by Defense Establishments under the Ministry of Defense with mandatory DCR, and VGF in five years between 2014
and 2019.
According to our sources, 160 MW has been approved by MNRE. The Ordinance Factory Board under the Ministry of
Defence is developing 150 MW, and the Border Security Force is currently developing 10 MW.
Grid-Connected Solar PV Power Plants on Canal Banks and Canal Tops
MNRE launched a program for the development of 100 MW of grid-connected solar PV power projects on canal
banks and canal tops. Projects under this scheme are under development in eight different states (50 MW – Canal
Banks and 50 MW – Canal Tops). Only a single 1 MW canal top project in Andhra Pradesh is expected to be
commissioned by the end of 2015.
©2015 Mercom Capital Group, llc. ALL RIGHTS RESERVED. I www.mercomcapital.com I [email protected] I Page 9
Mercom Capital Group
India Solar Market Update
Other Updates
Solar bids – Race to the bottom
In our previous update, we took a look at the solar tariff declines in terms of average bids over the last 5 years. In this
report we are looking specifically at the lowest bid trends in reverse auctions in lieu of SunEdison’s record low bid of
₹4.63 (~$0.071)/kWh in the recently concluded NTPC auction. Also, the lowest bids reflect the competition and
perception among developers regarding the price they believe that they need to bid in order to win projects. For
example, the perception among developers now is that they cannot win a project unless they breach the ₹4.63
threshold set by the previous auction.
The lowest bids in FY 2015-2016 range from a high of ₹7.29 (~$0.112)/kWh under the Punjab PII C1 auction all the
way down to ₹4.63 (~$0.071)/kWh in the NTPC Auction in Andhra Pradesh, a difference of about 36 percent.
While bid prices are expected to vary under different policies over the years, largely due to the difference in
geography and solar insolation levels, we are seeing a wide spread variation in auction prices within same states. For
example, the lowest bids in Punjab dropped by ~30 percent within 2015-16, while the drop in low bids in
Telangana/Andhra Pradesh was ~20 percent.
In our channel checks, we are not seeing a significant enough drop in component prices to justify a 20-30 percent
drop in bids. If anything, prices are solidifying as the year-end rush is creating a shortage putting upward pressure on
prices. Looking at Chinese module spot price trends in 2015, the price drop is about 8 percent in the first six months
after which it has held steady. A number of factors including the Chinese year-end rush due to a renewed installation
goal, an expected rush in the U.S. in 2016 prior to the expiration of the 30 percent investment tax credit, and
inventory tightening due to a shortage in wafers indicate that prices will hold steady and/or rise slightly over the next
12 months.
©2015 Mercom Capital Group, llc. ALL RIGHTS RESERVED. I www.mercomcapital.com I [email protected] I Page 10
Mercom Capital Group
India Solar Market Update
10
.95
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0
200
400
600
800
1,000
1,200
1,400
1,600
0
2
4
6
8
10
12
JNN
SM
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1 (
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ha
rash
tra
)
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Ka
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nja
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nja
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I (C
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n
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AP
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ar
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rna
taka
- P
III
Ka
rna
taka
- P
IV
Te
lan
ga
na
PI
Utt
ark
ha
nd
UP
B2
MP
PII
I
Pu
nja
b P
II (
C1
)
Pu
nja
b P
II (
C2
)
Pu
nja
b P
II (
C3
)
Te
lan
ga
na
PII
G1
Te
lan
ga
na
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B3
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nja
b P
III
Utt
ark
ha
nd
(T
ype
-I)
JNN
SM
- P
II B
2 (
AP
)
2010
-11
2011-12 2012-13 2013-14 2014-15 2015-16
Ph
ase
/Ba
tch
Siz
e (
MW
)
Low
est
Ta
riff
(₹
/kW
h)
Phase/Batch Size (MW) Lowest Tariff (₹/kWh)
Source: Mercom Capital Group, llc
Note: AP Phase II - The range of first-year tariff offered by the successful bidders was Rs.5.25-5.99/kWh with a 3% per annum escalation for the first 10 years, then flat thereafter. The levelised tariff works out to Rs. 6.17/kWh.
Nov 2015
Lowest Bids in Reverse Auctions in India (₹/kWh)
1.2
1
0.9
1
0.6
4 0.6
8
0.5
9
0.5
4
0.50
0.60
0.70
0.80
0.90
1.00
1.10
1.20
1.30
Au
g
Se
p
Oct
No
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c
Jan
Fe
b
Ma
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Ap
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Jun
Jul
Au
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No
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Jun
Jul
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b
Ma
r
Ap
r
Ma
y
Jun
Jul
Au
g
Se
p
Oct
No
v
De
c
Jan
Fe
b
Ma
r
Ap
r
Ma
y
Jun
Jul
Au
g
Se
p
Oct
2011 2012 2013 2014 2015
Module Prices ($/W)
*Data derived from PVinsights, Energy Trend, Digitimes and other public and private sources Mercom Capital Group, llc
Monthly Average Chinese Module Spot Prices
©2015 Mercom Capital Group, llc. ALL RIGHTS RESERVED. I www.mercomcapital.com I [email protected] I Page 11
Mercom Capital Group
India Solar Market Update
NCEF Funds
There has been no change in NCEF fund allocation over the last three months, according to the data from the
Ministry of Finance.
With financing being one of the biggest challenges for developing renewable projects in India, it is perplexing not to
utilize the NCEF funds which were primarily started to fund renewable projects. Now these funds are being diverted
to other government projects, like river cleaning, due to a policy revision by the current government. We are unsure
about the logic behind taxing the coal industry to clean rivers instead of funding renewable projects.
Ministry-wise NCEF Fund Allocation By Year
Ministry/
Year MNRE
Ministry of Water
Resources, River
Development & Ganga
Rejuvenation
Ministry of
Drinking Water &
Sanitation
Ministry of
Environment &
Forests
Total
₹ in
Crore
US$ in
Million
₹ in
Crore
US$ in
Million
₹ in
Crore
US$ in
Million
₹ in
Crore
US$ in
Million ₹ in Crore US$ in Million
2010-11 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
2011-12 160.80 24.74 0.00 0.00 0.00 0.00 59.95 9.22 220.75 33.96
2012-13 125.78 19.35 0.00 0.00 110.65 17.02 10.00 1.54 246.43 37.91
2013-14 1,218.78 187.50 0.00 0.00 0.00 0.00 0.00 0.00 1,218.78 187.50
2014-15 (RE) 1,978.00 304.31 1,500.00 230.77 110.65 17.02 0.00 0.00 3,588.65 552.10
2015-16 (BE) 2,500.00 384.62 2,100.00 323.08 0.00 0.00 110.00 16.92 4,710.00 724.62
Total 5,983.36 920.52 3,600.00 553.85 221.30 34.05 179.95 27.68 9,984.61 1536.09
Note: Dollar-Rupee conversions were calculated at $1 = ₹65
Source: PIB, MNRE, Ministry of Finance
Mercom Capital Group, llc
We recommend that the government create a ‘reserve backstop fund’ using NCEF funds
against non-payments or delayed payments by DISCOMs which will have an immediate
positive impact, eliminating offtaker risk, reducing interest rates and increasing lending.
©2015 Mercom Capital Group, llc. ALL RIGHTS RESERVED. I www.mercomcapital.com I [email protected] I Page 12
Mercom Capital Group
India Solar Market Update
DISCOM Turnaround Plan
The government of India recently approved a plan called UDAY (Ujwal DISCOM Assurance Yojana) to turn around
power distribution companies (DISCOMs). This is an improved version of another turnaround plan approved in 2013
which went nowhere.
The financial health of DISCOMs has been a primary hurdle for India to scale its power generation efforts, and is a
major reason behind power shortages and cuts, the lack of power for 300 million people, economic growth, inflation,
high interest rates for project development and a lack of funding in the power sector. This plan will be a game
changer if the States adopt it.
The UDAY plan is designed to achieve these goals through four initiatives –
• Improving operational efficiencies of DISCOMs - compulsory smart metering and upgrading transformers
and meters. Energy efficiency measures like efficient LED bulbs, agricultural pumps, fans and air-
conditioners are forecasted to reduce the average AT&C loss from around 22 percent to 15 percent and
eliminate the gap between Average Revenue Realized (ARR) & Average Cost of Supply (ACS) by 2018-19.
• Reduction in cost of power – through the increased supply of cheaper domestic coal, coal linkage
rationalization, liberal coal swaps from plants with low efficiency to those that are more efficient, coal price
rationalization based on Gross Calorific Value (GCV), supply of washed and crushed coal, and the faster
completion of transmission lines. NTPC alone is expected to save ₹0.35 (~$0.005)/unit through a greater
supply of domestic coal and the rationalization/swapping of coal. These cost savings will be passed on to
DISCOMs/consumers.
• Reduction in interest cost of DISCOMs.
• Enforcing financial discipline on DISCOMs through alignment with State finances - Further provisions to
spread out the financial burden on States over three years, to give States the flexibility to manage the
interest payment on the debt taken over, within their available fiscal space in the initial few years. A
permanent resolution to the problem of DISCOM losses is achieved by States taking over and funding at
least 50 percent of the future losses (if any) of DISCOMs in phases.
Key proposals –
• Reduction in interest cost of DISCOMs – States to take over 75 percent of DISCOM debt as of 30
September 2015 over two years - 50 percent of DISCOM debt to be taken over in 2015-16 and 25 percent in
2016-17. This is estimated to reduce the interest cost on the debt taken over by the States by around 8-9
percent, from as high as 14-15 percent currently.
• Government of India will not include the DISCOM debt taken over by the States in the calculation of the
fiscal deficit of respective States in the financial years 2015-16 and 2016-17.
©2015 Mercom Capital Group, llc. ALL RIGHTS RESERVED. I www.mercomcapital.com I [email protected] I Page 13
Mercom Capital Group
India Solar Market Update
• DISCOM debt not taken over by the State shall be converted by the Banks/FIs into loans or bonds with
interest rates not more than the bank’s base rate plus 0.1 percent. Alternately, this debt may be fully or
partly issued by the DISCOM as State guaranteed DISCOM bonds at the prevailing market rates which shall
be equal to or less than the bank base rate plus 0.1 percent.
States To Take Over Future Losses of DISCOMs in a Phased Manner
Year 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21
Previous Year’s
DISCOM losses to
be taken over by
States
0% of the loss of
2014-15
0% of the loss of
2015-16
5% of the loss
of 2016-17
10% of the loss
of 2017-18
25% of the loss
of 2018-19
50% of the loss of
2019-20
Source: Ministry of Power
• State DISCOMs have to comply with the Renewable Purchase Obligation (RPO), outstanding since April 1,
2012, within a period to be decided in consultation with the Ministry of Power.
• States accepting UDAY and meeting operational milestones will be given additional priority funding through
various schemes of the Ministry of Power and the Ministry of New and Renewable Energy.
• Adopting States will also be supported with additional coal at notified prices and, in case of availability
through higher capacity utilization, low cost power from NTPC and other Central Public Sector Undertakings
(CPSUs).
• States not meeting operational milestones will be liable to forfeit their claim on IPDS and DDUGJY grants.
The caveat: UDAY is optional for all States.
We have seen over the years that ‘optional’ programs have not worked well in India; take RPOs for example. But
we are hopeful this time will be different and that the incentives are enough for States to move towards
addressing the DISCOM issue now.
WTO Domestic Content Ruling
A World Trade Organization (WTO) panel has ruled against India in a case filed by the United States. The
confidential report declared that India was in violation of the global trade rules with the imposition of domestic content
requirements for solar cells and solar modules under the Jawaharlal Nehru National Solar Mission (JNNSM). India is
expected to appeal against this ruling.
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Mercom Capital Group
India Solar Market Update
Green Bonds
Green bonds have exploded globally as a way to fund renewable energy and other environment friendly, sustainable
projects, and close to $50 billion (~₹3.25 Lakh Crore) could be issued world-wide this year. Green bonds may end up
being another funding source for projects in India. We have already seen some issued but they are still a very small
piece of the puzzle in India.
Like in most countries, India will need an ‘all of the above’ strategy with a variety of financial instruments to fund
projects since some financial instruments tend to go bust after a period of time depending on market conditions, a
scenario we are currently seeing in the U.S. However, the most important factor will be the health of the Discoms.
Offtaker credit rating is the single most important risk that is quoted to us by investors. If that is not fixed, project
financing of any kind will always be an uphill battle.
India Green Bonds
Issue Date Name Amount
Tenure Yield % ₹ in Crore US$ in Million
Oct-15 EBRD 25 3.85 2.5 Years 5.31
Jul-15 EBRD 110 16.92 3.5 Years 5.85
Jun-15 EBRD 144 22.15 2.5 Years 5.49
Aug-15 IFC 315 48.46 5 Years 6.45
Mar-15 EXIM Bank of India 3,250 500 5 Years 2.75
Feb-15 YES BANK 1,000 153.85 10 years 8.85
Feb-14 IREDA 500 76.92 10, 15, and 20 Years 8.16%, 8.55% and 8.55%
Source: Mercom Capital Group, llc
©2015 Mercom Capital Group, llc. ALL RIGHTS RESERVED. I www.mercomcapital.com I [email protected] I Page 15
Mercom Capital Group
India Solar Market Update
Industry Feedback
These are takeaways from our recent conversations with major developers, manufacturers and investors
Developers
• After long delays by NTPC, we are starting to see some momentum in the market with the latest 500 MW
auction.
• Attractive State Markets – Punjab, Andhra Pradesh, Telangana, Karnataka, Gujarat, Maharashtra.
• Current low bidding is financially unsustainable.
• The NPTC has allowed the bids to drop to ₹4.63 (~$0.071), while they are receiving ₹6.12 (~$0.094) for their
own projects along with AD and cheaper funds.
• Cheaper foreign borrowing is not a magic bullet anymore, as hedging costs are 7-8 percent.
• Solar Parks are very expensive; recent NTPC projects in AP are costing ₹43,00,000 (~$66,154)/MW + O&M
fees of ₹2,00,000 (~$3,077)/MW per year. The same project can be executed privately for less than half of
that cost.
• The Government should focus on facilitating land rather than trying to make money by raising costs for
developers.
• A tariff below ₹5 (~$0.077) is not feasible considering land and other costs. Bids are falling faster than
module prices. Currently there is a premium for modules as supply is low.
• Low bids are a huge threat to the industry.
• Enforcement is weak and projects are delayed for years as developers wait for module costs to drop. There
needs to be strict enforcement and projects need to be cancelled and reassigned if there are delays which
will deter aggressive bids to some extent.
• After RBI rate cuts, lending rates have come down slightly.
• The amount of debt available is based on tariffs with some banks. Example: Tariff >₹6 (~$0.092) for 75
percent debt, ₹5.5 (~$0.085) - 65 percent debt, ₹5 (~$0.077) – 50 percent debt.
• Current domestic interest rates are 11-12 percent based on the offtaker credit rating. For example, interest
rates are higher for projects in Tamil Nadu and Rajasthan while they are lower in Maharashtra and Gujarat.
• Foreign loans are 2-3 percent + 7-8 percent hedging cost.
• IRRs are in the 13-15 percent range.
• Currently facing some evacuation issues in Tamil Nadu and Rajasthan.
• Currently facing payment delays of 30-60 days in some states.
• Best States for timely payments – Gujarat, Andhra Pradesh, Telangana, Punjab, Madhya Pradesh.
• States with payment problems – Tamil Nadu, Rajasthan, Uttar Pradesh.
• It is a great idea to use NCEF funds to ensure payment security.
©2015 Mercom Capital Group, llc. ALL RIGHTS RESERVED. I www.mercomcapital.com I [email protected] I Page 16
Mercom Capital Group
India Solar Market Update
Manufacturers
• Extremely challenging market with huge pressure on prices.
• At current prices, these new low bids are unsustainable.
• Many delays and huge gaps between auctions are making production planning tight and hurting
manufacturers.
• There is a severe supply/demand mismatch.
• India is experiencing price pressure while ASPs are hardening in the rest of the world.
• Polysilicon and wafer prices have increased by over 15 percent in the last 30 days. There is a wafer
shortage in the market.
• Exports are starting to look up.
• Average selling prices are $0.49-0.55 (~₹32-36)/W. ASP’s for DCR projects are $0.56-0.61 (~₹36-40)/W.
• Net margins are in the 3-5 percent range.
• With the NTPC delays and plunging tariffs, no new manufacturer is willing to add capacity right now.
©2015 Mercom Capital Group, llc. ALL RIGHTS RESERVED. I www.mercomcapital.com I [email protected] I Page 17
Mercom Capital Group
India Solar Market Update
Investors
• Developers are bidding aggressively based on assumptions that the cost of components will continue to fall
no matter what.
• There is a concern that DISCOMs and the government will start thinking that they have over paid for other
PPAs after the latest ₹4.63 (~$0.071) bid.
• We will be very focused on the quality of components and projects as tier 1 modules are sold out and only
low quality panels are available.
• Offtaker risk is still the same even at these low tariff levels.
• DISCOMs are deferring payments for solar projects as they are small and cannot shut down production.
They don’t take such risks with coal plants because they are big and the impact of a plant shutting down is
huge.
• India is unprepared to meet a huge solar installation target when it comes to transmission infrastructure, grid
upgrades, forecasting, decentralized development and cost calculation.
• Solar projects are concentrated in only a few states due to the financial health of DISCOMs.
• Tariffs depend on capital costs, but anything below ₹5 (~$0.077) is risky with no margin for error.
• Though tariffs are important, the focus is on debt service coverage ratio, which should be 1.3-1.4 for a 15
year tenure.
• Interest rates have been reduced by 20-35 bps after the RBI rate cut and could go lower.
• It is true that renewable energy is still part of the larger power/infrastructure funding basket but since
financial institutions have not been lending to conventional power projects in the last few years, there are
plenty of funds available to lend to renewable projects.
• IRRs from projects financed are about 13-15 percent levered.
• Current lending rates are 11-12 percent with some large lenders lending at 10.5 percent in special cases.
Tenures are increasing to cover 80 percent of the PPA period.
• So far there have been no issues with capacity factors.
• Three month payment delays are being factored into the financial assumptions.
• Payment delays are occurring in Tamil Nadu, Uttar Pradesh, Maharashtra and Rajasthan.
• JNNSM projects can get a 0.25 percent discount in interest rates and DISCOMs with bad credit ratings can
add 1 percent to the interest rate.
• Credit rating reports like the recent ICRA/CARE report are inconsequential. Almost all banks have their own
internal credit analysis teams.
• Government auction delays are a negative and create uncertainty. More effort is spent on announcements
than actually executing and following a strict timeline.
©2015 Mercom Capital Group, llc. ALL RIGHTS RESERVED. I www.mercomcapital.com I [email protected] I Page 18
Mercom Capital Group
India Solar Market Update
STATE PROGRAM UPDATES
Uttar Pradesh: Currently, three different batches of projects totaling more than 500 MW are in various stages of
development in the state.
1. Uttar Pradesh signed PPAs for 130 MW of PV projects in December 2013, of which 40 MW have been
cancelled and 90 MW are currently in operation.
2. A Request for Proposal (RFP) to set up 300 MW of solar PV projects through reverse auction was
announced in August 2014. PPAs were signed for 105 MW of projects in April 2015 with tariffs ranging
between ₹8.93-9.27 (~$0.129-0.143)/kWh. Projects under 20 MW in size are expected to be commissioned
in 13 months; projects above 20 MW are expected to be commissioned in 18 months.
3. Another Request for Proposal (RFP) to set up 215 MW of solar PV projects was announced in June of this
year. The letter of intent (LoI) was announced in September 2015; PPAs are expected to be signed this
month. Projects under 20 MW are expected to be commissioned in 13 months and projects above 20 MW
are expected to be commissioned in 18 months.
Andhra Pradesh: About 750 MW of Solar projects are being developed under two different programs in Andhra
Pradesh.
1. Developers were allowed to build solar projects in the state at a fixed tariff of ₹6.49 (~$0.099)/kWh under the
first program in 2013; 140 MW of these projects are still under development. About 59 MW has been
commissioned to date and 65 MW is expected to be commissioned by March 2016. Another 2 MW project is
expected to be commissioned by the end of 2015. The status of the remaining 11 MW is undetermined as
the developers have been unavailable for comment.
2. Andhra Pradesh DISCOMs have signed PPAs to develop 619 MW of solar projects with a first-year tariff of
₹5.25 (~$0.081)/kWh at an annual escalation of three percent for 10 years. They are expected to be
commissioned by April 2016.
©2015 Mercom Capital Group, llc. ALL RIGHTS RESERVED. I www.mercomcapital.com I [email protected] I Page 19
Mercom Capital Group
India Solar Market Update
Punjab: In Punjab, more than 1,000 MW of PV projects are in various stages of development.
Phase I – About 195 MW of solar projects have been commissioned to date as part of the 250 MW phase I program.
Phase II – A LoI has been signed to develop 282 MW of large-scale solar projects this year, and another 53 MW of
rooftop projects are expected to be commissioned by the end of 2016.
In another program, RfPs for 500 MW of projects were announced in June. Five developers won the bids with tariffs
ranging from ₹5.09-5.98 (~$0.078-0.092)/kWh; PPAs are yet to be signed.
Kerala: 11 MW of rooftop solar projects have been commissioned this year with another 1 MW expected to be
commissioned by the end of 2015.
Madhya Pradesh: There are 260 MW of solar projects installed under Madhya Pradesh’s state policy (200 MW –
RPO and 60 MW – Phase II). Another 60 MW of projects under Phase II are expected to be commissioned by early
2016.
Haryana: A tender inviting bids for 50 MW of solar PV projects was issued by the utility Uttar Haryana Bijli Vitran
Nigam (UHBVN) in May of 2014 but PPAs were signed for only 23 MW.
Haryana Power Purchase Centre on behalf of UHBVN and Dakshin Haryana Bijli Vitran Nigam (DHBVN) invited
tender for 150 MW of solar projects with the deadline for opening financial bids extended until the end of November
2015.
Maharashtra: The state recently announced a renewable enery policy through which they expect to develop 7,500
MW of solar power by 2020. New bids are expected to be invited only in 2016.
5.0
9
5.2
7
5.5
7
5.6
2
5.6
3
5.6
4
5.8
0
5.9
5
5.9
7
5.9
8
4.6
4.8
5.0
5.2
5.4
5.6
5.8
6.0
6.2
0
10
20
30
40
50
60
Photon Photon Photon Azure
Power
Azure
Power
Azure
Power
Prayanta Prayanta Mytrah Hindustan
Clean
Energy
MW ₹/kWh
Source: Mercom Capital Group, llc
Avg Bid - ₹5.65/kWh
Punjab Auction Winning Bids
©2015 Mercom Capital Group, llc. ALL RIGHTS RESERVED. I www.mercomcapital.com I [email protected] I Page 20
Mercom Capital Group
India Solar Market Update
Chhattisgarh: Chhattisgarh State Power Distribution Company Limited (CSPDCL) announced bid results for 100
MW of solar projects in early 2014. We have confirmed only 66 MW of projects that have signed PPAs as of Nov
2015. Of the 66 MW, 32 MW are commissioned and 34 MW are expected to be commissioned by March 2016.
Karnataka: More than 1,300 MW of solar projects have been announced so far by the state.
Batch I. PV projects totaling 40 MW have been commissioned to date; 20 MW are likely to be cancelled. A 10 MW
Concentrated Solar Power (CSP) project under Batch I is expected to be commissioned at the end of 2016.
Batch II. PPAs were signed to develop 120 MW of solar projects in early 2014. Of this, 59 MW has been
commissioned and 10 MW have been cancelled. Projects totaling 30 MW are expected to be commissioned by the
end of November 2015 and a 3 MW project is due to be commissioned by January 2016. We have confirmation that a
10 MW project was abandoned and another 10 MW project has filed a petition for a tariff revision. The status of
another 8 MW is unavailable.
Batch III. Under this batch, PPAs were signed for projects totaling 50 MW; a 10 MW project has been commissioned
and the remainder is expected to be completed in 2016.
Batch IV. Karnataka Renewable Energy Development Ltd. (KREDL) signed PPAs for 500 MW in early 2015. They
are expected to be commissioned by the end of 2016.
Karnataka announced 600 MW of projects to be developed especially by farmers and unemployed youth. Under this
scheme, the state allotted solar energy projects of 258 MW to farmers and signed PPAs in July 2015 for a tariff of
₹8.40 (~$0.129)/kWh. The projects are expected to be commissioned within 18 months. Another 300 MW is expected
to be announced for allotment to unemployed youth.
The government of Karnataka has announced the exemption of Value-added-Tax (VAT) with immediate effect on the
tax payable by a dealer under the Karnataka Value Added Tax act, 2003 on the sale of solar panels and solar
inverters.
Telangana: 515 MW were auctioned off in March 2015 through reverse bidding; of this, a 25 MW project has been
commissioned and the remaining projects are expected to be commissioned in the first half of 2016.
The Southern Power Distribution Company of Telangana (TSSPDCL) invited 2,000 MW of solar bids on a 'Build-Own-
Operate' basis in April 2015. The LoI was expected to be issued in August 2015 but there is a delay due to technical
issues regarding transmission.
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Mercom Capital Group
India Solar Market Update
Bihar: 100 MW of solar projects are expected to be commissioned by the second half of 2016. Project financing is
difficult in Bihar due to offtaker risk.
Tamil Nadu: According to our sources, Tamil Nadu Generation and Distribution Corporation (Tangedco), the state
utility, was to develop projects of more than 2,000 MW for a tariff of ₹7.01 (~$0.108)/kWh with the projects expected
to be commissioned by March 2016. The PPAs were supposed to be signed on the basis of a priority list but we were
informed that the state is overriding this priority list and signing the PPAs randomly. This action has caused enormous
concern among the developers who have already started work on the projects because they would not be eligible to
receive the attractive ₹7.01 (~$0.108)/kWh tariff after March 2016. It has also been reported that one project
developer is opposing this issue legally.
Delhi: Delhi recently released a draft solar policy with the aim to generate 1,000 MW of solar over five years and
2,000 MW by 2025.
0 100 200 300 400 500 600 700 800 900 1,000 1,100 1,200 1,300 1,400
Arunachal Pradesh
Tripura
Chandigarh
Uttarakhand
Goa & UT
West Bengal
Kerala
New Delhi
Jharkhand
Haryana
Chhattisgarh
Odisha
Telangana
Uttar Pradesh
Karnataka
Punjab
Tamil Nadu
Andhra Pradesh
Maharashtra
Madhya Pradesh
Gujarat
Rajasthan
PV
Thermal
Source: Mercom Capital Group, llc
Cumulative Solar Installation
4,816 MW
India Solar Installations (MW) By Location (Nov 2015)
©2015 Mercom Capital Group, llc. ALL RIGHTS RESERVED. I www.mercomcapital.com I [email protected] I Page 22
Mercom Capital Group
India Solar Market Update
Uttarakhand: Uttarakhand Renewable Energy Development Agency (UREDA) issued an RfP on Oct 03, 2015 to
develop solar projects. The list of selected bidders was announced to set up 181.4 MW of solar projects. The lowest
tariff was ₹5.57 (~$0.086)/kWh and highest ₹5.99 (~$0.092)/kWh.
Note: Dollar-Rupee conversions were calculated at $1 = ₹65
Uttarakhand Auction Winning Bids
5.5
7
5.5
8
5.5
8
5.6
0
5.6
3
5.6
4 5.6
7
5.6
7
5.6
9 5.7
4
5.7
5 5.7
8
5.7
8
5.7
9 5.8
2
5.8
4
5.9
1
5.9
3
5.9
5
5.9
7
5.9
8
5.9
9
5.9
9
5.3
5.4
5.5
5.6
5.7
5.8
5.9
6.0
6.1
0
5
10
15
20
25
MW ₹/kWh
Source: Mercom Capital Group, llc
Avg Bid - ₹5.78/kWh
©2015 Mercom Capital Group, llc. ALL RIGHTS RESERVED. I www.mercomcapital.com I [email protected] I Page 23
Mercom Capital Group
India Solar Market Update
About Mercom Capital Group
Mercom Capital Group, llc, is a global communications and consulting firm focused on Cleantech, Healthcare IT and
financial communications. Mercom’s consulting division advises companies on new market entry, overall strategic
decision-making, and provides custom market research. Mercom delivers highly respected industry market
intelligence reports covering Solar Energy, Wind Energy, Smart Grid and Healthcare IT. Our reports provide timely
industry happenings and ahead-of-the-curve analysis specifically for C-level decision making. Mercom’s
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visit: http://www.mercomcapital.com.
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Mercom Capital Group
India Solar Market Update
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