This analysis originally appeared on the Observer Research Foundation (ORF) website. 

The COVID19 pandemic is spreading and affecting countries across the globe and bringing economies to a halt. The solar industry at large and also in India is not insulated from the pandemic's impact and its uncertain future is causing concern for many businesses. The COVID-19 outbreak comes at a time when the country’s solar project execution is at its peak in the last quarter of the financial year. India has ambitious targets of achieving 100GW solar energy target by 2022. As of January 2020, India has installed approximately 35GW of solar energy projects. It will be interesting to see how India's solar sector tackles the issues due to the coronavirus outbreak and plots a strategy to achieve its targets.

As the crisis has spread beyond China, global supply chains of solar equipment are affected. India imports about 80 percent of its solar cells and modules from China along with other equipment like inverters, prefabricated structures and raw materials. Developers of solar projects in India are concerned about project delays due to initial slowdown of manufacturing in China followed by lockdown in India. CRISIL reports that about 3GW solar projects of INR 160 billion will be affected. China has indicated a rebound in export of solar PV panels since it has ramped up its production to normal capacity, although, the prices of solar modules are expected to rise in the short-term due to depreciation of Indian currency. There will be uncertainty over these prices as the hike could be offset due to excess supply of modules against low demand. Module shipments are stuck in ports and are unable to reach project sites, but major ports are directed to not levy penalties due to delays which is a welcome move.

The Indian government, too, has declared this as a force majeure situation for project developers keeping in mind the deadlines and the related penalties. The pandemic is expected to affect solar project installations in the first half of the current financial year and it is only likely to start recovering in the second half. The industry usually completes most of the projects before the monsoon season; however, most of these projects will now be initiated only after about six months. This will alter the working capital cycle of the solar industry with deferred payments. The smaller players in the solar sector will find it difficult to manage their cash flows and might be affected brutally, whereas, the bigger businesses may be able to brace through this and bounce back sooner. The rooftop solar segment will be adversely affected as these are small-size firms and lack the economic capacity to absorb losses.

The Ministry of New and Renewable Energy (MNRE) has stated that all developers facing difficulties and expecting time extensions should make formal applications to implementing agencies giving documentary evidence in support of their claim and that these applications will be assessed on a case to case basis. It will be demanding for the industry to provide all necessary documentary evidence to prove their case. Hence, timely submission of notices to agencies is of utmost importance for the developers to avoid complication in the future to justify their delays.

One positive step has been the RBI's announcement to allow a three-month moratorium on the payment of installments for all term loans and working capital loans. It will be relevant for solar developers to request their lender to grant this benefit, but some might face higher burden of finance cost as the interest continues to accrue and is most likely payable immediately post the end of this period. There has been a steep decline in the power demand in India as commercial and industrial activity has reduced substantially. A number of thermal power plants had to be shut and with this decline of predictable power, there are suspicions about the effects of increased share of intermittent renewable energy generation on the grid. To avoid possible curtailment, MNRE stressed on must-run status for renewable energy (RE) projects and clarified that all distribution companies must make timely payments. The MNRE directive mandates all electricity retailers to buy electricity from RE projects irrespective of the costs.

Despite this announcement, states like Punjab and Uttar Pradesh have stated that they are unable to procure RE. States like Madhya Pradesh and Andhra Pradesh have mentioned their inability to pay to the generators as they are unable to collect dues from the consumers. Solar project developers will thus face cash flow issues due to delayed payments from distribution companies. This can affect solar project developer ratings in the future and lead to higher costs of debt causing dent in investor confidence. Post the current situation, there is also a fear of reneging power purchase agreements (PPAs) which can deter the solar industry at large in the long-term. It is a must for the solar industry to receive timely payments which can then be reinvested in new projects to maintain the health of the solar sector.

The disruption of supply chains and a brake on solar equipment imports from China has shown India’s heavy dependence on many external factors to efficiently implement solar energy projects. To reduce such vulnerabilities and ensure energy security, India needs to develop its own solar equipment manufacturing industry. This realisation has led the MNRE to urge states and ports to identify land suitable to set up RE manufacturing units and export services hubs. This is a long-overdue but much needed move which will help India to boost its domestic solar equipment manufacturing. India faces stiff competition from China, but this initiative can be made successful with the provision of a conducive ecosystem for the industry to invest along with a tech and innovation-based approach. Apart from the domestic needs, there are good opportunities for Indian solar equipment manufacturers to export their products to South Asia and Africa which are upcoming RE markets.

In another positive step, the Indian government under the revised guidelines regarding lockdown measures has allowed construction or RE projects in areas not identified as containment zones. The industry has to abide by the safety protocols as outlined by the Ministry of Home Affairs. Although, it is uncertain how workers can get back to construction sites since there is no public transportation available. As the year advances, workforce and material availability could hamper the execution capacity of the solar industry to implement projects as this might cause heavy bottlenecks with bunching of projects.

Overall, the solar industry has been considerably affected due to the COVID19 outbreak with issues like cash flow crunch, recovery of payments from distribution companies, working capital requirement, workforce availability and mainly supply chain disruptions. The government’s approach towards this situation has been quite positive to limit the negative effects on the sector. The current pandemic could act as a trigger for the Indian government, the solar industry and associated stakeholders to chart the right roadmap for achieving India’s solar energy targets.

The author is an association fellow at the Observer Research Foundation’s Mumbai centre. The views expressed above belong to the author.