Hyderabad:The country's solar installed capacity reached 31.696 GW as of 31 October 2019. The Indian government had an initial target of 20 GW capacity for 2022, which was achieved four years ahead of schedule. In 2015 the target was raised to 100 GW of solar capacity (including 40 GW from roof-top solar) by 2022, targeting an investment of US$100 billion. India has established nearly 42 solar parks to make land available to the promoters of solar plants.
India expanded its solar-generation capacity 8 times from 2,650 MW on 26 May 2014 to over 20 GW as of 31 January 2018. The country added 3 GW of solar capacity in 2015–2016, 5 GW in 2016–2017 and over 10 GW in 2017–2018, with the average current price of solar electricity dropping to 18% below the average price of its coal-fired counterpart. By the end of September 2019, India has installed more than 82,580 MW of renewable energy capacity with around 31,150 MW of capacity under various stages of installation.
The ongoing slowdown in economic growth and electricity demand has worsened the deep stress in India’s renewable energy industry, sending it into a tailspin. In September, while speaking at the United Nations Climate Action Summit in New York, Prime Minister Narendra Modi committed to setting up 450 gigawatts (GW) of non-fossil fuel power by 2022. With this, he more than doubled the initial target of 175GW of green energy that his government had set in 2018. We must accept that if we have to overcome a serious challenge like climate change, then what we are doing at the moment is just not enough.
Back home, however, the renewable energy industry that Modi is resting his hopes on is falling. India’s installed green energy capacity stands at about 65GW today. It was expected to cross 100GW by December 2022, definitely short of the government’s 175GW target and far behind 450GW. But even that expected 2022 projection now seems a bit too optimistic.
For the last few years, thermal power slowly fell out of favour due to rising coal costs and natural gas disappeared from the domestic market, everybody wanted to get in on the green energy game. And a big bulk of the new investments in green energy went into silicon panels, which were powered by the sun. However, that breakneck pace of the last few years is now flagging and the solar/wind party is on the verge of a shutdown.
Solar energy tariffs in India are among the lowest in the world, but state governments are keen to push them down further. These dangerously low tariffs are turning unsustainable for some developers, who in turn cut corners on quality. Some state power distribution companies (discoms) are also over a year late on paying their power bills. Developers in Andhra Pradesh are facing an existential crisis as the state holds them hostage with two equally unpleasant options: either lowering the tariffs agreed to by the previous government or stopping generation altogether. And where there was once a steady stream of investment into the sector, that tap is now turned off.
Independent power developers (IPPs) are wary of admitting to a slowdown, but the signs are everywhere. Of the 64GW that was auctioned by the Centre and states in FY19, 26% received no or lukewarm bids and another 10% got cancelled.
Tariffs that states are willing to pay are capped at ₹2.50-2.80 per unit, limiting the room for IPPs to improve profit margins and disincentivising quality projects. In the last four months, there have been 11 wind and solar project auctions. Only two of these auctions have been fully subscribed. None of the problems that the sector is facing seem like they are going away anytime soon, so the bidding uncertainty may persist. Even in projects that have gotten off the ground, the pace of execution has slowed down dramatically.
If this slowdown persists, not just in renewables but in the broader economy, it will bear down on India’s energy transition plans. If the economy does not revive, then we won’t care much about the clean energy target. That moves down in the list of priorities.
And that will have ripple effects far beyond the narrow interests of power sector incumbents. Countries on the solar leader board almost all have had a parallel development in solar-based IP, manufacturing, and deployment. But in India, we went straight to deployment and that makes us vulnerable to global players like China and Vietnam who lead in manufacturing. That dependence will only grow even more as India’s energy transition slows or gets delayed.
Nearly 46% of Germany’s energy already comes from renewable sources. Even in China, that figure crossed 26% last year. If the energy mix powering economies around the world is going to inevitably shift shortly, what will be the cost of India missing the bus or catching a late bus?
In July, the newly elected chief minister of Andhra Pradesh said solar and wind IPPs that provide power to the state would have to lower their tariffs or else see their long-term power purchase agreements (PPAs) cancelled. To understand the scale of that threat, consider that the state, at 7.7GW, buys 9.6% of the renewable power generated in India.
Like Gujarat in the north, Andhra Pradesh had, until then, led the industry’s growth. One of the Hyderabad-based Group, valued last at $6 billion and backed by sovereign investors such as Abu Dhabi Investment Authority and Singapore’s GIC, we're encouraged to set up their first plants there. Some other IPPs followed. Credit rating agency Crisil has estimated that Andhra Pradesh’s decision affects 5.2GW of its installed power, placing ₹21,000 crores of outstanding debt at risk of default. The rating agency noted the problem could delay payments by discoms to banks and an estimated `10,600 crore of loans to renewables could be at risk of default immediately.
The central government needs to facilitate the negotiation instead of just preaching the virtues of not reneging on a contract; it is not blameless in the sad state the power sector is in since it has encouraged reckless populism that has bankrupted state electricity boards.
The bone of contention for the state government is PPAs signed from 2014-2019 that were over and above the mandated 5% renewable power purchase obligations of the state.
Before competitive bidding for awarding projects was introduced for the renewable energy sector in 2017, states invited developers by setting a fixed tariff (called the feed-in tariff). Hyderabad based company’s plants in the state sell power at ₹5.74 per kWh, which appears to incense the current dispensation when prevailing solar tariffs have fallen to a low of ₹2.44 per kWh. Add to this the fact that state discoms’ dues are piling up and there are enough signs of a brewing crisis.
As of July 2019, which is the latest data available from the Central Electricity Authority, state discoms owe a whopping ₹9,735.62 crores to renewable energy companies. Of this, ₹6,500 crore is due from just three states—Andhra Pradesh, Tamil Nadu, and Telangana. Andhra Pradesh discoms, the worst offenders, haven’t paid their dues in over 13 months.
What we have achieved so far in renewables despite the uncertainty in payments from discoms is a major achievement. But the fate of the energy sector hangs on fixing discoms.