Prime Minister Narendra Modi, at the recently concluded United Nations Climate Action Summit in New York, committed to increasing India’s renewable energy (RE) target to 450 gig watts (GW) as a part of a stronger climate action plan.
He pointed to the significance of practice over preaching, reminding the world leaders how India is inching towards its goal of 175 GW RE by 2022. The Ministry of New and Renewable Energy (MNRE) has reportedly already initiated drafting plans and policies to meet the new escalated target.
The announcement came at a time when the renewable energy sector is struggling and growth has lost momentum. The slowdown, triggered in mid-2018, is a combined result of ill-conceived policies, states’ hankering for lowest-possible tariffs and their blatant disregard for signed and committed power purchase agreements (PPAs).
Capacity addition has suffered — only 6.5 GW of solar power added in 2018-19 compared to 9.4 GW in 2017-18. There are no signs of improvement in 2019-20 as only 1.4 GW was added during the first quarter. The target for the year has already been slashed 23 per cent from the previous year.
Auction of new capacity has also suffered with only 2-3 GW of solar capacity auctioned in each of the past three quarters. The gap between tenders announced and actually auctioned remains wide. In August 2019, for instance, only 695 MW was auctioned against 6.5 GW of tenders floated.
Investments in the sector are suffering because of persistent disconnect between emerging solar and wind project risks driving up tariffs and the expectation of states and discoms of lowest possible prices.
Developers are currently grappling with a very serious land and grid availability crunch. Liquidity in the market is low due to delayed payments and generation curtailment from discoms.
MNRE recently revealed that discoms currently owe around Rs 9,736 crore to RE companies. The advantage of continuously falling global market prices is gone. The safeguard duty imposed on imported cells and modules has done little to support domestic manufacturing, but driven project costs and slowed down commissioning.
The sanctity of the competitive auction process has been violated with imposition of tariff ceilings and serial cancellation/resizing of announced bids.
India may have achieved 50 per cent of its 175 GW RE target so far, but setting up another 38 GW of solar rooftop, 32 GW of solar utility, and 23 GW of wind power capacity in the 2.5 years is a tall task in the ongoing policy and market environment.
The ministry clearly has its work cut out, not just for meeting the scaled-up long-term ambition but also for urgently restoring investor confidence. There are plans to introduce a stronger standard PPA for wind and solar projects that will ensure stringent penalties for defaulting state.
Letters of credit are planned to be made mandatory for procurement. The ministry is also looking to go back to the ‘plug-and-play’ model of project development, ensuring land and grid availability before projects are tendered. Swift and decisive action will be vital.
Strong goals have and will continue to play a crucial role in pushing RE growth in India, but the growth will hinge very closely on how policies shape up and how effectively development risks are mitigated.