The recent trends in power capacity addition indicate that India is embarking on a massive transformation of its electricity sector. The installed renewable power capacity has already reached over 70 GW, taking the country to the fifth rank globally. The solar energy capacity has gone up from 2.63 GW in 2014 to 22 GW currently, marking an eightfold increase. Further, India attained the fourth position globally in installed wind power, with the capacity increasing from 21 GW to 34 GW in the past four years. Another 40 GW of renewable capacity is reportedly under tender or construction.
The government has now indicated plans to scale up the renewable energy target from 175 GW to 227 GW by March 2022. Reportedly, the 175 GW targets could be overachieved on the back of schemes such as floating solar, manufacturing-linked solar and offshore wind power. With an additional $50 billion investment, the government intends to add 52 GW in the next few years to meet the new goal.
A look at the key trends and developments in the renewable energy segment…
The installed renewable energy capacity as of May 2018 stands at 70,529 MW. According to the Central Electricity Authority, the share of renewable energy in overall electricity generation increased from 6.6 per cent in 2016-17 to over 8 per cent in 2017-18.
At the end of 2017-18, the country’s total installed generation capacity stood at 345 GW, with renewables accounting for 70 GW and occupying a share of 20.32 per cent. This marked a 2.8 per cent increase in its share over 2016-17, which witnessed cumulative renewable energy installations of 57 GW, accounting for 17.5 per cent of the total installed energy mix.
In fact, 2017-18 saw renewable energy capacity additions of 11,787 MW, surpassing thermal power additions for the first time. In comparison, in 2016-17 the renewable energy segment witnessed a capacity addition of 11,320 MW. The segment, however, missed its target of 14,510 MW for 2017-18, effectively achieving only 81 per cent of the target. For 2018-19, the targeted capacity addition is 15,602 MW, of which 745 MW has been achieved so far (till May 2018).
Among renewable energy sources, while wind continues to dominate the market, it is solar power that is driving the majority of new installations. The solar capacity share in the total installed power base grew from 3.76 per cent as of March 2017, to 6.59 per cent as of March 2018.
Currently India has a total of 22.3 GW of installed solar capacity, of which impressive capacity additions of about 9.3 GW took place in 2017-18. According to industry reports, the pipeline for large-scale solar projects stood at about 10 GW (tendered and pending auction) as of March 2018. The first quarter of 2018-19 further witnessed new solar tenders for 14-15 GW. This is aside from the capacity that has been tendered for rooftop solar projects.
Solar power tariffs have also declined steeply over the past year, falling to a record low of Rs 2.44 per kWh in the Bhadla solar park auction for 500 MW in May 2017. Factors such as greater economies of scale, the entry of global players, the availability of foreign funding and a fall in module prices led to a dip in tariffs. However, since then the tariffs have been moving upwards. The latest tender results saw ACME Solar winning 75 MW of solar projects in the Parasan solar park, Uttar Pradesh, by quoting the lowest tariff of Rs 3.32 per kWh.
While there are several factors leading to this upward tariff trajectory, the fundamental issue is the country’s dependence on foreign equipment. Currently, about 85 per cent of solar photovoltaic (PV) modules used in India are imported from China, Taiwan and Malaysia. A 20 per cent increase in the average selling price of Chinese modules between the quarter ended June 2017 and the quarter ended December 2017 led developers to quote higher tariffs. Further, several Chinese suppliers became wary of shipping to India with uncertainty around the safeguard, anti-dumping and port duties. The issue related to ports/customs duty on solar imports has been resolved, but matters pertaining to anti-dumping and safeguard duties are still in the grey.
A ray of hope for project developers has been the recent policy announcement by the Chinese government, wherein installation caps will be imposed and solar feed-in tariffs (FiTs) reduced to slow down solar installations in China. This could mean a massive over supply situation, creating an optimistic scenario for Indian solar developers which could then start bidding lower. In fact, in June 2018, ACME again quoted the lowest price of Rs 2.44 per unit in SECI’s 2 GW auction, matching the lowest bid ever so far for the Bhadla project.
The country is targeting an installed solar capacity of 100 GW by 2022, and an overall renewable energy capacity of 175 GW by 2022. Out of the total solar capacity addition target, while 60 GW will come from utilities, the remaining 40 GW is expected to come from rooftop solar. While the former seems achievable, as of May 2018, only 1.2 GW of rooftop solar has been installed. Most of this capacity has come up recently. In 2017, approximately 995 MW of rooftop solar capacity was installed.
As of May 2018, the total installed wind power capacity stood at 34.1 GW. However, the year 2017-18 has seen sluggish growth with only 1.7 GW of wind projects commissioned till March 2018, of a target of 4,000 MW. In comparison, about 5.5 GW of wind capacity was installed in 2016-17.
The record capacity addition in 2016-17 was on account of a combination of factors such as the phasing out of accelerated depreciation benefits and discontinuation of generation-based incentives with effect from April 1, 2017. Meanwhile, the slowdown in 2017-18 can be attributed to the transition to competitive bidding for project allocation from 2017 onwards.
SECI has auctioned 6 GW of wind power capacity through central tenders over the past year. Tariffs fell from around Rs 5 per kWh in the FiT era to Rs 3.46 per kWh in the first auction. Successive auctions saw a decline in tariffs, reaching Rs 2.43 per kWh, which was discovered in the 500 MW Gujarat auction in December 2017. The tariffs then rose to Rs 2.85 per kWh in March 2018, with a 500 MW auction by Maharashtra. However, they seem to have stabilised at Rs 2.50 per unit, discovered in the latest auction for 2,000 MW by SECI in April 2018.
However, one of the key issues facing the segment is the cancellation/renegotiation of power purchase agreements (PPAs) by the state discoms, which has adversely impacted developers’ confidence in the segment. Following a reduction in wind tariffs under the competitive bidding regime, discoms felt that they had been paying very high tariffs for wind power and, therefore, decided not to sign any further PPAs under the FiT system. In fact, discoms in many states were reluctant to honour the already signed PPAs, which were awaiting approval from the respective state regulatory commissions.
An emerging area for the deployment of wind energy in the country is wind-solar hybrid projects. In June this year, the Ministry of New and Renewable Energy released the National Wind-Solar Hybrid Policy to spur dual-technology deployments to help meet the country’s renewable energy ambitions. The policy proposes to develop 2,500 MW of interstate transmission system wind-solar hybrid projects in India on a build-own-operate basis. The move to release a set of guidelines for the hybrid segment, with a forward-looking statement on the inclusion of storage in the equation, has been well received by the industry and will open up a new opportunity for project developers. Meanwhile, endowed with a vast coastline, the country has been taking steps to harness its huge offshore wind power potential, with the coasts of Gujarat and Tamil Nadu witnessing major developments in particular. India has set a target to install 5,000 MW of offshore wind power capacity by 2022. As a stepping stone towards this target, in April 2018, the National Institute of Wind Energy invited expressions of interest for the development of a commercial offshore wind energy project of 1,000 MW located off the coast of Gujarat.
The country’s total installed capacity of bioenergy is about 9.5 GW (as of May 2018), of which biomass and cogeneration projects contribute 9.37 GW and waste-to-energy (WtE) contributes the rest. In 2017-18, only 528.6 MW of biomass and cogeneration projects and a few WtE projects were developed. Given that the segment has an estimated power generation potential of 25 GW (biomass and cogeneration combined), it has a long way to go in terms of additional power generation capacity that can be set up. The government has set a target of 10 GW of bioenergy capacity by 2022.
One of the important applications in this segment is biofuels. In May 2018, the Union cabinet approved a national policy on biofuels that seeks to not only help farmers dispose of their surplus stock in an economical manner, but also reduce India’s dependence on oil imports. In order to promote the use of advanced biofuels, the policy has allocated Rs 50,000 million for second-generation ethanol biorefineries as part of a viability gap funding scheme. Further, tax incentives and a higher purchase price will be set for advanced biofuels as compared to the first-generation fuels. (The first generation of biofuels consist of bioethanol and biodiesel. Ethanol and municipal solid waste [MSW] are second-generation fuels, while bio-compressed natural gas [CNG] is a third-generation fuel).
WtE has been a very slow growing segment despite there being tremendous potential for these projects in India. Currently, there are over 180 WtE plants based on MSW, urban, industrial and agricultural waste/residues for the generation of power and biogas to meet the thermal and electrical energy needs of industries and for the production of bio-CNG for transportation, cooking fuel, etc. However, the scenario is changing. The Ministry of Urban Development (MoUD) has been receiving a number of proposals from the states with a potential to generate about 415 MW of power from waste. Initiatives such as the Swachh Bharat Mission and the Smart Cities Mission are driving the growth of WtE plants in the country. Urban local bodies are deploying advanced control and automation solutions for WtE facilities.
The growth of the small-hydro power (SHP) segment in India has been sluggish year after year. While the government has been fairly optimistic about the segment, it has failed to translate this into a real fillip to growth. As of May 2018, only 4.5 GW of capacity has been installed, of a total estimated potential of 20 GW spread across 6,474 sites. About 106 MW was installed in 2017-18, against the target capacity of 100 MW.
There are a series of challenges that are impeding the growth of the SHP segment. These issues have remained more or less the same year after year due to the lack of proactive government intervention in tackling them. Protracted delays and difficulties in obtaining permissions from multiple government agencies increase the gestation period of plants, reducing their viability and making SHP projects unattractive for private developers. The state governments and central agencies need to expedite and streamline the process of providing statutory clearances to projects.
Only Karnataka, Himachal Pradesh and Maharashtra have utilised their small-hydro potential, while states such as Arunachal Pradesh, Gujarat and Assam have not even utilised 15 per cent of their potential. Urgent government interventions are required to create interest amongst private players in this declining segment.
The renewable energy segment has grown at a remarkable pace in the past few years and the government seems confident of meeting its 175 GW target well before the assigned deadline of March 2022. Of the new 227 GW target, solar power would constitute around 65 per cent. The new goal, however, is being seen as ambitious by the industry, with one of the key concern areas being grid integration. There has been limited progress so far in the development of green energy corridors say industry watchers, which is a key step towards the development of robust transmission infrastructure in the country. Solar and wind generators are already facing grid curtailment issues in Tamil Nadu, leading to the loss of millions of units of renewable energy due to congestion in the transmission corridor. Also, while significant investments are being directed towards developing storage technologies, they are at a relatively early stage compared to solar PV or wind, and hence there is more uncertainty in their cost trajectories. Payment delays by discoms have been another major area of concern for the sector.
If the mammoth renewable energy targets of 227 GW are met, India will become the third largest country globally in terms of renewables. However, it seems that the transition to a sustainable and clean power portfolio will be a tough task as policymakers and stakeholders work their way through multiple challenges simultaneously.