The renewable energy sector in India has been growing consistently over the past few years. As of April 2021, the country’s installed renewable energy capacity stood at 95 GW, accounting for 24.8 per cent of the total installed power capacity, which stood at 382.7 GW. Government support in the form of conducive policies and programmes has pushed the sector ahead. However, capacity additions have slowed down in the recent past mainly owing to the devastating impact of the Covid-19 pandemic on project execution as supply chains got disrupted and labour became scarce. During 2020-21, the total renewable energy capacity addition stood at about 7.3 GW, way less than the target of 14.4 GW for the year and the previous year’s capacity addition of 8.8 GW. The sector has also been suffering lately on account of a variety of implementation challenges including delays in land acquisition, transmission unavailability, bureaucratic hurdles and mounting dues from discoms. Power Line takes stock of the sector’s progress, recent developments, key challenges and the way forward…
Installed capacity and generation
As of April 2021, solar power accounted for a major share of 42.6 per cent or 40.5 GW in the total renewable energy installed capacity. It was closely followed by wind, which accounted for a share of 41.4 per cent in the total, with an installed capacity of 39.4 GW. The rest of the capacity was made up by bio-power with an 11 per cent share (10.3 GW) and small-hydro power with a 5 per cent share (4.78 GW). The total electricity generation from renewable energy sources stood at 147,247.5 MUs in 2020-21, about 6.5 per cent higher than the previous year. Wind and solar accounted for a 41 per cent share each in the total renewable energy generation. Overall, renewable energy generation was 10.6 per cent of the total electricity generation (including imports) in the country during 2020-21.
PLI scheme for solar modules: In April 2021, the union cabinet approved the Ministry of New and Renewable Energy’s (MNRE) proposal to implement the production linked incentive (PLI) scheme for high-efficiency solar modules. With an outlay of Rs 45 billion, this “National Programme on High Efficiency Solar PV Modules” aims to achieve multi-GW-scale manufacturing capacity for high efficiency solar PV modules. As part of the PLI scheme, solar PV manufacturers will be selected through a transparent competitive bidding process. The incentives will be disbursed for five years post the commissioning of solar PV manufacturing plants, for the sale of high efficiency solar PV modules. Further, manufacturers will be rewarded for higher efficiencies of solar PV modules and for sourcing material from the domestic market. In May 2021, the Indian Renewable Energy Development Agency (IREDA) invited applications for setting up manufacturing capacities under the PLI scheme.
BCD on solar cells and modules: As part of the government’s efforts to promote domestic manufacturing, a basic customs duty (BCD) of 25 per cent on solar cell imports and 40 per cent on solar module imports will be levied from April 1, 2022. This will make imports more expensive and create a more level playing field for domestic manufacturers.
Record low solar tariffs: Solar power tariffs hit a new low in 2020. In November 2020, a record low tariff of Rs 2 per kWh was discovered in an auction conducted by the Solar Energy Corporation of India (SECI) for developing 1,070 MW of grid-connected solar power in Rajasthan (Tranche III). Then, in December 2020, the tariffs went down a notch further to touch Rs 1.99 per kWh in Gujarat Urja Vikas Nigam Limited’s (GUVNL) Phase XI auction for 500 MW of solar projects. The recent dip in solar tariffs can be attributed to the entry of a large number of international investors with deep pockets, a huge risk appetite and access to low-cost financing.
Wind tenders and tariffs: In SECI’s latest March 2021 auction for developing 1.2 GW of interstate transmission system (ISTS)-connected wind projects (Tranche X), Adani Renewable Energy, Ayana Renewable Power, Evergreen Power and JSW Future Energy emerged as winners. Of the total capacity, Adani Renewable Energy won 300 MW of projects at a tariff of Rs 2.77 per kWh, the lowest tariff in the auction. Ayana Renewable Power won 300 MW, Evergreen Power won 150 MW and JSW Future Energy won 450 MW, all at a tariff of Rs 2.78 per kWh. In all, bids for a total of 3.15 GW of projects were received from 11 developers, with tariffs as high as Rs 3.39 per kWh. The winning bid of Rs 2.77 per kWh is about 7 per cent less than the lowest tariff discovered in the last SECI auction (Tranche IX) in August 2020 for 2.5 GW of wind power blended with solar power.
National mission on biomass: The Ministry of Power (MoP) has decided to set up a “National Mission on Use of Biomass in Coal-based Thermal Power Plants” (TPPs) to help solve the problem of air pollution due to farm stubble burning and to reduce the carbon footprint of TPPs. The main objectives of the mission are increasing the level of co-firing from the present 5 per cent in order to have a larger share of carbon neutral power generation from TPPs; taking up research and development activities in boiler design to handle the higher amount of silica, alkalis in biomass pellets; removing constraints in the supply chain of biomass pellets and agro-residue, and facilitating its transport to TPPs; taking regulatory issues in biomass co-firing into consideration.
Green hydrogen: Recognising the immense potential of green hydrogen for application in long-duration storage of renewable energy, the replacement of fossil fuels in industries as well as clean transportation, a comprehensive National Hydrogen Mission is proposed to be launched in 2021-22 for generating hydrogen from green power sources. This was announced by the finance minister in the last union budget (2021-22).
Challenges and the way ahead
Discoms’ growing debt levels pose considerable risks to India’s renewable energy expansion plans as frequent payment delays are a major concern for developers. As of March 2021, the discoms are estimated to owe renewable energy generators Rs 111.5 billion in overdue payments, an increase of 49 per cent over Rs 75 billion in March 2020. Further, the steep decline in solar tariffs has created unrealistic expectations. Discoms are now tariff shopping and cancelling or postponing tenders in the hope of accessing lower tariffs.
As of September 2020, renewable energy projects with a total capacity of 16.8 GW were yet to sign PPAs with discoms. There have been reports of PPAs and PSAs remaining stuck at the approval stage for more than a year due to unwilling discoms. This backlog has become a major cause for concern for developers as by the time approvals do come through, technologies or regulations or costs could change, thereby impacting tariffs and project viability. There have also been instances of states trying to renegotiate contracts to bring tariffs down, thus bringing the entire contract sanctity into question. In addition, debt financing for renewable energy projects has been drying up with large Indian banks declining to fund them, as they are concerned about the viability of projects with low tariffs. This trend is expected to continue with debt financing taking place mainly in the form of loans and equity funding becoming the leading mode of investment. Further, interest rates, which are the most significant determinant for tariffs in India, vary from 10 per cent to 12 per cent for renewable energy projects, with a loan repayment tenor of 15-18 years.
The mismatch in generation and transmission timelines is another issue. The transmission infrastructure takes much longer to develop than renewable energy projects. This often leads to a situation wherein projects are built but do not have access to grid connectivity, leading to losses for the developer.
These challenges need to be addressed if the country has to reach the target of 450 GW of renewable energy capacity by 2030. With more than 350 GW yet to be installed over the next 10 years, this translates into a requirement to add 35 GW of capacity on average each year between 2021 and 2030. This is quite significant considering the recent slump in renewables installations. In order to revive capacity additions, the government must work with the industry to address implementation issues at the earliest.