The renewable energy sector in India has been growing consistently over the past few years. As of August 2022, the country’s installed renewable energy capacity stood at approximately 116 GW, accounting for around 29 per cent of the total installed power capacity, which stood at around 405.7 GW. The past year has seen some notable developments in the sector. Key among these have been the launch of the green hydrogen policy, green energy open access rules and a greater focus on round-the-clock (RTC) renewables and domestic manufacturing of solar components.
Power Line provides a glimpse of key policies and tenders that shaped the industry, its current status and challenges faced in various renewable energy segments…
Key policy developments
RPO, ESO trajectory: The Ministry of PoÂwer (MoP) issued a renewable purchase obligation (RPO) and energy storage obligation (ESO) trajectory till 2029-30. According to this order, the total prescribed RPO will progressively increase from 24.61 per cent in 2022-23 to 43.33 per cent by 2029-30. This includes wind RPO, hydropower purchase obligation (HPO) and other RPOs. During the period under consideration, the wind RPO will increase from 0.81 per cent to 6.94 per cent, HPO will increase from 0.35 per cent to 2.82 per cent, and other RPOs will increase from 23.44 per cent to 33.57 per cent.
The ESO will be calculated in energy terms as a proportion of the total electricity consumption and will be regarded as satisfied only when at least 85 per cent of the total energy stored in the energy storage system is obtained from renewable energy sources each year. The prescribed storage obligation is 1 per cent in 2023-24 and increases up to 4 per cent in 2029-30.
Green Energy Open Access Rules, 2022: The MoP notified the Electricity (ProÂmoÂting Renewable Energy Through Green Energy Open Access) Rules, 2022. Under this policy, the limit of open access traÂnsaction has been reduced from 1 MW to 100 kW for green energy, to enable smÂaÂll consumers to purchase renewable poÂwer through this route. Further, it proÂviÂdes for transparency in the approval process. Approval is to be granted in 15 days, or else it will be deemed to have beÂen granted, subject to fulfilment of teÂchnical requirements. Further, banking of surplus green energy with the distribution licensee has been mandated. Cross-subsidy surcharge and additional surcharge will not be applicable if green energy is utilised for the production of green hydrogen and green ammonia, among other features.
CERC (Terms and Conditions for ReneÂwable Energy Certificates for ReÂnewÂable Energy Generation) ReguÂlations, 2022: Under this regulation, the price of certificates will be discovered in power exchanges or as mutually agreed betÂweÂen eligible entities and electricity traÂdÂeÂrs. Renewable energy generating staÂtioÂns, captive generating stations baÂsÂed on renewable energy sources, distribution licensees and open access consumers are entities that will be eligible for issuÂance of certificates.
Electricity (Rights of Consumers) AÂmÂendment Rules, 2022: One of the provisions of these rules is to ensure that consumers, who are using diesel generator sets as essential backup power, shift to cleaner technology such as renewable energy with battery storage in five years from the date of commencement of these rules.
Guidelines for RTC renewables, wind-solar hybrids and RTC Tranche III tender: During the past year, the government has provided significant policy imÂpetus to promote greater uptake of RTC renewables through policies and tenders. The MoP issued guidelines for the tariff-based competitive bidding (TBCB) process for power procurement from grid-connected renewable power projects for utilisation under the scheÂme for flexibility in generation and scÂheÂduling of thermal/hydro power stations through bundling with renewable energy and storage power. The MoP alÂso issued amendments to guidelines for the TBCB process for RTC power proÂÂcurement from grid-connected reÂneÂwable energy projects, complemented wiÂth power from any other source or frÂom storage. Meanwhile, the Ministry of New and Renewable Energy (MNRE) amÂÂended the TBCB guidelines for wind-solar hybrid projects.
A key highlight in this space has been the floating of the RTC-3 tender by the Solar Energy Corporation of India (SECI) for supply of 2.25 GW of RTC renewable enÂergy, complemented with power from any other source or storage. The projects will be set up on build-own-operate baÂsis and SECI will sign a 25-year power purchase agreement with the bidder. The power procured by SECI from these projects has been provisioned to be sold to MPSEZ Utilities Private Limited.
Green hydrogen policy: The MoP notified the Green Hydrogen Policy, to facilitate the transition from fossil fuel/fossil fuel-based feedstock to green hydrogen/green ammonia. A key measure that the policy provides is waiver of interstate transmission system charges for a period of 25 years to manufacturers of green hydrogen/ammonia for projects commissioned before June 30, 2025.
Even with the right policy environment, the sector has been suffering on account of a variety of implementation challenges, including delays in land acquisition, transmission unavailability, buÂreaucratic hurdles and mounting dues from discoms. These issues were further exacerbated by the Covid-19 pandemic, which disrupted supply chains, made labour scarce and delayed project completion across segments. Following that, upheavals in commodity markets and volatility in currency made worse by the Russia-Ukraine war, have impacted maÂnufacturing, equipment prices and supply chains. However, these issues are expected to be short-lived and the sector is expected to grow by leaps and bounds as the country moves towards 500 GW of fossil-fuel-free power by 2030.
Solar segment
The solar energy segment has an insÂtalled capacity of 59.3 GW as of August 2022. The share of solar in the renewable capacity mix is slightly over half now. In the past one year, the lowest tariff of Rs 2.17 per kWh was achieved in December 2021 at SECI’s auction for 1,785 MW of solar projects (Tranche IV). Several other auctions took place during the year for utility-scale solar projects; however, tariffs have been on the higher side. This is because the segment dynaÂmics actually took an opposite trend on costs and tariffs. Commodity prices have increased significantly due to supply chain disruptions caused by the Covid-19 pandemic and the Russia-Ukraine war. In addition, costs have beÂen incÂreÂasing due to high fuel prices, imÂÂposition of basic customs duty (BCD), Approved List of Models and MaÂnuÂfacÂturers and GST.
Meanwhile, the rooftop solar segment continues to face implementation issuÂes, especially in the context of net meÂtering and open access. The commercial and industrial rooftop installations have been historically low, but now the segment is on track. To solve the segment’s woes, the MNRE issued a simplified procedure for residential consumers to get roofÂtop solar plants installed by themselves or through any vendor of their choice under the Rooftop Solar ProgÂramme. The ministry also launched a rooftop solar portal to promote this segment, during the past year.
The floating solar segment was given a big boost with the successful auction of Rewa Ultra Mega Solar Limited’s 600 MW tender, in which the L1 tariff of Rs 3.21 per kWh was discovered.
Another major trend in the solar space has been the focus on scaling up domÂestic manufacturing of solar components and reduce dependence on solar imÂports, especially from China. To this end, the government has taken several initiatives. With effect from April 1, 2022, 40 per cent and 25 per cent BCD was apÂplied on solar modules and cells respectively.
In addition, the initial capital outlay of the production-linked incentive (PLI) scheme was increased from Rs 45 billion to Rs 240 billion. This is a positive move as the industry stakeholders had raised concerns that the initial capital outlay was too less to manufacture the quantum of capacity needed to meet the deÂmand. In addition, less incentives meant only a few large corporations could enÂjoy the benefits as more vertical integration got more benefits – something only large corporations could afford. DuÂring the year, the first tender under the PLI scheme received an impressive resÂponse and around 54.8 GW of capacity was bid. However, only about 8.7 GW was sanctioned. The second tranche will have a budget of Rs 195 million. With the imÂplementation of this scheme, it is exÂpeÂcted that about 65,000 MW of maÂnuÂÂfaÂÂcturing capacity will be operated anÂnually, including fully and partially integrated solar PV modules.
Wind segment
The installed wind power capacity in India stood at 41.2 GW as of August 2022, making up 35.5 per cent of the total installed renewable capacity. The wind power segment has been dealing with several challenges in the past few years, leading to a slowdown in capacity additions. Tenders have been getting a poor response due to offtaker concerns, and grid and land unavailability. DeveloÂpers and investors have become wary due to unviable and low tariffs, price maÂÂtÂÂching and contract renegotiation, unpaid dues and transmission delays. In the past year, wind tariffs ranged betÂween Rs 2.84 and Rs 3.27 per kWh.
However, the past year witnessed some headway in the offshore wind segment. In June 2022, the union minister for poÂwer and new and renewable energy anÂnounced at a meeting on transmission planning for offshore wind energy projects in India that bids for offshore wind energy blocks of 4 GW would be issued every year for the next three years. Following that, 5 GW of capacity will be bid out every year for the next five years, up to and including financial year 2029-30. All offshore wind capacity that will be bid up to financial year 2029-30 will reÂceive free evacuation and transmission of power from the offshore pooling substation to onshore transmission.
In the next year, the most interesting development expected in the segment will be the anticipated transition from competitive bidding to feed-in tariffs. It remains to be seen whether this shift will be implemented and if it could solve the fundamental woes of the wind industry.
Bioenergy and hydro
Having achieved its modest bioenergy target of 10 GW by 2022, India’s growth in this segment has been relatively slow. As of August 2022, the country’s total inÂstaÂlled bioenergy capacity stood at 10.7 GW (including waste-to-energy capacity), compared to the total available potential of 25 GW. One of the more active subsets of bioenergy, which has received considerable policy impetus, is biofuel. The goÂvÂernment is currently working on a four-pronged strategy for promoting ethanol, second-generation ethanol, compressed biogas and biodiesel.
In June 2022, owing to the coordinated effÂorts of the state-owned oil marketing comÂpanies, the target of 10 per cent blÂenÂding was achieved much ahead of the targeted deadline of November 2022. AcÂcording to the government press release, the development translated into a forex impact of over Rs 415 billion and reducÂed greenhouse gas emissions of 2,700,000 MT and led to the payment of over Rs 406 billion to farmers. In April 2022, the minister of state for petroleum and natural gas, Rameswar Teli, in a wriÂtten reply to a question in the Rajya SabÂha, informed that based on the enÂcouÂraging initiatives on the supply side of ethaÂnol, the government had made a decision to advance the target of 20 per cent blending of ethanol in petrol from 2030 to 2025-26. Subsequently, the MiÂnisÂtry of Petroleum and Natural Gas notified that oil companies will be selling up to 20 per cent ethanol-blended petrol from April 1, 2023. Similarly, an inÂdicative target of 5 per cent biodiesel blending in diesel was proposed to be implemented by 2030.
The small-hydro segment continued its lukewarm journey with a capacity of 4.88 GW as of August 2022. The segment has been suffering from policy inaction and lack of investments for quite a whÂile. While these challenges continue to plague the segment, the application of pumped hydro storage, for balancing reÂnewable power from other sources, provides a promising opportunity.
Outlook
Based on the past year’s trends, it is clear that going forward the key focus areas will be transition from vanilla solar and wind projects to RTC renewables, domÂesÂtic manufacturing of solar components and green hydrogen.
While the policy push to promote RTC power is impressive, some issues and concerns have been highlighted by several sector stakeholders, which need to be kept in mind, going forward. One, the high cost of energy storage implies that its use will be minimal and focus would primarily be on renewables and thermal power. Two, supply chain disruptions, duties and taxes applicable on solar components, and increase in input costs may hike the cost of solar and renewable energy projects. This puts a question mark on whether discoms will be willing to buy it considering they always vouch for tariffs going down. Three, concerns are there regarding the complicated naÂture of rules and provisions for RTC tenders, making the task of the developer not only tedious but also prone to stringent penalties. Issues notwithstanding, RTC tenders are the future and the industry awaits more such tenders. In fact, away from the government’s contÂrol, corporates are also demanding RTC power from developers, making the segment all the more interesting.
In the green hydrogen space, the much-awaited Phase II of the policy can be expected in the coming year, which will provide consumption obligations for different hard-to-abate sectors.
Several issues and the slow progress of policies in promoting domestic manufacturing and reducing import dependence show that India still has a long road to travel to achieve self-reliance. For insÂtance, according to the report by the StÂanÂding Committee on Energy (2021-22), the annual manufacturing capacity in India is around 3 GW for solar PV cells; arÂound 10-15 GW for solar PV modules; 5 GW for solar inverters; and nil for polysilicon, wafers and ingots.
ConsiÂderÂing the government’s ambitious solar energy targets, the demand expected per annum is clearly way more than the current manufacturing base. In addition, the data provided by the union power and new and renewable energy minister in response to a Lok Sabha question dated March 31, 2022 shows that India’s total value of solar imports (in $ million) in 2018-19, 2019-20, 2020-21 and 2021-22 (April to January) first gradually fell but is now increasing.
Overall, the intent has been there in the past year to tap niche renewable energy segments, but solving several challenges in implementing these initiatives should be the task for the year ahead.
Sarthak Takyar