Tamil Nadu’s total installed power capacity stood at 41,126.68 MW, including 15,970.03 MW of thermal power, 1,448 MW of nuclear and 23,659.34 MW of renewable energy (including large hydro) as of September 2024. The state has the second-highest installed wind capacity (11,042.44 MW) and the third-highest solar capacity (9,270.2 MW) in the country. The share of renewable energy (excluding large hydro) in the total installed power capacity is currently around 52 per cent. While the renewable purchase obligation (RPO) target for the state for 2024-25 is 29.91 per cent, the state government is conscious of the need to continue its focus on developing renewable energy projects as there can be fluctuations in renewable generation, thus posing the risk of not meeting RPO targets, leading to penalties.
To this end, the state government has recently released three key policies for the renewables sector–concerning wind repowering and refurbishment, and small-hydro and pumped hydro storage development. The central government too has announced several incentives and plans for promoting offshore wind in the state. In the solar space, a key positive and highlight in the past year has been the setting up of manufacturing facilities for solar components. Several developments are taking place in the green hydrogen space as well. However, a stumbling block in the state’s renewable growth story could be the decision to introduce a wind resource tax for wind energy projects connected to the central grid.
This article highlights the key recent policy developments in Tamil Nadu and the future outlook for renewables in the state…
Optimising old projects
Since wind project development in Tamil Nadu began in the 1980s, small turbine capacities ranging from 55 kW to 600 kW have been used in the state. Although these turbines have reached the end of their expected lifespan, they are still operational. Over the past three decades, advancements in technology have created opportunities to replace these older, lower-capacity turbines with newer, more efficient models that have higher capacity and capacity utilisation factors (CUFs). Currently, turbines with capacities of up to 10 MW are available in the domestic and international markets. By upgrading to these new turbines, the wind energy potential of each site can be optimised, leading to increased installed capacity and generation.
To this end, the state recently released the Tamil Nadu Repowering, Refurbishment and Life Extension Policy for Wind Power Projects, 2024, valid till March 31, 2030. The policy classifies repowering projects into two categories–stand-alone projects, which involve a single or a group of wind turbines owned by one entity where the owner acts as the project developer for repowering; and aggregation projects, which involve wind turbines owned by multiple parties sharing common infrastructure. Apart from repowering, the policy also covers refurbishment of projects, which involves modifying turbine components such as the gearbox, blades, generator, controller; and hub height or rotor diameter. The policy also takes into account life extension projects that focus on extending the operational life of turbines beyond their design life or the typical 20-year lifespan.
The policy provides several incentives, including the relaxation of micrositing norms, annual banking arrangements, reduction in distance from dwelling areas, permission to convert wind projects into solar-wind hybrid projects, financing support with interest rebates and exemption from open access charges.
Going big with small
To ensure RTC renewable power supply, the uptake of hydropower is key, given the high CUFs of such projects. However, the current installed capacity of small-hydro is just 123.05 MW. To this end, Tamil Nadu has introduced its Small Hydel Policy, 2024, which, for the first time, permits private entities to participate in hydropower generation in the state, offering incentives and support measures. The policy will come into effect from the date of its notification and will remain valid for five years, after which it will be reviewed. Small-hydro projects commissioned during this period will be eligible for policy benefits and incentives for 40 years, with a possible extension of 10 years.
The policy focuses on small-hydro projects with capacities ranging from 100 kW to 10 MW (unit size of 5 MW). Tamil Nadu Green Energy Corporation Limited has been appointed as the nodal agency responsible for registering, approving and facilitating these projects.
Under the policy, developers can establish hydro projects for self-consumption (captive use), sell power to third parties within the state or supply it to discoms to fulfil the RPOs mandated by the Tamil Nadu Electricity Regulatory Commission. This power may be exempt from the payment of electricity duty.
As a part of this initiative, the government intends to establish small-hydro units on canals, rivers and streams while promoting the research and development of innovative technologies. However, developers are not entitled to claim water release rights for power generation. Moreover, they are required to provide 10 per cent of the generated power to the state at no cost and pay an annual fee of Rs 25,000 per MW of installed capacity.
Storage solution
In a bid to promote storage solutions and achieve RPO targets, the state government has launched the Tamil Nadu Pumped Storage Projects Policy, 2024. The policy takes effect immediately and will remain in place for five years, covering all PSPs, including those identified by the state government, the Central Electricity Authority and private developers currently under survey and investigation in the state.
The policy encourages developers to identify and propose potential sites for PSPs, promoting private sector involvement in discovering new locations and developing already identified ones. Projects commissioned during the policy’s duration will be eligible for benefits and incentives for up to 40 years, with a possible 10-year extension. Developers must also pay an annual fee of Rs 20,000 per MW of installed capacity. Key incentives under this policy include the availability of single-window clearance, 50 per cent concession on stamp duty and registration fee, exemption of electricity taxes on final consumption of electricity within the state for a period of 10 years, water allocation within six months of project allotment and exemption of water cess.
Future outlook
Despite the positive policy initiatives, several challenges remain in the state’s renewables space. The issue of accurate forecasting and scheduling of wind power persists, leading to high deviations. The hybridisation of wind and solar projects faces challenges because RTC wind generation is available only for four months. Therefore, solar power is required for the remaining eight months when wind generation is low in order to efficiently utilise the transmission network. Despite having a policy in place, the state will face challenges in repowering old wind projects due to the limited number of large wind farms in the state and the majority of the capacity being decentralised for captive use. Similarly, while promoting small-hydro projects by tapping the extensive network of rivers in Tamil Nadu is a step in the right direction, ongoing water disputes in South India may pose a key challenge for this segment. For PSPs, while a slew of incentives have been announced, finding the right location for the projects and avoiding time and cost overruns will be key.
A recent dampener for the state’s renewables sector has been the government’s decision to charge Rs 5 million per MW as a “resource tax” for interstate transmission system wind projects connected to the central transmission network. The state’s decision is based on the fact that many wind projects are connected to the central grid, which means they do not contribute to the state’s RPOs, thus increasing the risk of incurring penalties for non-compliance. Industry experts argue that this fee could make wind projects in Tamil Nadu, where land is already expensive, financially unfeasible. Furthermore, several industry stakeholders are calling this charge unconstitutional and discriminatory. According to Vinay Pabba, chief executive officer, Vibrant Energy, the Indian Constitution does not permit states to impose taxes on electricity generation; it allows taxation on only the consumption or sale of electricity within the state.
Another concern is that developers that have already bid for wind projects did not account for this tax in their tariff calculations, which is likely to result in financial losses. Stakeholders are concerned that if this trend continues, other states that have high wind potential will follow suit and start charging a similar wind tax, leading to higher costs across states. In fact, before Tamil Nadu, Gujarat too had imposed restrictions on projects connected to the central transmission network. However, after facing a backlash, it withdrew the policy. Tamil Nadu may also need to rethink this policy move going forward.
Despite these challenges and concerns, the future outlook for the state’s renewables sector looks positive, given the initiatives undertaken to tap its offshore wind potential. Particularly, the central government has announced a viability gap funding (VGF) scheme for offshore wind projects, with a total budget of Rs 74.53 billion.
Another positive is the interest shown by companies in setting up solar manufacturing bases in Tamil Nadu. In September 2024, Tata Power Solar Systems Limited began commercial production of a 2 GW solar cell line in Tirunelveli. Another 2 GW of production capacity is expected to be added to reach a peak production of 4.3 GW. The project entails an investment of Rs 43 billion. Earlier, in 2023, the production of TOPCon and Mono Perc solar modules had been commissioned. In addition, this year, AXITEC inaugurated a new manufacturing plant in Tiruvallur, Tamil Nadu, with a production capacity of 300 MW for manufacturing the latest N-type TOPCon solar modules. Another example is First Solar, which has opened a 3.3 GW annual capacity production facility in the state. The facility is fully vertically integrated and has been established with a $700 million investment. It includes a solar photovoltaic (PV) recycling plant, which allows for the recovery of semiconductors, aluminium, glass and laminates for use in new modules.
Going forward, Tamil Nadu is also expected to become a key destination for green hydrogen projects. Several developments have taken place in this space in the past few months. For instance, Sembcorp Industries plans to invest around Rs 362.38 billion for a green hydrogen/ammonia manufacturing unit in Tuticorin, while Ohmium is planning a Rs 4 billion green hydrogen electrolyser gigafactory in Chengalpattu district.
All in all, the state’s policies on wind repowering, small-hydro and pumped storage signal a promising renewable energy outlook. Going forward, Tamil Nadu should continue to leverage its renewable energy potential by initiating offshore wind projects, addressing several challenges linked to grid integration and avoiding regressive policies such as the wind resource tax. These initiatives can help the state achieve complete RTC renewables supply and ultimately meet the ambitious target of increasing renewable energy generation in the state to 50 per cent by 2030.
Sarthak Takyar