India- On verge of the Green Tech Revolution?
The road to cleaner energy can be summed up as the action of moving out of stability into permanent instability. It is not a one time change we are adapting to. And so the duration of any decision becomes more complicated.
- India is home to one of the largest clean-energy expansion programs.
- Support from the government and foreign investors is driving this growth.
- There is still more the state can do to support this transition, however.
In 2015, the government decided to transition to a lower-emission electricity system clear by declaring an ambitious target of 175 GW from renewables by 2022. The message was simple; wider and cheaper energy access but at a minimal cost to the environment. Today, with an installed renewables capacity of 83 GW, plus 31 GW under development and a further 35 GW out for tender, India is among the top-five clean-energy producers globally and is well on course to surpass its original target.
Multilateral and bilateral agencies, as well as sovereign wealth funds, have pumped significant FDI into the Indian green energy space, spread across solar and wind power generation firms, electric vehicles and storage projects. Growing urbanization, rising incomes, and a steadily increasing population will also spur consumer demand for electricity. Studies suggest that India’s share of total global primary energy demand is set to roughly double to around 11% by 2040.
However, questions about India’s ability to reach that milestone began to be raised last year, when a series of issues related to tariff caps, land acquisitions and import duty on solar modules started to slow the pace of solar potential addition. However, wind and solar energy developers are running into a similar problem as thermal power a few years ago, primarily due to outstanding dues from utilities. Talking in numbers, as of July 2019, companies across India owed renewable power producers Rs 9,736 crore, according to the CEA(Central Electricity Authority) out of which three quarters were owed by four southern states — Andhra Pradesh, Tamil Nadu, Telangana, and Karnataka.
Acme Solar Holdings, the country’s largest solar power developer, is waiting for payments totaling Rs 210 crore from Andhra and Rs 386 crore from Telangana. Payments have been delayed between three months and a year. “We only factor in a delay of 1–2 months,” says Shashi Shekhar, vice-chairman of Acme, “There is a significant loss in return on capital because of these long delays
ICRA, another rating agency, earlier this month downgraded 1.9 GW of solar and wind projects, citing liquidity concerns caused by outstanding dues.
Even if power distribution companies pay up, there is still the problem of tariff caps. Central and state agencies cancel bids if companies quote tariffs higher than the caps. Canceled renewable energy projects were a tenth of all tendered projects in 2018–19, compared with 2% in the previous year.
Despite the array of milestones achieved, the government must continue to redesign and incorporate a better, more efficient infrastructure to help this sector grow healthy and vibrant. For example, improving transmission infrastructure, easing land-acquisition norms, ensuring no flip flops once contracts are concluded and revisiting aggressive tariff caps on reverse auctions that can severely dent investor margins. It must also work to turn around India’s distribution companies so that they can honor their renewable purchase obligations (RPO — promises to purchase a certain percentage of their electricity requirement from renewable energy producers) and pay investors on time.
The government must also introduce a payment security mechanism to counter the risk that Discoms do not fulfill their contractual obligations. A foreign-exchange hedging facility will also soothe investor worries around currency volatility. If these issues can be adequately and immediately addressed by policy-makers, it will further lower risks and boost investments.
With no further solution found to clear dues from utilities, in addition to making land acquisition easier and easing tariff caps, global investors are likely to seek opportunities in other markets while wholely leading to a consolidated industry resulting in India’s green energy targets to remain just that.
