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The past year has been turbulent for India’s renewable energy sector but experts say it’s still a winning proposition if some key issues are resolved

India’s renewable energy sector has faced some headwinds in recent times (Photo by Jukka Niittymaa)

The renewable energy sector in India, defined primarily by solar and wind power, have been through challenging times for the most part of this year, causing some experts to believe that meeting targets under these circumstances could be compromised.

“India may miss the solar and wind energy auction target in the current fiscal year, mainly due to the rupee’s depreciation, safeguard duty and grid connectivity,” India Ratings and Research said in a recent statement.

The Ministry of New and Renewable Energy (MNRE) has set a target of auctioning 34 GW of solar energy projects and 10 GW of wind energy projects in the financial year ending March 2019.

“The solar auction target for FY19 may be missed on account of frequent changes in the implementation of safeguard duty, apprehensions about grid connectivity and land acquisition-related bottlenecks,” India Ratings and Research said in its release. “Also, a depreciating rupee compared to the US dollar poses a threat to economical solar tariffs.”

India’s Directorate General of Trade Remedies has recommended a safeguard duty on solar panels and modules imported from China and Malaysia in mid-July. Project developers and MNRE are opposed to the duty. The Indian currency has depreciated more than 12% this year against the US dollars, making imports costlier and raising project development expenses.

Sense of caution

There’s now a sense of caution amongst renewable project developers, and bidders and lenders are being circumspect because the margin of error has become wafer thin owing to the steep fall in tariffs since the start of auction regime. The recent scrapping of solar auctions due to tariff issues can derail MNRE’s target to achieve 100GW of solar capacity by 2022, India Ratings and Research warned.

Energy Minister R.K. Singh has recently said that states are not purchasing solar power even at low rates. India’s installed renewables capacity might get stranded, as states are not keen on purchasing solar power even at the lowest rate of INR 2.44 (0.03 US cents) per unit, he said.

“States are reluctant to buy more renewable power for two reasons,” Vinay Rustagi, Managing Director of clean tech consultancy Bridge to India told “One, they already have surplus contracted power. Demand growth has picked up a little this year, but the country still has more than 40 GW of excess thermal capacity. Additionally, renewable power is variable and needs to be blended with other power sources to provide reliable 24×7 power to consumers.”

There are insufficient flexible base-load options that can balance the non-firm nature of renewable power. Storage technology is still too expensive for it to be viable for another 3-4 years, he said.

The minister’s comments need to be viewed in context of the MNRE proposed cap of INR 2.5 per kWh on solar across sites and tenders, and more generally in view of the tariff structuring and market design of India’s power market, according to Kanika Chawla, Senior Programme Lead at Council on Energy, Environment and Water (CEEW), a New Delhi-based think tank.

The rapid decline in solar tariffs in the last several months was prompted by several factors, including policy signals, declining cost of technology, reduction in cost of capital for renewables and market innovation by developers. However, determining an absolute ceiling of tariffs while the industry deals with policy uncertainty such as safeguard duties is likely to slow down the pace of growth in the sector, Chawla told Additionally, the tariff structuring, with thermal power having a fixed tariff component, becomes an additional burden for renewables power, she added.

As far as the wind industry is concerned, a senior executive in the sector said that in 2018-19, India might achieve an installation of around 2,500 MW and around 4,000 MW in 2019-20. “Unless the country manages a capacity of 800 MW of installation per year, the target of 60 GW cannot be achieved,” he said.

Wind power has grown at a steady pace in the past five years, though it witnessed a slowdown in financial year 2017-18. “This was mainly due to uncertainty among developers, delayed approvals, and renegotiations from distribution companies (discoms), as the sector migrated to a competitive bidding mechanism for award of capacities from the erstwhile feed-in-tariff regime,” research and ratings agency CRISIL said in a recent report.

Holding ground

Despite the slowdown, industry insiders say India’s energy mix is evolving slowly with fossil fuels meeting 82% of the demand. “Coal remains the dominant fuel with a 57.9% share of total production in 2018. However, the share of coal in the energy mix is projected to fall to 50% by 2040, while the share of renewables rises significantly year-on-year,” a financial consultant in the sector said.

India’s renewable energy generation capacity is expected to reach 140 GW by 2022-23 and solar power would account for around a half of this, followed by wind energy with 40%, CRISIL said in a report. The installed capacity of the sector has seen a compounded annual growth rate of 18.5% between 2013-14 and 2017-18.

The country’s renewable sector has so far seen a robust bidding activity, providing a reasonably healthy visibility for solar and wind capacity addition in the next two fiscal years, ICRA experts said. They expect the share of renewables in the total generation mix to increase by 5% in the next four years — from 7.7% in 2017-18 to 12-13% by 2021-22.

“Though renewable power generation will have its challenges now, it is more stable,” said Abhishek Gupta, head of Sunipod, a solar energy company. “For instance, a solar plant has no legacy issues, there are no open mines, and the environmental and social costs are low. So, the issues with fossil fuel plants aren’t there with renewable energy plants. If power storage becomes easily available and costs come down, power generation from fossil fuel will lose its sheen.”

However, an MNRE official said solar will pick up and while wind will follow, it will saturate at some point in time due to infrastructure constraints. “Technologies that can balance the grid are the need of the hour. The generation of energy is one part and consuming it is another,” he told “Till such time that renewables were only a part of the total generation, it was fine. But now, owing to an increase in the share of renewables, balancing the grid has become important. Therefore, new technological solutions that include balancing power and storage technologies will occupy centre stage.”

Even though there has been an increase in the use of renewable energy, what needs to be looked at is whether both are growing at the same pace or there is a disparity, he said. If the latter is true, then fossil fuels will remain a major source of energy. In such a scenario, the relevance of fossil fuels based energy sources will continue and renewables will not be able to substitute conventional power, unless technological disruptions take place.

“All projections indicate that the use of fossil fuels will continue. If we go in for 1 million MW of solar, it is not possible to achieve more than 30% of the total output (of electricity requirement),” the ministry official said. “Moreover, India is heavily dependent on imports, especially in the solar sector. So how much money the economy is able to provide needs to be looked into.”

Need of the hour

Abhishek Gupta explained that as of now, India is caught between an additional power generation capacity and an increased renewable generating capacity. “Maybe it’s a good idea to decouple them,” he said. “We need power generation capacity, so we get the power to a certain level and then invest in manufacturing capacity.”

The solution for faster growth, said Rustagi, lies is providing better policy visibility to the private sector, enforcement of RPOs (renewable purchase obligations) and addressing variability challenge of renewable power output.

In order for the renewables sector to grow, and for India to realise its targets in an efficient and timely manner, the sector needs regulatory reform, policy certainty and enhanced access to affordable capital, Chawla said.

“Apart from a policy that captures technological changes and market conditions, a regulatory framework is imperative,” said the MNRE official. “Also, the fundamental policy driver for solar and wind must be affirmative action. Now that coal is becoming costlier, the change will depend on how we reform the electricity sector. One issue is pricing and the other is the distribution policy.”

“In pricing, if we can make the tariff dissemination for day or evening, because our peak is in the evening and create a new pricing policy, then the peak can be shifted to an extent, particularly when there is a surge in renewables,” he added. “Take for instance the availability of solar power during day. One of the most important polices will be time of the day tariff. In case we have cheaper electricity during the day and costlier in the evening, people will shift most of the load to daytime. Additionally, it is also inked with the rural sector and how it responds to energy requirement. Apart from grid-connected solar, if wind turbines are created for farmers, it will reduce the demand for electricity in the main grid and the deficit of distribution companies who provide irrigation facilities in rural areas.”

Structured finance for residential solar, investing in the manufacturing capacity and tackling resistance from discoms will help the industry, said Gupta. Financing and policy are going to help in making the grid smarter, whereas load balancing and demand management are going to be the key, he said. “There is immense potential, but if these issues are not going to be addressed, it’s going to hold back the growth of renewables in India,” he told

Initiatives such as a new hydropower policy, which categorises it as a source of renewable power, customs and excise benefits to solar rooftops, besides developing a mechanism for transparent project bidding for big solar and wind projects are attracting investors. “If we can leverage technologies to harness collaboration with the industry, academia and an energy innovation ecosystem, we can move to affordable renewable energy systems,” a source in the industry said.


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