Policy flip-flops will have India's renewable energy target missing by over 42%

Faced by many a regulatory challenge, policy flip-flops and also a steep fall in tariffs, the country is likely to miss the renewable energy target of 175 GW by 2022 by a wide margin, says a report.

According to a weekend report by Crisil, this target is set to be missed by a full 42 per cent as the industry has been witnessing fast waning interest from developers since the past fiscal.

“Renewable energy capacity may increase by just 40 gw to 104 gw in 2022 from 64.4 gw in 2019, thanks to the lingering policy uncertainty and tariff glitches. That would be a good 42 per cent short of the government target of 175 gw,” the agency says in the note.

The report notes that as much as 26 per cent of the 64 gw of projects auctioned by the Centre and the states have received no or lukewarm bids, while another 31 percent are facing delays in allocation after being tendered.

Thus, despite the increase in tendering volume, not only has allocation of projects slowed down, but both undersubscriptions and cancellations of awarded tenders have also increased, says the agency.

As per the report, the ratio of auctioned or awarded projects to tendered projects plunged to 34 in fiscal 2019 from 77 over fiscals 2016 and 2017.

“The unstable policy environment poses big risks for the renewable energy targets. This is evident in the growing incoherence between the policy thrust on the one hand, and the actual action by implementation agencies like the Solar Corporation of India and state discoms, on the other,” it says.

The ongoing issue of tariff renegotiation in Andhra has also acted as a deterrent for most developers.
As of July 2019, the Andhra discoms alone owed Rs 2,600 crore to developers, part of which was due to ongoing tariff dispute and the resultant delays in payments. Such prolonged payment delays and disputes not only set a negative precedent, but also put at risk existing and planned investments, the agency warns.

Similarly, Rajasthan’s new draft solar and hybrid policy proposes an additional annual levy of Rs 2.5-5 lakh per mw on all projects that sell power to entities outside the state.

“Should this be implemented, it could be highly detrimental for the growth the sector given that Rajasthan is one of the most sought-after states for solar power plants,” it warns.

Besides this, tariff caps is becoming a new challenge for developers to navigate.
“Developers are also increasingly losing interest as central and state discoms are increasingly lowering tariff caps, which is constraining project viability and resulting in renegotiation of tenders, where counterparties disagree on pricing,” it notes.
The Bhadla Solar Park in Rajasthan, which saw tariff bids of Rs 2.44 per unit in May 2017, has become a benchmark of discom expectations on tariff bids today, resulting in a solar tariff cap of Rs 2.5-2.6 per unit.

The Solar Corporation had terminated its 2,400 mw ISTS Tranche II scheme as the bid tariff of Rs 2.64 was higher than expected. In addition, another 1.7 gw of contracts were cancelled without renegotiations, citing high tariffs.
Wind energy projects, meanwhile, are facing even greater turbulence as their viability has come down following the shift from fixed tariffs to competitive bids, and also because of an increase in capital costs with bleeding original equipment manufacturers no longer discounting equipment.

“The result is, there is hardly any bidding for fresh wind energy projects today,” it says.
Incidentally, the solar tariff cap fell to Rs 2.65 in June from Rs 2.93 in December 2018, while the wind tariff cap dropped to Rs 2.83 in May 2019 from Rs 2.93 in April 2018.

“Yet, several factors affect viability of solar projects, such as land cost and technical factors like irradiation or wind density levels, apart from capital and funding costs,” it notes.

Crisil also expects the installed capacity to only increase gradually.
“The renewable energy sector requires investments of Rs 2.6 lakh crore over the next five years. With interest from global investors remaining strong, funding is not a problem provided government policy is consistent,” Crisil concludes. (PTI)

7 October 2019

DAILYEXCELSIOR.COM