COURTESY : ieefa.org
India new renewal energy policy
The rapid expansion of domestic renewable energy will improve India’s energy
security, reduce pollution pressures, and provide electricity deflation to help
alleviate the growing distress of power distribution companies (discoms).
India’s renewable energy progress to date however can be described as non-linear
— two steps forward, one step back.
As of December 2019, India’s on-grid renewable energy capacity stood at 85.9
gigawatts (GW). Of the 24GW of renewable energy capacity installed since the
beginning of financial year (FY) 2017/18 coupled with an additional 50GW awarded
to date, more than 90% has been contracted for tariffs ranging between Rs2.43-
2.80/kilowatt hour (kWh) with zero indexation for 25 years. This is 25-35% less
than average domestic coal-sourced thermal tariffs of Rs3.74/kWh for the first half
of 2019/20 from India’s largest energy conglomerate NTPC.
Domestic renewable energy tariffs are now two thirds of the cost of domestic
coal-sourced thermal tariffs, and half that of imported thermal power costs.
After the addition of on average 13GW of renewable energy capacity in FY2016/17
and FY2017/18, India’s renewable capacity additions were expected to grow on
average at 20-25GW in line with the target of 175GW by December 2022. However,
less than 10GW of on-grid renewable capacity and installs were added in
FY2018/19. This is expected to grow to 12-13GW in FY2019/20, which is up yearon-year but still tracking well below target.
During the past 12 months a number of major reforms in the power sector,
including amendments to the electricity act, a new power tariff policy, and payment
security funds for renewables have been discussed or foreshadowed. IEEFA’s
concern is that most of these are yet to be executed:
talk is easy, India needs delivery.
In IEEFA’s view, the opportunity cost of delaying
India’s electricity sector transition is too high.
International investors are seeking policy certainty
and commitment from the Indian government. If
this is re-established, it will accelerate capital
deployment in one of the world’s largest and fastest
growing markets for renewable energy, storage and power transmission.
The opportunity cost
of delaying India’s
electricity sector
transition is too high.
India’s Renewable Energy Policy Headwinds 2
This report highlights key issues responsible for the slower-than-expected
development of India’s renewable energy sector, including:
• Counterproductive trade duties on imported solar modules
The two-year trade import duty introduced in July 2018 to protect the domestic
solar manufacturing industry has proven counterproductive and disruptive. While
shuffling the market share of exporting countries, the duty has neither reduced
imports nor significantly improved the competitiveness of Indian manufactured
solar cells. Instead, it has severely slowed down solar installs.
• Poor coordination between central and state governments on renewable
energy projects
Confusion, delay and mismanagement in auctions, transmission connectivity and
land acquisition-related issues between central and state-backed projects are
causing delays and cost overruns for renewable energy developers, jeopardising
their project economics.
• Payment delays from state-owned discoms
Payment delays from debt-ridden state-owned discoms remain a major concern. As
of December 2019, state-owned discoms still owed Rs81,894 crore (~US$11.5bn) in
payments to power producers.
1 The enforcement of a new payment security
mechanism from August 2019 is reportedly improving payments due, but
government must ensure consistent governance of this mechanism. Another discom
reform scheme expected to be announced in the near future could potentially
include privatisation of debt-ridden discoms to improve their performance.
• Increased financial risks from aggressive tariff caps, tariff renegotiations,
and policy inconsistencies in capacity tendering processes
Aggressive tariff caps in auctions and retrospective renegotiations represent a
common problem across India. Some states and discoms are attempting to unfairly
burden renewable energy sources to reduce the average cost of supply or through
abandoning legally binding contracts signed before renewable tariffs fell. This shorttermism is coming at a massive long term cost in degrading India’s investment risk
profile, and introduces sovereign risk issues for foreign investors.
• Slow expansion of transmission networks and balancing capacity
India’s transmission capacity grew hand-in-hand with renewable capacity between
FY2015/16 and FY2017/18, with average additions of 25,000 circuit kilometres
(ckt) per year. However for FY2019/20, IEEFA expects only 10,625 ckt of new
transmission capacity to be added (based on 7,083 ckt added between AprilNovember 2019). The recent slowdown in the growth in renewable energy capacity
appears to have diminished the urgency of building new transmission capacity.
1 Ministry of Power, Payment Ratification And Analysis in Power procurement for bringing
Transparency in Invoicing of generators (PRAAPTI), accessed December 2019.
India’s Renewable Energy Policy Headwinds 3
There is a negative spiralling effect being observed in the slower growth of
transmission capacity buildout on India’s renewable energy ambition.
India’s Power Transmission Capacity
Source: CEA
Note: Net capacity addition in till YTD FY2019/20 (Nov 2019) is 7,083 Ckt
While the current economic downturn brings increasing financial pressures, it also
emphasises India’s need and opportunity to accelerate infrastructure spending —
particularly in domestic power generation and grid infrastructure. The government
must remain committed to attracting investment into the transmission sector to
further renewable capacity growth, both of which offer job creation opportunities
while laying the groundwork for future demand growth.
• Financial constraints for smaller renewable energy developers
Sovereign risk, policy risks and erratic payments are all creating unnecessary
financing constraints on the renewable energy sector. India’s stranded or nonperforming assets (NPAs) in the thermal power sector are also stifling financing for
the renewable energy sector. Given India’s massive renewable energy target of
450GW by 2029/30, and the necessary associated expansion and modernisation of
the national grid system, IEEFA estimates US$500-700bn of new investment is
required. Smaller regional developers will also require domestic funding. India must
free up the liquidity in the domestic banking system as soon as possible to keep
India’s renewable energy ambition on track.
IEEFA recommends improving fluidity in the renewable energy sector by:
1. Improving coordination and engagement between central and state
governments, financial institutions, discoms and developers.
2. Supporting the domestic solar manufacturing industry with off-take
assurances, better solar tariff caps, and by encouraging exports.
3. Rationalising GST on solar and wind power equipment using one standard,
fixed national rate.
4. Clearing land acquisition and transmission connectivity-related operational
bottlenecks and inefficiencies for renewable energy projects, and putting a
renewed focus on renewable energy hubs and industrial solar parks with
state governments shouldering land acquisition and grid connection risks,
thereby reducing investor risk and ensuring non-arable land is preferenced.
5. Diversifying and encouraging new third parties for renewable power
procurements through corporate power purchase agreements (PPAs), with
the Solar Energy Corporation of India Ltd (SECI) and NTPC rolling out statespecific solar and wind tenders.
6. Providing performance-based support for discoms via reform schemes.
7. Privatising more of the power distribution sector, or allowing entry of
private competition to accelerate investment and technology deployment.
8. Planning for transmission network expansion and modernisation, and
incorporating the connection needs of large scale renewable energy hubs.
9. Revising and formulating tariff caps by reviewing industry’s tariff
expectations and its’ assessment of risk differentials, and continuing to work
to reduce risk so as to sustainably reduce the required tariffs.
10. Improving domestic and international access to capital for both large-scale
and smaller renewable energy players, lifting the balance sheet capacity of
the Indian Renewable Energy Development Agency (IREDA), and applying
far greater capital discipline and oversight to the Power Finance Corporation
(PFC) in light of its ongoing unsustainably high losses from non-performing
assets in the thermal power sector.