India’s commitment to renewable energy development in the last decade is nothing short of impressive. The country’s clean-energy capacity has hit nearly 83 gigawatts (GW) — that’s six times what it was some 10 years ago. In the last five years, solar power has grown its capacity 12-fold, surpassing 31 GW, according to the Central Electricity Authority (CEA). And at the end of 2019, India’s installed wind capacity surpassed a massive 37 GW.
Based on these examples, the government’s target of 175 GW of clean energy capacity by March 2022 has seemed manageable and realistic. The plan has been for 100 GW in solar power, 60 GW in wind projects, and the rest in miniature hydro-electric power (up to 25 MW) and biomass.
However, concerns about India’s ability to reach those figures began last year when tariff caps, import duties (on solar cells and modules), and land negotiations affected projects. Now, it’s more likely that the country will fall short of its renewable goal for 2022.
“Investors and IPPs (independent power generators) are quite concerned about the current atmosphere in the renewable energy sector,” states Gaurav Sood, Chief Executive of Spring Energy, a solar and wind power developer. The confidence in the private sector about India’s clean energy forecasts is currently hard to find.
The rating agency, CRISIL, said India would not have 100 GW of solar capacity and 60 GW of wind potential even by 2024, never mind 2022. In a recent report, CRISIL stated India will have closer to have 59 GW of solar energy and 45 GW of wind by March 2022.
Reasons for this include:
- Utility dues
- Andhra Pradesh’s push to renegotiate the tariffs on solar and wind projects
- A liquidity crisis caused by problems in the shadow-banking sector
The government, however, holds firm to its goal and says India will not only meet but also exceed its clean-energy objectives.
Clean energy in India
India’s commitment (as part of the Paris Agreement) to reduce its carbon emissions related to the gross domestic output by a third by 2030 from 2005 levels means renewable energy is essential. India, the world’s third-largest emitter of greenhouse gases, is aiming for 40% of its total installed power capability by 2030 to be in renewables — up from the current 23%. India’s wind power prospective has been pegged at over 300 GW and its solar power potential at approximately 750 GW.
But, regrettably, wind and solar energy developers are running into some of the same challenges as those faced by thermal power projects a few years ago. Chief among them: dues from utilities. As of July 2019, administration companies across India owed renewable power generators Rs 9,736 crore, according to Central Electricity Authority (CEA) records. About three-quarters of that were owed by four southern states: Tamil Nadu, Andhra Pradesh, Telangana, and Karnataka.
Acme Solar Holdings, the country’s biggest solar developer, is waiting for payments calculating Rs 210 crore from Andhra and Rs 386 crore from Telangana. Salaries have been delayed between three months and a year.
“We only factor in a stay of one to two months,” says Shashi Shekhar, vice-chairman of Acme, “There is a significant decline in return on capital because of these obstacles.”
State-run distribution organizations have also been under financial stress even though the Union Government in 2015 launched a program to help them recover. To further complicate matters, the Andhra government, under its current chief minister YS Jaganmohan Reddy, said it was going to review power purchase agreements (PPAs) contracted with wind and solar developers to reduce tariffs.
At one point, the state government insinuated canceling the PPAs, gravely concerning the renewable energy sector and Union government. Reddy justified his movement by citing alleged irregularities in the signing of the PPAs during his antecedent N Chandrababu Naidu’s term.
The renewable energy companies addressed the Andhra Pradesh High Court against the state government system. The court asked the state utilities to pay interim charges of Rs 2.44 per unit of solar power and Rs 2.43 per unit of wind energy. It also directed the power producers to go to the state electricity administrative on tariff issues, which, it said, should be concluded within six months. But the interim tariffs are about half of what was initially agreed upon, and six months is a long delay for power developers.
The current state of uncertainty has already affected power producers. For example, ICRA, another rating agency, downgraded 1.9 GW of solar and wind projects, indicating liquidity concerns caused by the outstanding dues.
Kameswara Rao, an associate with PricewaterhouseCoopers India, said the payment delays by utilities have already impacted the capacity of renewable companies to reinvest in the sector’s growth. “If it continues, they will discover it hard to service their loans, and some may even go insolvent,” he said.
One question that’s extremely important to answer about the PPAs is if these renewable contracts can be changed? The CEO of Goldman Sachs-backed ReNew Power, Sumant Sinha, does not think so. “If you do that, then there is no sanctification of contract, and that will impact sectors.”
Even if power distribution businesses pay up, there’s still the problem of tariff caps. Central and state firms will simply cancel bids if companies quote tariffs that are more costly than the caps. Canceled renewable energy schemes were a tenth of all tendered projects in 2018-19, compared with 2% in the preceding year.
“Though tendering is robust, a subscription is below with several tenders seeing multiple expansions to deadlines,” says Miren Lodha, director of CRISIL Research.
Aside from the tariff covers and pending payments, serious policy changes are of big concern to renewable companies. For instance, Rajasthan — which holds about 15% of the country’s renewable energy potential — has proposed an additional annual charge of Rs 2.5-5 lakh per MW in its new draft solar system. The funds will be put in a state renewable energy capital.
Moreover, solar developers are still awaiting compensation for the goods and services tax (GST), and safeguard tariffs on imported cells and modules, which most repaid on projects won before the new prices came into effect. The Central Electricity Regulatory Commission has confirmed the amounts, which should be compensated by law. But companies say they do not know when they will receive such payments.
“I don’t know if some other service will be imposed tomorrow,” says Acme’s Shekhar. Acme has about Rs 800 crore stuck in GST and safeguards duty fees. Shekhar adds that owing to its liquidity constraints, Acme (which has a collection of 5.5 GW) has failed to bid on any new projects in the past seven months.
The fund crunch of renewable businesses has been exacerbated by the shadow banking disaster, which began with the destruction of Infrastructure Leasing & Financial Services in September 2018. “There is a large liquidity crisis,” says Sunil Jain, CEO of Hero Future Energies. “Public sector banks are leery of lending to renewable energy plans, and only a few private banks are lending.”
Clean energy companies have seen the interest rate on their long-term loans climb by up to 100 basis circumstances in the past eight to 10 months, as per Girishkumar Kadam, VP of corporate classes at ICRA.
This occurs at a time when CRISIL considered the sector would require around Rs 2.4 lakh crore in purchases over the next five years. Both lenders and private equity companies, which have supported a lot of the solar and wind developers, will closely watch the sector over the following six months or so. If no solution is found soon, then India’s bold clean energy objectives will remain just that.
Filed Under: Blog entry, Tech Articles