Renewing our vows on renewables
Four years ago, a very senior government official asked me, "How big can we get on renewables?" A few months after that meeting, India announced a target of 175 gigawatts (GW) of renewable electricity capacity. More than 72 GW capacity has been installed so far. Transparent bidding has increased competition and lowered India’s renewable energy (RE) tariffs, among the lowest in the world. Next week India will host the second edition of RE-Invest, its largest investor conference for renewables. The first Assembly of the Indiabacked International Solar Alliance will convene concurrently.
Despite progress, there is a pall of uncertainty shrouding the growth of renewables in India. Annual investment has averaged $10 billion in the last four years but is just 3 per cent of the global total. We are still not getting the investment and technological partnerships that could push India into a different league. It is time India renewed its vows on renewables. I propose four: No backsliding; no failed contracts; no lost electrons; and no false binaries.
First, if not by 2022, India is certain to meet — even surpass — its RE goals in the coming decade. The targets set a direction of travel for India's energy transition. But is there a chance that the commitment to RE would wane and policies reversed? Has India truly internalised the economic, environmental and strategic importance of a cleaner energy mix? With the general elections a few months away, these are valid questions.
There should be no backsliding on India's RE commitments. In fact, we need to increase demand for renewables not only at the central level but also for each state, district and city. Demand could be aggregated at the household level, strengthening the case for bottom-up, demand-driven RE growth.
Another uncertainty is about the credibility of power purchase agreements (PPAs). State-owned utilities risk making renewables victims of their own success. The rapid fall in RE tariffs has created expectations that each subsequent round of bidding will bring prices down further. Consequently, utilities are reluctant to sign PPAs. This is disingenuous. Either we believe in transparent reverse auctions, or we impose state-fixed tariff caps.
We have to recognise the political economy at play here. Power utilities have been bleeding money due to poor procurement practices, system-wide inefficiencies, and cross-subsidised electricity. For dying discoms, increasingly cheap RE sources are a tempting alternative. But this kind of game — encouraging bids but failing to honour the discovered prices —cannot build confidence among developers and investors. We have to structure PPAs that secure the future and not just save the follies of the past. There can be no reneging on due process; no failed contracts.
Third, project developers run the risk that the grid will not absorb variable renewable electricity. There is no compensation for RE developers should the transmission system not comply with minimum standards of performance. Moreover, not all curtailment is due to technical reasons. When discoms get away with not purchasing power, institutional investors become wary about RE projects.
When millions do not have any or very inadequate electricity, every unused electron is a wasted resource. To reduce curtailment risk and increase accountability, my colleagues are designing a ‘grid integration guarantee’ to apportion risk across not just developers but also grid planners/operators. Market assessments of the risks should eventually drive the premiums for insuring developers against curtailed power.
A fourth uncertainty is about safeguard duties. This month the Supreme Court lifted a stay on proposed duties of 25 per cent on solar cells and panels imported from China and Malaysia. The rates are to come down to 20 per cent a year later and to 15 per cent six months hence. The objective is to boost domestic manufacturing capacity while reducing over-dependence on cheap/subsidised imports from China.
Project developers are worried that their previously bid tariffs would become unviable with increased costs of domestic equipment. Those planning to bid for future projects are frustrated that, while costs increase, the government is also capping tariffs.
Will it work? India’s manufacturing capacity for cells (3.1 GW; actual utilisation 1.5 GW) and modules (8.8 GW; actual utilisation 2-3 GW) cannot serve the current demand. Safeguard duties could give a temporary respite to domestic manufacturers, but cannot alone build a robust manufacturing base.
India has trapped itself into a false binary that either developers can succeed or manufacturers can win. We need both. Knee-jerk policy swings and court rulings will not suffice.
An RE ecosystem commensurate with India's ambitions demands innovations in manufacturing, finance, business models, and technologies. We have to consider the entire manufacturing value chain, including cells, modules, wires, inverters, and balance of systems. Moreover, RE is not just solar photovoltaic and onshore wind. Solar thermal technologies reduce the need for storage and could increase domestic manufacturing value addition. Financial instruments could de-risk projects or give easier access to credit for rooftop owners/developers. Utilities could develop new business lines to integrate RE, distributed generation, and electric vehicle charging. Investing in renewables for high-intensity industrial heat could be the next technological frontier for decarbonising the industrial sector.
India’s RE revolution is dynamic but incipient. Next week is an opportunity to reaffirm our commitments to targets, respecting contracts, reducing losses, and encouraging innovation. India can become the largest clean energy market in the world to operate on market-friendly principles. If it so wishes — and acts.