The next five years will be crucial to build a healthy renewable sector in India
To realise its ambitious energy goals, the government needs to overhaul its policy framework for renewables
With 15 of the top 20 polluted global cities in India, and energy being the primary source of pollution, it is critical for the country to transition from fossil fuel to renewable energy, and Internal Combustion Engine automobiles to electric vehicles. In the last five years, the renewable sector in India has had some achievements, thanks to the proactive polices of the Union government. India is now the fourth and the fifth largest country in terms of installed capacity of wind (36.3 GW) and solar (29.5 GW) in the world. The sector also saw the transition from feed-in tariff regime to transparent competitive reverse auctions, leading to record low tariffs of ₹2.43/unit in wind and ₹2.44/unit in solar.
Though the last government also ramped up India’s renewable capacity, the non-allocation of land, inadequate transmission capacity, frequent changes in bid documents, cancellation of reverse auctions, and the poor financial health of distribution companies (Discoms) have impacted sector’s growth. The biggest problem is the poor financial health of the Discoms, the weakest link in the electricity supply chain. Due to poor billing (84.9%) and collection (95.3%), or sale of power at unviable tariff, today most of the Discoms are suffering losses. Through the UDAY scheme, the Centre has tried to reduce their debt burden, but without attaining 100% efficiency in billing and collection, and reducing technical losses from the current average of 19%, the companies will find it difficult to continue.
To realise the government’s ambitious goal of attaining 260 GW of installed renewable capacity by 2024, and replacing thermal power plants in next couple of decades, India will require $300 billion worth of investments. Almost 90% of this will be foreign direct investment. Thus, the next five years will be crucial for building a financially healthy renewable sector.
To do so, the government should focus on the following:
Five-year bidding plan: To achieve the 2024 target, the sector needs a consistent and stable five-year bid trajectory plan, with an annual and quarterly breakup to provide a clear plan to developers for each year.
Strengthening of power purchase agreements (PPA): India must have internationalstandard PPAs that address the concerns of developers and bankers. The clause on payment security needs to be strengthened to ensure secure and timely payments to the developers. This can be achieved through the creation of a payment security fund, and entering into a tripartite agreement between all stake holders.
Allocation of waste land: The central government and the state governments should prepare a national policy for allotment of wasteland. If this is done, states can benefit in
three ways: First, generate revenue through leased waste land during project life cycle (30 years), and upfront area development charges. Second, the state will become power surplus. And third, create new jobs. As per estimate, 1GW of project creates 5,000 new jobs during the construction phase and 200 jobs during operational phase.
Proactive transmission planning: For the future growth of the renewable sector, transmission can be a major bottleneck. To date, renewable projects were utilising existing free transmission capacities or the unutilised capacities of thermal power stations, which have been impacted due to low plant load factor or stoppages because of financial and operational constraints. At present, the government has planned to develop transmission capacity for 66.5 GW. The government should ensure timely commissioning of new transmission lines.
Low cost of financing: At present, the renewable sector faces weak liquidity and high interest rates due to payment security issues, delay in energy payments, uncertainty with land and transmission, implication of goods and services tax and non-bankable PPAs. The government should ensure priority sector lending to the renewable sector, and that it does not have to bear the impact of conventional sector non-performing assets (NPAs).
I am sure that the new government will create a constructive macro environment for efficient execution of both generation and transmission projects, create financially healthy Discoms, and provide access to lowcost capital.
Given the fact that the thermal sector continues to struggle with an overload of NPAs, ensuring a healthy financial future for the renewable sector will be critical to attract global investors who will be the mainstay of the sector in the years to come.
Green power for a healthy future of our children should be the motto of the government.