Policy blues, tariff caps may curtail renewable energy capacity additions: report

V Rishi Kumar Hyderabad | Updated on October 06, 2019

India may fall short of the 2022 capacity goals

Due to policy uncertainty and tariff glitches, the country’s installed capacity in renewable energy (RE) could increase by just 40 GW to 104 GW by fiscal 2022 from 64.4 GW in fiscal 2019, ending about 42 per cent short of Government’s target of 175 GW.

The sector has witnessed a material waning of developer interest last fiscal. A sizeable (26 per cent) of 64 GW of projects that were auctioned by the Centre and states received no or lukewarm bids and another 31 per cent faced delays in allocation after being tendered, according to Crisil Research.

Despite the increase in tendering volume, not only has an allocation of projects slowed down but both under subscriptions and cancellations of awarded tenders have also increased.

The unstable policy environment poses a significant risk for the country’s RE targets. This is evident in the growing incoherence between the policy thrust on RE and the actual action by implementation agencies like the Solar Corporation of India and state distribution companies, on the other.

A prime example is the ongoing issue of tariff renegotiation in Andhra Pradesh, a leading state for RE in the country. At the end of July 2019, the State’s discoms owed about ₹2,600 crore to RE generators.

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

The Bhadla Solar Park in Rajasthan, which saw tariff bids of ₹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 around ₹2.5-₹2.6 per unit.

Wind energy

Wind energy projects are facing most significant turbulence. Their viability has reduced 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 new wind energy projects today.

Incidentally, the solar tariff cap fell to ₹2.65 per unit in June 2019 from ₹2.93 per unit in December 2018, while the wind tariff cap dropped to ₹2.83 per unit in May 2019 from ₹2.93 per unit in April 2018.

The agency expects the government to resolve the twin issues of tariff caps and policy incoherence to restore developer confidence and stem the fall in subscriptions to achieve its installed capacity targets.

RE sector outlook

The RE sector requires investments of ₹2.6 lakh crore over the next five years as per CRISIL Research’s outlook.

The resolution of the above-mentioned policy risks would provide a fillip to the sector, posing an upside to the current estimate of 104 GW installed capacity by fiscal 2022, as per CRISIL Research.

Published on October 06, 2019

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