How to revive India’s solar sector post Covid

Neeraj Kuldeep/Harsha V Rao | Updated on April 21, 2020 Published on April 21, 2020

The renewable energy industry is reeling under the effects of reduced imports from China and increasing cash outflows. It needs a comprehensive plan that deals with debt servicing and workforce issues

Exactly five days before the nationwide lockdown, the Ministry of New and Renewable Energy (MNRE) had announced that as much as 31 GW of solar capacity was at different stages of tendering, and an additional 21 GW under deployment. About 70,000 people are employed in the construction activities of this pipeline alone. The sector was ready to ramp up efforts to achieve the ambitious but achievable 100-GW target. However, Covid-19 has set in motion a chain of events which is going to have both immediate and long-term adverse impacts on our solar ambitions. A strategic revival plan is critical to ensure high growth post the pandemic.

Even before the virus reached India, module and cell importers had started feeling the effects of the shutdown in China. Imports declined by about 70 per cent in January 2020 compared to January 2019. India relies heavily on China, nearly 80 per cent, for its module and cell requirement. The 3 GW of domestic module manufacturing capacity is insufficient to support domestic demand and is also dependent on Chinese input material. While exports from China have resumed, the domestic situation in India remains uncertain.

Mounting debt

Recent MNRE announcements on force majeure, reiterating the must-run status of RE generation, payment from discoms, extending the Approved List of Models and Manufacturers (ALMM) and exemption on port charges respond to immediate industry concerns. However, there are legitimate concerns that the measures taken do not cover completely the potential loss of business and revenue, and it will take time for the sector to bounce back even after people return to the ground.

With the power demand now being driven almost entirely by the subsidised residential sector, generators are anticipating further delays in payments and curtailment of excess supply by discoms. The cash inflows of construction contractors, of power generators whose units have been shut down or whose operations and maintenance activities have been hindered, and of players down the value chain are going to dry up — while outflows, including debt payment obligations and fixed costs, continue.

The RBI notification permitting lenders to provide a moratorium on debt servicing has provided respite to debtors. However, they will have to assess their capacity to make lump-sum payments of the accrued amounts at the end of the moratorium period.

Relief measures

India’s solar sector also needs a comprehensive recovery plan for effective implementation of relief measures to revive sectoral growth post Covid-19.

First, the contractual reliefs claimed by suppliers and developers should be efficiently processed. An interim task force should be constituted at the MNRE to facilitate timely resolution of all force majeure and time extension claims. Clear guidelines on specific matters from the task force could save a significant amount of industry time spent on negotiations and documentation.

The task force could also be an effective agent to represent the industry on matters which are currently not under the ambit of the MNRE. Issues concerning generation curtailment and payment from discoms, logistical delays, debt repayment and liquidity in the market, and support to manufacturers across the value chain require coordination with other ministries.

Second, the solar industry would greatly benefit if lenders have some guidance or direction by the RBI on allowing flexibility in dealing with their loan accounts. It is increasingly likely that debt servicing even at the end of the moratorium will be constrained with uncertainties over receivables. Financial institutions need flexibility to assess project viability and decide on restructuring payment schedules, extending loan terms and waiving penalties. Such measures are also required to maintain liquidity and avoid creation of stressed assets in the sector.

Further, combined with the negative risk perception, both the availability and affordability of debt is likely to be hit and will have to be actively addressed. Monetary policy easing cannot solely bear the burden of reducing capital cost. We have to think of different ways of financing like government bonds and dedicated debt funds. Incentives like credit guarantees and interest subvention on working capital loans should also be considered.

Third, the government should take immediate measures to protect the welfare of the workforce involved in construction and O&M activities. As per research published by the Council on Energy, Environment and Water (CEEW), this would cover nearly 70 per cent of the total workforce employed in the sector. Supporting the workforce during the lockdown would also ensure quicker mobilisation once project activities resume.

Covid-19 is a black swan event which could significantly impact the world’s energy transition. In India, the anticipated delay in resumption of business as usual is of at least two quarters, likely longer. The MNRE’s proactive response has been heartening, but will need to be scaled up to ensure a smooth recovery and turn this crisis into an opportunity.

The writers are researchers at the Council on Energy, Environment and Water, an independent not-for-profit policy research institution.

Published on April 21, 2020

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