Behind the deal. A brighter sun may shine in 2021

The year 2020 will be remembered in the renewable energy (RE) industry as the one that saw solar tariffs drop to ₹2 a kWh (kilowatt-hour) from ₹17, and round-the-clock supply of renewable power. The New Year promises to be no less eventful.

Two noteworthy developments are very likely in 2021. First, you will not be wrong in assuming that the total installed RE capacity will cross the 100-GW mark. As of October 31, it has reached 89.63 GW. Experts, such as Girishkumar Kadam of the ratings, research and analysis agency ICRA, believe that capacity addition in the coming year will be 11-12 GW, given the projects awarded. The execution backlog is estimated at 50 GW, held up because of the pandemic. Total capacities awarded through tenders — the sum of under-construction projects and those yet to begin — have been put at 78 GW.

The second development is the emergence of a new class of RE assets — merchant capacities. This, in keeping with the trend, is more likely to happen in solar energy than in wind. The government is pushing all energy developers, including RE, into the market, to democratise price discovery.

Accordingly, the country’s premier energy exchange, IEX, has started G-TAM — ‘green term-ahead’ market — a separate platform for a wind or solar developer to sell power in the market.

Currently, G-TAM is restricted to delivery up to 11 days, though one can offer to sell or buy RE on any or all the 11 days. But this will change soon. Bids can be placed for longer terms, as they are for conventional energy. It is only a mere formality of a Supreme Court clearance that is holding this back.

RE developers will find this heartening, for the simple reason that they will get good prices for their electricity. For instance, the average market clearing price for delivery on December 8 was ₹2.56 a kWh, with the maximum going all the way up to ₹3.78. While the developers get a good price, it is also not bad for the buyers — mainly the various electricity distribution companies, since these prices are still lower than the average power purchase cost that the discoms incur.

IEX launched G-TAM on August 21. Rohit Bajaj, who heads Business Development at IEX, says many developers are showing interest in the platform and observing how prices behave over a longer period. Of course, developers are also waiting for longer-term contracts to be enabled. In time, a solar developer who wins a Solar Energy Corporation of India (SECI) bid for, say, 100 MW, will upsize his capacity to 125 MW or 150 MW, earmarking the generation from the extra capacity for sales over the market. Merchant capacities will therefore improve developers’ financial health.

Three other classes of developers are expected to benefit from G-TAM. First, the round-the-clock RE project developers, who have to build capacities to meet peak demand. Generation from other times can be sold through G-TAM. Second, the existing ‘opex’ model players such as CleanMax Solar, who build and own solar power plants and sell only electricity, typically under medium-term power purchase agreements. They will no longer have to worry about the next customer if a contract ends. The third type of sellers consists of projects that have completed installation but are yet to get clearances to start supplying.

Perhaps, based on these developments, some experts believe that the bad run that the renewable energy sector has been through might take a favourable turn in 2021. Kadam expects renewable energy installations to go up to 160 GW by March 2025, accounting for 34 per cent of the total electricity capacity then, estimated at 470 GW. Today, it is 24 per cent.

Capacity addition of this order will mean investments of ₹4 lakh crore between now and March 2025. A crucial enabler will be the successor to the government’s UDAY (Ujjwal Discom Assurance Yojana) scheme. UDAY failed to make a sufficient difference to the finances of discoms. The pandemic has eaten into their already anaemic entrails, but the expectation is that the successor scheme will be better. To use a cliché, there is light — and renewable, at that — at the end of the tunnel.

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