Corona won’t trip green energy

The balance is swinging rather wildly, it is difficult to tell where the needle will settle.

On one pan is the formidable Covid-19 pandemic, with all its uncertain effects. On the other is an impressive stack of positive developments impacting the renewable energy industry.

At the moment, the needle is inclined towards the pandemic pan, outweighing the positives, but with the government adding counterweights on the other pan, the final outcome promises to be very different.

India ended 2019-20 with 37,694 MW of wind and 34,628 MW of solar capacities, having added 2,068 MW and 6,448 MW, respectively, during the year, according to data from the Central Electricity Authority. Neither was remarkably different than in the previous year, when the capacity additions were 1,580 MW for wind and 6,529 MW for solar. This was unfortunate because a few vexing problems of 2018-19, such as mounting dues to energy companies, land allocation problems, and Andhra Pradesh government’s aggression that had political undertones, had started to march towards resolution. The numbers for 2019-20 would have been more respectable, but for the pandemic.

Boost to foundation

Nobody expects 2020-21 to be a great one for the Indian renewable energy industry — not even the ebullient optimist Tulsi Tanti, Chairman and Managing Director of Suzlon Energy, and Chairman of the Indian Wind Turbine Manufacturers’ Association. He expects the country to add 2,000 MW of wind this year and perhaps another 3,000 MW in the next. Solar, with time lost during the lockdown, is unlikely to see any growth.

Yet, some foundation-strengthening measures have been brought in by the government in recent times, noting which, Raj Prabhu, CEO of research and consultancy firm Mercom Capital, says, “the long-term story is super-strong.” Even a cursory look at the Indian renewable industry would show that the industry has been well-supplied with projects — unlike in the initial days 7-8 years ago, when developers used to complain about lack of “pipeline visibility”.

Right now, about 34 GW of RE capacity is under construction; another 30 GW is under various stages of bidding. Capacity auctioning did not stop even during the lockdown period.

Today, the industry has all kinds of projects — pure vanilla wind and solar, wind-solar hybrid, RE+storage, RE+thermal and round-the-clock RE, and in future, hydrogen is to be swung into the play.

Tariffs are cool

A big success of the Indian RE sector is that the tariffs are cool. As at end-March 2020, the country had 72.3 GW of wind and solar capacity; about 30 GW of them were set up since 2017-18. These 30 GW and another 50 GW of awarded but yet to come have been contracted at tariffs ranging between ₹2.43 and ₹2.84 a kWhr, fixed for 25 years.

The environmental advocacy think tank, Institute for Energy Economics and Financial Analysis (IEEFA), points out that these tariffs are 60-70 per cent less than the first-year tariff set for the proposed new non-mine-mouth coal-fired power plant in the country. The tariffs are also far lower than the average purchase price that various electricity distribution companies (discoms) pay, none of which is under ₹4 a kWhr.

The problems of the sector pertain to implementation, most of them administration-related — land allocation, threat of re-negotiation of signed agreements, tariff ceiling in auctions that depressed prices to unviable levels and scared bidders away. These have been resolved. The Gujarat government has been prevailed upon not to block allocation of windy sites for projects won under federal bids and whose cheap electricity would be sold outside the State.

The government of India has announced two mega wind parks, 25 GW each, in Gujarat and Rajasthan, at windy sites. India’s ‘solar park’ story has been a success — as noted by a recent IEEFA study — with nine functioning parks, home to 14,600 MW of solar plants (the target is to set up 40 parks holding 40 GW by 2022). Industry insiders, such as Tulsi Tanti, expect similar success in wind solar parks.

The government of Andhra Pradesh has also been prevailed upon not to re-open signed-and-sealed contracts.

The upper ceiling for tariffs that can be quoted by energy companies in capacity auctions has been done away with — its existence was scaring away bidders.

And there are a couple of structural issues — issues related to power evacuation infrastructure and discom health and the mounting dues to energy companies from them and the consequent financing effects due to ‘offtaker risk’. There is evidence these are being tackled.

As part of the post-pandemic economic revival measures, the discoms are to be provided liquidity of ₹90,000 crore, so that they may clear their dues to the electricity sellers.

RE companies will now get their dues — about ₹14,000 crore — paid. This will ease their working capital, improve their rating.

When this scheme was announced, some experts criticised that it was only a temporary fix; a permanent cure would be a solution for structural problems faced by discoms, who are broke because they have to provide free or highly subsidised electricity to farmers and other sections of the society, while their owners — the State governments — do not fully reimburse the burden. As such, the gash bleeds continuously.

Fortunately, a solution seems to have been found. The Ministry of New and Renewable Energy is asking discoms to separate the feeder lines that supply electricity to farmers so that the agriculture load can be met by solar. Currently, farmlands are provided electricity for irrigation during nights, when demand for electricity from elsewhere is the least, but farmers have been asking for day-time supply. Their wish can be granted if the day load is completely met by solar.

Speaking at a recent webinar organised by Mercom, JN Swain, Chairman and Managing Director of SECI, the government-owned company that auctions renewable energy capacity on behalf of the government, said that agriculture consumed 260 billion kWhr. To meet this, it would call for solar capacity of 130 GW. It will take some time to get there, but when it happens, the discoms’ subsidy bill will be cut by half.

Presumably, the ₹90,000-crore injection of funds will ease the financial position and the discoms will have the wherewithal to do the feeder separation.

Anand Kumar, who was MNRE secretary until recently, also told the Mercom webinar that the government was “contemplating certain amendments” to allow freer open access (direct sales of power to consumers). Discoms have been opposing this due to their fear of losing well-paying customers to RE companies. But something is being worked out and “open access (OA) will definitely come”. Electricity sells for more in OA, tariffs of ₹5-6 kWhr are not unheard of; energy companies prefer OA even though the contracts are typically short-term and call for innovative financing.

Other tiny brushstrokes

Adding to all these are a number of tiny brushstrokes that make the picture pretty. No one would have missed the support that the MNRE provided the industry during the lockdown — leaning upon discoms to give ‘must-run’ status to RE power and forcing them not to invoke helplessness clause and stop payments. Also, government-owned financiers — IREDA, PFC and REC — are preparing to provide ‘project-specific’ loans, so that the repayment is out of the project revenue streams rather than the developer’s balance sheets.

Rooftop solar is, at last, picking up momentum, with government deciding that all its buildings shall have the plants.

The ‘renewable energy certificates’ market, despite the bad trading in March, is looking robust. And above all, the weight on one of the pans of the physical balance — the Covid-19 pan — shall certainly be gone one day and the needle will swing the other way. This is why Raj Prabhu says the long-term future of India’s RE sector is “super-strong”.

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