No cheer at the end of the year

Notwithstanding a few positive year-end developments, the Indian renewable energy industry is likely to end 2017 teary-eyed.

Caught in pincers of multiple uncertainties – such as the threat of anti-dumping duty that would raise the prices of energy, making it less competitive, and rising prices of imported modules – the solar energy companies are less sanguine about their future than they were at the beginning of the year. The industry’s performance in the first seven months of the financial year 2017-18 (up to October) does not indicate a happy trend for the full year. Against the year’s target of 10,000 MW, including 1,000 MW of rooftop, the industry had achieved by the end of October 3,118 MW of ground mounted and 167 MW of rooftop.

But the sorrier story is that of wind, where installations in April-October add up to a paltry 435 MW, a tenth of the year’s target.

Two developments relating to the wind sector may have brought a zephyr of relief to the industry, but there are issues with both.

First is the announcement by the government-owned SECI, a renewable energy facilitator, of its third wind capacity auctions, of 2,000 MW. In the earlier two auctions SECI awarded 1,000 MW of capacity each, at tariffs of ₹3.46 and ₹2.64 a kWhr, respectively. The 2 GW already awarded ought to serve the industry as a spring board for 2018-19, while the 2 GW coming up should provide further visibility. However, there is a stumbling block. Industry sources say that unless the ‘inter-state transmission charges’ are waived, the capacity may not come up at all, as it would add a good ₹1.5 a kWhr to the tariffs determined through the auctions.

Sources say that the Ministry of Power has issued a circular, dated September 30, 2016, granting the wind industry a waiver of the inter-state transmission system (ISTS) charges, which needs to be formalised by the Central Electricity Regulatory Commission (CERC) by incorporating an amendment in its regulations. The CERC is not doing it.

Normally, it should be a simple matter for the Ministries of Power and New and Renewable Energy to get it done —after all, both ministries are under one Minister, R K Singh. For reasons not clear, this is not happening. Industry sources believe there is something more than just bureaucratic lassitude, as there seems to be resistance even in the Ministry of New and Renewable Energy to sort the matter out with CERC. Some in the bureaucracy seem to believe that the industry ought to pay the ISTS charges, even though the Ministry of Power has waived it.

There it stands. If the waiver does not happen, then the wind energy companies might as well kiss goodbye to the capacities won through the auctions, which in turn will turn off the order tap of the wind turbine manufacturers, accentuating job losses.

The two capacity auctions that have happened and the one that will happen soon, are of the federal government. These auctions brought down the wind tariff to record low levels. State governments, whose utilities were buying power at much higher, fixed tariffs, saw electricity prices fall in auctions and have refused to sign power purchase agreements based on fixed tariffs. Nor could they come out with their own competitive bidding programmes, as the necessary guidelines from the CERC had not been in place. The absence of such guidelines was a sore point with the industry.

However, the CERC has just come out with the guidelines, effectively paving the way for States coming out with their own capacity auction programmes, creating a market for wind. The guidelines also helpfully allow for ‘closed bids’ (where the best bidder bags the projects), rather than ‘reverse auctions’, where, after the quotations for tariffs are revealed, a new round of auctioning starts where the participants try to outbid each other — resulting in further lowering of tariffs. Yet, industry sources say several crucial issues have been left open-ended in the guidelines — such as those relating to power purchasers backing down from projects.

Thus, the wind industry has ‘market visibility’ of about 4 GW from federal auctions, 500 MW each from Gujarat and Tamil Nadu, but is unable to enjoy the sight due to several niggles. Industry players are unhappy that the Government slipped badly by ushering competitive bidding – which is good – without being ready for the deleterious consequences. They say the Government should have made sure the CERC was ready with the guidelines in quick time, its own decision for transmission charges waiver given effect and a slice of the market reserved for ‘fixed tariff’ power purchase agreements, because otherwise small wind turbine manufacturers and energy companies that want to put up small capacities, say under 20 MW, will be swept out of the market by competitive forces. “It is a Minister-made mess,” an industry player said, referring to the incumbent’s predecessor, Piyush Goyal.

The story in solar is only slightly better. Though the country has come a long way in the last eight years, since January 11, 2010, when the National Solar Mission was launched – with 15,575 MW of capacity established – the performance is nowhere near the target. The manufacturing side is moribund — India has manufacturing capacity for cells and modules of 3.1 GW and 8.8 GW respectively (cells are used for making modules), in contrast, the capacity used is 1.5 GW and 3 GW. The renewable energy ministry admits that Indian manufacture is low in technology, consequently the products are costlier and less efficient.

Last week, the Ministry brought out a ‘concept note’ outlining proposals to ginger-up solar manufacturing in the country, offering capital subsidies for setting up manufacturing facilities and technology upgradation. It also speaks of getting government-owned companies to set up 12,000 MW of solar projects using only locally-made projects. Industry players were quick to ask whether the Government was asking public sector companies to burn their cash in setting up solar projects using inferior local products, only in order to protect a handful of local companies. In any case, the incentives for setting up manufacturing facilities, talked about for years, have been so late in coming, and they are still only proposals. If that is the status of the manufacturers, the developers are facing the prospect of their costs going up because of the impending anti-dumping investigations on imported products. Furthermore, there is deafening silence on what was thought of as the ‘next big thing’ in the industry — wind-solar hybrid.

There have been a few positive green shoots. The first solar-cum-storage project has come up (in the Andaman islands), a few floating solar and canal top projects have happened. But while these may foretell a bright long-term future, there is little cheer for the near term. The renewable energy industry therefore would end 2017 touching its eyes with a handkerchief.

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