Clean Tech

Picking up the threads

M. Ramesh | Updated on: Jun 18, 2019
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The renewables industry hopes that the new government at the Centre will make appropriate policy changes for the sector to grow, reports M Ramesh

One of the last moves of Raj Kumar Singh, the Minister for New and Renewable Energy, before he demitted office in May last year with the dissolution of Parliament for elections, was to call for a chintan baitakh, or a ‘mulling session’ with the industry to understand its problems and exchange views. Now that Singh is back in the same office after being elected from the Arrah constituency of Bihar, the industry is hoping that he will act swiftly on the views he gathered at the chintan baitakh .

During the five years of the NDA-I government, India added 28,000 MW of solar and 14,500 MW of wind. Today, the country has 30,600 MW of solar power capacity and 35,600 MW of wind. These numbers, though respectable in absolute terms, are way removed from their targets of 1,00,000 MW and 60,000 MW respectively, to be achieved by March 2022.

The rise in solar power capacity was primarily on the back of the fall in global module prices — from around 63 US cents a watt in 2014, to 22 cents now. As for wind, out of the 14,500 MW achieved during the five years, just one year (2016-17) accounted for 5,500 MW, because in that year developers rushed to complete projects before some incentives expired.

Though the government began well by, for instance, setting up ambitious targets, rolling out capacity auctions for wind and solar and bringing down both wind and solar tariffs to well under ₹3 a kWhr, a concatenation of circumstances has led to the achievements not being quite on the trajectory to the targets, calling for follow-through action in the government’s second term.

Building on the foundations

The return of Singh to MNRE is positive for the industry because he is already familiar with the issues at hand, whereas a new minister would have taken time to acquaint himself with them. During Singh’s previous term in office (and during the time of his precedessor, Piyush Goyal) the ministry laid a good foundation for the industry to grow. Industry insiders, such as DV Giri, Secretary-General, Indian Wind Turbine Manufacturers Association, acknowledge that the government has increased the volume of business by bringing in tariff-based competitive bidding.

Earlier, the respective state electricity regulators fixed the per kWhr price of wind energy. Because energy companies won opportunities to put up projects based on how low a price they quote for their electricity, tariffs fell to a low of ₹2.43 a kWhr in a Gujarat State tender of December 2017. In subsequent auctions, tariffs have increased to ₹2.79 in the latest Solar Energy Corporation of India (SECI) tender, in March this year.

Wind industry leaders such as Ramesh Kymal, Chairman and Managing Director of Siemens Gamesa, have noted that such low tariffs have been made possible for higher volumes of orders for turbine manufacturers and the long time, typically 18 months, given for developers to commission their projects.

This is advantageous because the developers can fine-tune their sites and have more time to negotiate funding, and turbine manufacturers can bunch orders and optimise component inventory. Similarly, for solar, successive orders from Central and State governments have given the industry “pipeline visibility”.

Need to address the stress

Just as the country was building up on this foundation, a series of negative events happened in both wind and solar sectors. In wind, because developers could put up their projects anywhere in the country, they all rushed to the windiest sites in Gujarat and Tamil Nadu. This brought in its wake land and evacuation issues.

As for solar, the sector underwent stress, first due to the uncertainty over the recommended 70 per cent safeguard duty on imported modules and then the actual imposition of 25 per cent safeguard duty, caps on tariff in bidding processes, depreciation of the rupee and uncertainty over application of GST rate on project construction services (since resolved unsatisfactorily), though these factors were counter-weighted favourably by continued fall in global module prices.

As things stand today, the government has tendered about 30 GW of wind and solar plants, and there is more coming. Rupee depreciation has been checked, interest rates seem to be stabilising thanks to the RBI’s accommodative stance, and solar module prices are still seeing a downward bias. The operative environment for Indian renewable energy sector is very conducive. Industry leaders say that all it needs is for the Minister to tap the policy environment here and there to remove kinks that had set in.

Industry wish-list

In this regard, the industry has a longish wish-list. Some fall within the purview of MNRE and the rest come under the State governments, where MNRE could play a helpful role. One request of the industry has been doing away with reverse auctions, in which bidders try to out-bid each other and replace it with closed tenders, where the best bidder gets the project. In all other government procurements, such as in defence and Railways, only closed tender method is followed. The government has so far not accepted this request, obviously with a focus on keeping the tariffs depressed.

The wind industry has requested for State-wise, or substation-wise auction of capacity. Since tenders are today so structured that the winner can put up his project anywhere in the country, developers choose the windiest States of Gujarat or Tamil Nadu. Consequently, projects get bunched up in these two geographies, putting pressure on land and evacuation infrastructure, and hampering project implementation.

The scheduled dates of commissioning for the 2050 MW of wind projects awarded under the first two auctions have passed, but only 950 MW has so far materialised. Another 4,000 MW should come up by February 2020, but only the brave believe it will happen. Hence the industry has requested for State-wise or sub-station-wise auctions. The government seems favourably inclined; Secretary Anand Kumar has himself said so. Presumably, things will start moving favourably from now.

Remove tariff cap

The industry is very keen that the tariff cap, for both wind and solar, be removed in the true spirit of market economy. The government feels that if the cap is removed energy companies will collude and raise prices, but industry observers say that forming cartels is impossible with so much of competition. One industry source noted that the government has taken the lowest tariff ever achieved in the bids — ₹2.44 a kWhr for wind projects — as some kind of a benchmark and wants tariffs around that level all the time, which is not possible because not all sites can support such low tariffs. There is a cap of ₹2.50 a kWhr for solar projects and tender-specific caps for wind projects. This is a sore point with the industry and many leaders hope for favourable resolution in Singh’s second term.

Tulsi Tanti, the Chairman of the Indian Wind Turbine Manufacturers’ Association, has asked for a fixed tariff of ₹3.25 a kWhr, which could come down annually by, say, 5 per cent, so that the developers earn enough to pay off the debts in the earlier years. The government is yet to formally respond to this. Yet another request of the industry is for MNRE to prevail upon the State governments and have them pay their dues to energy companies in time.

Minister Singh has called upon the financial sector to lend more to RE projects. Industry players note that banks, apart from their own liquidity and NPA issues, hesitate to lend to renewable energy companies whose State-government-customers not only don’t pay their dues on time, but ironically extract the “timely payment” discount. Banks are not going to lend unless they are confident of the financial health of their borrowers.

Industry leaders have said that rather than call upon banks to lend more, Singh could help the industry by acceding to their demands. Only if this is done will funds flow to this sector.

Published on June 18, 2019

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