India File

Exports, carbon markets revival can make a difference

M Ramesh | Updated on December 17, 2019 Published on December 17, 2019

Representative image   -  THE HINDU

The Indian renewable energy industry is in a situation of concern but there is no cause for despondency

“It gets worse before it gets better” is what psychiatrists tell their patients in depression. The advice could well apply to the Indian renewable energy industry.

Things just got worse. The 25th Conference of Parties, COP25 just ended in Madrid could not arrive at a consensus on framing rules for creating a robust market for trading carbon credits —something that could have helped the Indian renewable energy industry. The talks will continue into COP26, which will be held in Glasgow in December 2020; the hope is, given the importance of carbon markets, some favourable action will happen at least then.

While that glimmer is distant, the sentiment in the industry is, if you manage to hang on, you will do well. Today, there are reasons to hope that the interminable wait for ache din could come to an end soon.

The wind industry added a paltry 1,765 MW in the first seven months of the current financial year; solar did somewhat better, with 3,515 MW, but still far short of the required run-rate of 10,000 MW. Land, connectivity, policy pinpricks, unpaid dues, tariffs that leave no wriggle room for costs and funding are among the reasons why. However, there are reasons to believe that the tide may be on the turn.

PMO ‘tracking scene’

The first reason is that the Prime Minister’s Office has taken note of the situation. The buzz in the industry is that the PMO is now closely monitoring the issues in RE industry. Sources say that the government is realising that the ultra low tariffs achieved through competitive bidding processes have been of zero help to the end consumer, defeating the very purpose of low tariffs.

Low tariffs of renewable power — which is way less than ₹3 a kWhr — have only gone towards covering the inefficiencies of the various electricity distribution companies. For the discoms, buying low-cost green power helps a little bit in cleaning up their balance sheets, distracting them from the urgency of setting their house in order in terms of dealing with issues such as huge transmission and distribution losses, corpulent employee base and poor dues collection.

The average power purchase cost of the discoms is way above the price they are paying for green energy. For example, it works out to ₹3.72 a kWhr for Haryana, ₹3.99 for Jharkhand, ₹4.01 for Punjab and ₹3.73 for Uttar Pradesh.

The situation is marked by several ironies.

 

Because it is green, renewable energy ought to command a premium but, ironically, it gets less than power from other sources.

The second irony is that in a world that is grappling with bringing down carbon dioxide emissions, green power is used to subsidise power bought from coal plants.

The third is, in the case of the wind industry, the States of Tamil Nadu and Gujarat, which have the best wind resources in the country get no benefit out of the wind power plants that are to come up on their soil — all the cheap power goes to non-windy States through the government nodal agency, SECI. While this may seem all right in a federal set up, in practical terms it is proving to be difficult to get these States’ buy-in for the Centrally-sponsored wind power roll-out.

And the dues! Discoms owe generating companies a whopping ₹81,000 crore, of which ₹9,735 crore is owed to 513 renewable energy projects, involving 26,000 MW of capacity. According to the consultancy Mercom, 17 wind and solar projects contend with a third of the delays.

Things have gotten so bad that the highest office in the country has taken note of it. The industry expects some helpful measures.

Exports push

The second reason for optimism is exports. The home situation has pushed Indian companies to develop markets and by the looks of it, the efforts are paying off. The wind industry exports about $500 million worth of products from India and sees potential for four times that. Even bulky products like towers and blades are exported to far-off countries like the US. Blade manufacturer LM Wind, now part of GE, exports around $200 million worth of blades out of the country. Windar, which manufacturers steel towers from Gujarat, ships its products to the US and expects to earn ₹60 crore this year. As for solar, while several EPC companies (such as Sterling & Wilson) are building projects for third parties in Africa and the Middle East, even some product companies have gotten into the act.

A good example is that of tracker manufacturer Scorpius Trackers, which has proprietary technology for tracking systems. The company has been getting good orders from abroad — for 35 MW from Saudi Arabia, 10 MW from the US, 20 MW from Egypt and 16 MW from Zimbabwe.

The third reason is the inevitable opening up of carbon markets — where you get a tradable instrument for emitting less greenhouse gases than a set norm. This was a subject of intense debate at the recently-concluded Conference of Parties meeting in Madrid. While the modalities are under discussion, nobody denies that a vibrant carbon market is an indispensable element of climate action.

The earlier tryst with carbon markets, mainly the ‘clean development mechanism’ under the Kyoto Protocol regime, was not a very happy one, as buyers withdrew, leaving carbon prices plummeting to near-zero. Indian companies have been left holding an empty sack as promises evaporated.

However, a repeat of that under the Paris Agreement regime is unlikely. You can’t attack emissions if you don’t tax carbon, and you can’t tax carbon unless you give the taxed entity the ‘carrot’ of a carbon market. It may well take a good five years for a fully functional carbon market, but five years is but a blink of time. Indian renewable energy companies are most likely to get a bang from the market.

To sum up, the Indian renewable energy industry is in a situation of concern but there is no cause for despondency.

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Published on December 17, 2019
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