India’s energy transition towards a sustainable and clean power portfolio is not proving to be easy. Both the solar and wind power segments are going through multiple challenges such as the renegotiation of power purchase agreements (PPAs) and tariffs, transmission hurdles, power curtailment, payment delays and tendering difficulties.
A tariff reduction of 40 per cent in the solar power space has resulted in several ongoing tenders being scrapped as states and other agencies are redesigning their procurement schemes. More worryingly, some states including Uttar Pradesh, Andhra Pradesh and Tamil Nadu are seeking to renegotiate or cancel the previously allocated projects (at higher tariffs).
A similar scenario is being witnessed in the wind power space, which saw a tariff decline of 17-35 per cent in the first-ever auction conducted in February 2017. It was initially thought that the migration from the FiT-based regime to auction-based allocation would bring in greater project visibility and transparency, but the industry has been taken by shock as the ongoing project development has been jeopardised with the state discoms demanding a renegotiation of PPAs at lower tariffs, comparable to the winning bid of Rs 3.46 per kWh. Resultantly, capacity addition in both the segments has dipped considerably in the first half of 2017-18, leaving both the developer and the manufacturer community stranded.
Meanwhile, at a recent industry event, India’s chief economic adviser noted that the country should still have coal as the major fuel and avoid getting distracted by the global debate on carbon imperialism. He cautioned that there are hidden costs associated with renewables due to their intermittency, low capacity utilisation factor, land acquisition requirement, cost of upgrading the grid, as well as subsidies. This view has been further reiterated in the recently released second volume of the Economic Survey 2016-17, which states that the social cost of renewables is about three times that of producing coal-based electricity.
With solar and wind equipment production lines lying idle, developers having minimal project visibility and contradictory views on the country’s overall plan to move towards a renewable- heavy energy mix, the industry is keenly awaiting “corrective” measures by the government to bring a turnaround.
It is a testing time for project developers, investors and lenders, but more so for the government,
which is finding itself tangled in a complex web of challenges that need to be resolved simultaneously.