Rajasthan receives the highest solar irradiation in the country, along with high wind speeds. It also has plenty of wasteland to install solar and wind power plants. To its credit, the state has tapped this potential and emerged as one of the largest renewable energy producers in the country. As of July 2017, Rajasthan had a total installed solar capacity of 1,961 MW, and a wind power capacity of 4.4 GW, the second and fourth highest in the country.
Despite being the best destination for renewable energy development in India, Rajasthan is mostly in the news for the issues being faced by solar and wind developers in the state. These issues range from delayed tendering processes and payments by discoms to inadequate transmission infrastructure and backing down of the grid. The latest issue pertains to the state discoms delaying the release of the late payment surcharge (LPS) to wind power generators even after the state regulator, in August 2017, directed them to clear all dues within three months. The discoms are looking to get a 50 per cent discount on the LPS due to wind power producers, most of whom are not willing to agree to the same as it will impact their project returns.
Discoms are already reportedly delaying payments to wind and solar power generators by 6-12 months, putting the cash flows of the smaller renewable firms in particular under severe stress. This has largely been a result of the stressed balance sheets of discoms, which are not in a financial position to release payments.
Existing investors in the sector are also wary on account of discoms in the state curtailing solar and wind power, and issuing backing down instructions randomly, asking generators to unplug from the grid.
In response to the backing down instructions by utilities, a number of petitions have been filed by developers before the central and state power regulators. Over the past 24 months, at least 19 petitions have been filed by more than half a dozen players, alleging that the frequent backing down of renewable energy generation by states like Rajasthan during the peak season, citing grid security as the reason, has resulted in cumulative generation losses of over Rs 1 billion for these firms. The petitioners included ReNew Wind Energy, CLP Wind Farms, Orange DND Wind Power, Ostro Renewables, Clean Wind Power (Devgarh), Mytrah Vayu and Tanot Wind Power.
All these issues have had an adverse impact on investor confidence in the state’s renewable energy sector. Renewable Watch takes a look at the state’s current renewable energy status, the ongoing initiatives, upcoming tenders and policies, and the way forward…
Solar: Big play
The state’s solar power policy, which came into effect on October 8, 2014, set a target of 25,000 MW to be achieved through utility-scale projects, solar parks, etc. This is considerably higher than the Ministry of New and Renewable Energy’s (MNRE) target of 5,762 MW. Moreover, the state has a target of installing 2,300 MW of solar rooftop capacity. In order to achieve this, the state government has introduced net metering for grid-connected systems. As of December 2016, 19.08 MW of rooftop capacity had been installed in the state as against the sanctioned capacity of 31 MW.
The solar segment in the state has seen a growth rate of about 24 per cent during the past five years. In October 2016, the Rajasthan Electricity Regulatory Commission also revised its solar renewable purchase obligation (RPO) targets, in line with the national solar RPO trajectory. For the years 2017-18 and 2018-19, these targets have been set at 4.75 per cent and 6.75 per cent respectively, requiring 1,997 MW and 2,963 MW of power generation.
Currently, 440 MW of solar park capacity is under development while 240 MW is in the pipeline. However, 2,671 MW of capacity still remains unallocated. The state holds the second position in the country, after Andhra Pradesh, in terms of operational solar park capacity.
Rajasthan has been in the limelight for record low solar bids in the country over the past year. Bids as low as Rs 2.62 per kWh and Rs 2.44 per kWh were seen in the recently held tenders at the Bhadla solar park, and this has set the tone for future tariffs to be determined under upcoming tenders in the country. In fact, following the Bhadla solar park bidding, many states’ discoms have asked developers to renegotiate their tariffs.
There are several reasons for Rajasthan becoming the trendsetter for low tariffs. The state receives the highest solar irradiation in the country. Moreover, there has been a fall in domestic debt costs by up to 1 per cent in the past year. Further, factors such as lower solar park charges; healthy balance sheets of participants and access to low-cost foreign capital; relatively stronger rupee resulting in low project development costs and hence lower tariffs; and the Solar Energy Corporation of India’s (SECI) improved credit rating of AA+ have reduced risks as far as power offtake is concerned. In addition, the entry of foreign firms and a number of domestic players having access to a large pool of low-cost funds has allowed developers to quote such low bids.
The above factors have increased the competition in the Indian solar power space, and with developers vying for the limited number of bids available in the solar space, the tariffs have plummeted.
Despite Rajasthan’s huge solar potential, the state suffers from heavy transmission and distribution (T&D) losses. In addition, curtailment remains a serious issue. Solar developers face curtailment as forecasting has not yet been made mandatory, and the problem is aggravated due to the inadequate interstate power transmission infrastructure. Meanwhile, the state discoms, which are already under debt, have been unable to honour their power purchase agreements, making the developers hesitant towards setting up power plants in the state. However, seeing the progress under the Ujwal Discom Assurance Yojana (UDAY), developers are again keen to invest in solar park projects in the state.
Further, given the large number of solar parks in the state, green energy corridors (GECs) are being set up to ease power evacuation and reduce congestion in transmission lines in order to prevent curtailment. According to the Power Grid Corporation of India, transmission lines are being set up near Bhadla Phases II and III, Essel Saurya (Phalodi/Pokhran) and Fatehgarh (Jaisalmer) solar parks. In the Bhadla solar park, three 132 kV pooling substations will be constructed for power evacuation with a facility to upgrade to 220 kV in the future. The lines will be interconnected with the 400 kV high voltage substation at Bhadla. The power will be evacuated to the 400 kV Mokla substation and the 765/400 kV Jodhpur substation through a double circuit line. It is speculated that Rs 14,100 million of financing will be required for setting up the transmission infrastructure at the Bhadla (Phase II and III) and Pokhran solar parks, whereas Rs 5,480 million will be required for the Fatehgarh solar park.
Leveraging its rich solar potential, Rajasthan has been one of the first states to employ solar power for agricultural use by promoting solar pumps. In addition to a 30 per cent subsidy offered by the MNRE, the Rajasthan government provides a 56 per cent subsidy through the Rashtriya Krishi Vikas Yojana.
Wind: Still banking on FiTs
According to the National Institute of Wind Energy, Rajasthan has a total wind power potential of 18,770.5 MW at 100 metres hub height. So far, only 4,305.50 MW of wind capacity has been installed in the state, leaving a vast untapped potential.
In contrast to the competitive bidding process, Rajasthan recently released wind feed-in tariffs (FiTs) for 2017-18. The FiT set for the wind power plants in the Jaisalmer, Jodhpur and Barmer districts is Rs 4.87 per kWh with the accelerated depreciation (AD) benefit and Rs 5.26 per kWh without AD. In regions other than those specified above, the FiT stands at Rs 5.12 per kWh and Rs 5.52 per kWh, with and without AD respectively.
With no notification on future plans, the states’ stance on the adoption of competitive bidding is still awaited. Nevertheless, Rajasthan has recognised the benefits of competitive bidding after the tender released by SECI resulted in tariffs as low as Rs 3.46 per kWh. The state officials agree that lower tariffs will translate into greater offtake of wind power by discoms, thus facilitating the fulfilment of the non-solar RPO through wind capacity addition.
However, the wind energy segment in Rajasthan is facing several challenges, the biggest issue being payment delays faced by developers. These delays directly translate into diminished margins, and increase the cost of wind projects. Discoms argue that the payments are delayed because of the high tariffs. Even though the state has reduced the FiT in light of the recent bidding-based tariffs, the tariffs are still not as low as the ones observed as a result of competitive bidding. Moreover, the power evacuation infrastructure in the state is insufficient to cater to the installed as well as upcoming capacity. This leads to the curtailment of wind energy. It is common for the state load despatch centre to curtail wind power during the pre-monsoon and monsoon months when wind speeds are high, citing erratic and unpredictable wind behaviour during the day leading to possible load tripping. Due to this the developers are unable to get planned returns on their investment. To resolve this issue, the state will implement forecasting and scheduling guidelines.
Meanwhile, to fully exploit the state’s wind potential in solar-rich locations, Rajasthan is actively moving towards solar-wind hybrid projects. To this end, three areas have been identified, Dag, Gara and Basi, with a potential of 3,961,500 units, 3,512,032 units and 3,506,152 units respectively per MW per year.
Rajasthan still suffers from high aggregate technical and commercial losses with its three utilities accounting for a combined loss of 24.88 per cent in 2016-17. Even though the situation has improved under UDAY, Jodhpur Vidyut Vitran Nigam Limited reported 21.36 per cent losses, Ajmer Vidyut Vitran Nigam Limited 23.53 per cent losses and Jaipur Vidyut Vitran Nigam Limited 28.69 per cent losses, in 2016-17. This has affected the discoms’ financial health and their ability to meet the RPO targets. Non-solar and solar RPO targets for 2016-17 were set at 8.9 per cent and 2.5 per cent respectively, but the state reached a total RPO compliance level of 78.9 per cent. In the past, state discoms have complied fully with the set targets, but now they are faltering. Therefore, unless the financial condition of discoms improves, the RPO targets will not be met.
Moreover, the state has now attracted negative sentiment due to the non-payment of dues by the discoms. In addition, the average cost of the supply-aggregate revenue requirement gap was high at Re 0.65 per unit. Under UDAY, tariff revision has been filed but the new tariff order has not been issued yet. As of June 2017, Rajasthan ranked eighth under the UDAY state/discom quarterly performance ranking. The state has already issued bonds to improve the status of its discoms, and is planning to issue bonds worth Rs 7,612 million in the future. With these initiatives, it aims to enhance its T&D capabilities and increase power generation in the state.
Rajasthan has set a benchmark in both solar and wind capacity addition. The state has immense renewable energy potential, and with proper policy implementation, it can achieve the set targets. In addition, upcoming solar parks in the state are expected to attract huge investment while the current tariff trends are expected to continue in the future. Rajasthan discoms have benefited from UDAY, and with the introduction of GECs for inter-and intra-state transfer of renewable energy, the losses and curtailment are expected to come down.
The state has an active interest in maximising its renewable energy potential through programmes for rooftop solar, solar pumps and wind-solar hybrid power plants. In order to achieve its RPOs, Rajasthan will have to increase its wind power capacity by introducing competitive bidding. This will benefit both the developers and the discoms. Moreover, with increasing renewable energy penetration, implementing the scheduling and forecasting guidelines will become a priority for the state. Considering the role of energy storage in improving renewable energy integration, the authorities are planning to undertake large-scale implementation of these projects on a priority basis.
By reassessing the policies and implementation mechanisms, and consolidating its plan of action, the state can meet its renewable energy targets and attract greater investment in the sector.