Weathering the Storm

IEA report highlights 2020 growth trends and roadblocks for renewables

The Covid-19 pandemic has had a significant impact on across all industries and sectors globally. The lockdown imposed to restrict the spread of the virus has brought about a major shift in lifestyles, and is expected to reduce the global energy demand by up to 5 per cent, as per the International Energy Agency’s (IEA) latest report titled “Renewables 2020”. However, this has not been the case with the renewable energy sector, which has been able to overcome the supply chain disruptions and construction delays caused by the pandemic in a short time. Despite a drop in global energy demand, the IEA reports a 7 per cent increase in the renewable power demand. It also projected that the net installed global renewable capacity will go up by 4 per cent in 2020. Although sector growth in the current year is driven by China and the US, the IEA expects India to lead the renewables surge in 2021.

India’s renewables capacity addition is expected  to double as the country strives to achieve its target of 175 GW of installed capacity by 2022. In addition to a large wind and solar capacity to be auctioned, multiple projects that faced delays in commissioning due to the pandemic are set to start operations in 2021.

Solar surges ahead

India has immense solar energy potential, which is being leveraged to drive green energy deployment. The country is expected to have an installed solar capacity of 100 GW by 2022 despite installations dropping by 70 per cent in the first half of 2020 in comparison to the corresponding period of the preceding three years.

The biggest impact of the lockdown has been the halt in the construction of projects. With the opening up of the economy, it is expected that these solar projects will be commissioned over the next two years in addition to the planned capacity additions. Therefore, the capacity added by new solar projects in 2021 will compensate for the construction delays in 2020.

The wave of solar PV development has also been driven by favourable government policies, and a high number of central auctions that offered more payment security and attracted more competition. Hybrid solar-wind tenders with storage options too, have gained prominence and achieved cost competitiveness with thermal power in many cases. Another move by the government to reduce instances of undersubscription has been the removal of ceiling tariffs for auctions held after March 2020.

The distributed solar segment has taken a hit with a 58 per cent fall in installations from 2019 levels. The problem is amplified due to the poor financial condition of discoms, which are reluctant to support distributed solar deployment. Discom finances have remained poor in the past decade and despite the introduction of the UDAY scheme in 2015, there were overdue payments prior to the pandemic. Further, the burden of overdue payments on discoms in renewable energy increased by 28 per cent during January-June 2020 on account of the lockdown. To ease the stress and bring liquidity in the power sector, the Indian government announced a Rs 9,000 billion relief package for discoms in May 2020, which was raised to Rs 12,000 billion in September 2020.

Slowdown in the wind segment

The wind power segment in India also faced roadblocks in 2020 with a 60 per cent drop in capacity additions from 2019 levels. During the first half of the year, only a mere 300 MW of wind energy was added to the grid due to delays associated with the Covid-19 pandemic. In 2020, the majority of the construction in the wind segment was carried out in the first quarter. Construction activity has picked up in the second half of 2020. In the next year, similar to the solar power sector, a strong rebound is expected in wind energy as well.

After overcoming the challenges due to the pandemic, the wind power segment in India still faces a number of issues. The country needs to double its wind capacity over the next two years, but recent auctions have shown underwhelming results. Over the past two years, three large-scale central wind tenders have been cancelled or undersubscribed. In 2020, only one wind auction was conducted, wherein only 40 per cent of the tendered 2.5 GW was allotted at 6 per cent higher tariffs than the previous year. This lukewarm reception can be linked to low tariff caps, land unavailability and offtaker risks. The removal of ceiling tariffs and the increased use of hybrid tenders are expected to strengthen the sector’s prospects. However, meeting the wind energy target of 60 GW by 2022 seems challenging. Overall, as per IEA estimates, 7.5 GW of wind energy will be added to the grid, which is about a quarter of the capacity addition required to meet the country’s targets.

Other renewable energy sources

Wind and solar are expected to contribute to about 91 per cent of India’s renewable energy capacity by 2022, but this does not undermine the importance of other technologies in the renewables mix.The renewable heat market was impacted due to the pandemic, but is expected to increase over the next two years. Despite most countries in the world reporting a fall in industrial bioenergy consumption in 2020 over the previous year, India has reported a positive growth. The consumption of bioenergy in Indian industries is expected to pick up only when the industrial activity gets back to pre-Covid levels. The biomass-based power segment, however, has suffered, with the country reporting a decline in capacity additions since 2018. The IEA has projected that capacity will only fall further over the next five years.

Besides, India has a considerable geothermal energy potential that is yet to be explored. Over 340 hot springs of varying temperatures have been identified in the country, with the Himalayan region showing the most promise. The development of a 5 MW plant has also been proposed in the Tapovan springs of Rishikesh.

Outlook

With wind and solar power being critical in India’s green energy transition, their integration into the grid is crucial. The transmission infrastructure in India needs to be enhanced to support the integration of this variable renewable energy. In this regard, India had planned the ambitious Green Energy Corridors project, which was scheduled to be completed in March 2020, but is still far from completion. The project, once completed, is expected to integrate nearly 60 GW of renewable energy into the state and national grids.

Discoms are responsible for implementing net metering policies and encouraging financing for wider adoption of rooftop solar. The IEA reported that financially strong discoms are more likely to encourage consumers to adopt the technology. The belief that rooftop solar is a deterrent to discom finances has been disproved. A study by the Council on Energy, Environment and Water across 30 societies in Dwarka, New Delhi, found that the area’s discom generates net gains of Re 0.22 for every unit of electricity generated, outweighing the revenue losses. Further, the study found that these revenue losses were the lowest among residential and the highest among commercial and industrial consumers. The study suggests that discoms could potentially consider rooftop solar models to improve their finances.

The utility-scale solar capacity additions seem to be on track, given the strong response to tenders and record low tariffs throughout the year. The wind segment, however, is expected to fall short of its 2022 target as estimated by the IEA. Steps need to be taken to improve investor appetite in the wind energy segment given India’s huge potential. In addition to improving grid connectivity and floating more hybrid tenders, the provision of land can be added to the tender document. Increased offshore wind installations can help overcome the issue of land procurement, but these have been put on the back burner for now.The first offshore wind tender of 1 GW was floated in April 2018 and has faced delays ever since. The Global Wind Energy Council has estimated India’s onshore and offshore wind potential at 300 GW and 195 GW, respectively, but the pace of installation is slow in both these sectors.

Net, net, as compared to the rest of the world, India has performed well in terms of overcoming the disruptions in wind and solar deployment due to the pandemic, but there still remain barriers going forward. Utility-scale solar development has been on track, but rooftop solar deployment has faced delays. Wind energy is a key focus area as the country is behind its 2022 target, and has failed to generate sufficient investor interest. Apart from this, emerging technologies such as geothermal and ocean energy remain unexplored.

As the world has accepted a future-driven by renewable energy, India must make efforts to improve the supporting grid infrastructure and policy framework for its deployment. The country must aim to diversify its renewables portfolio beyond solar and onshore wind. A vision to move beyond mainstream technologies is crucial for India to meet the ever-growing power demand and truly become a leader in the global renewable energy space.

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