The year 2020 was a historic year in more than one way for India’s renewable energy journey. The year began with the Covid-19 pandemic wreaking havoc on the economy, disrupting supply chains and manpower availability, and shutting down project construction and operation. As renewable assets were categorised as essential services, they were able to quickly resume operations, but were impacted due to lost revenues and delays in timelines, which have not yet been fully quantified. On the positive side, the government has been making the required timely interventions to safeguard the interests of developers through an extension in commissioning timelines, waiver of interstate transmission system charges till 2023 and other concessions. Further, a bailout package has been announced to safeguard the debt-ridden discoms from the heavy losses resulting from the pandemic.
Despite the pandemic, India’s renewable energy sector continued to receive a good response in the auctions. Solar power tariffs reached the sub-Rs 2 per unit level and solar-wind hybrid tariffs reached the sub-Rs 2.50 per unit level for the first time in the country’s history. This shows investor confidence in the sector and suggests that global investments will continue to pour in despite the worldwide economic setback.
Although there has been a temporary slump in capacity additions, this is expected to be short-lived. Growth is expected to bounce back sharply in 2021 as the government and the industry attempt to make up for lost time. Renewable Watch identifies eight major trends that will drive renewable energy expansion and shape India’s renewable energy market in 2021…
Energy storage to take centre stage to resolve intermittency issues
India’s renewable energy growth is being constrained by power evacuation and grid stability issues. Thus, an enabler is required in the form of energy storage to address grid-related concerns. While traditionally used for backup, energy storage will find greater uptake in the integration of renewable energy sources such as solar and wind, which are infirm by nature and their generation patterns change according to resource availability. Energy storage systems can store the excess renewable energy generated, to be used at a later time. In this way, it can help in levelling out any peaks or troughs in generation patterns, and create a stable and continuous energy stream throughout the day and at night. Moreover, energy storage technologies can regulate the frequency of generation, hence improving the power quality.
Battery storage is undoubtedly the most popular energy storage option. Lithium-ion has gained prominence with a price decline of around 90 per cent over the past decade. Going forward, the cost of energy storage will decide its level of uptake and scale. In the past few months, there has been an increase in uptake, which is expected to continue in 2021 and beyond. This indicates the emergence of an energy storage market in India, driven by increasing cost competitiveness, and improving technology and tendering activity. The year 2021 will see more tenders being released and a focus on domestic manufacturing, which will further help improve the viability of energy storage systems in India.
Hybrids and RTC power tenders to be promoted to realise synergies
Renewable energy hybrid projects are finding favour with both developers and discoms as they offer a viable solution for blending renewable power generated through two or more sources to leverage their synergies. For instance, co-locating wind and solar plants offers manyfold benefits including space optimisation and cost synergies as it involves sharing infrastructure and personnel. Adding battery or pumped energy storage will only improve project feasibility. To reap the benefits of these synergies, the Solar Energy Corporation of India (SECI) has till date conducted three auctions for solar-wind hybrids with the latest witnessing tariffs as low as Rs 2.41 per unit (December 2020). SECI is also in the process of launching various types of hybrid renewable tenders such as round-the-clock (RTC) power, peaking power and blended wind power projects, to make renewable power more despatchable.
The hybrid renewable energy segment is evolving and progressing fast on the back of developments such as innovative tenders and policy support. A mega renewable energy hybrid park has recently been inaugurated in Kutch, Gujarat, with a planned capacity of 30 GW. Similarly, Greenko is currently developing 550 MW of wind, 1,000 MW of solar and 1,680 MW of pumped hydropower capacities as a part of its integrated renewable energy project, which will provide RTC power to the grid. Further, SECI’s exploratory tenders for 400 MW of renewable power on an RTC basis and 1.2 GW tender for peak power supply using renewables and energy storage were successful. Thus, there exists a healthy market for renewable energy hybrids and 2021 is likely to witness many such new and innovative project announcements.
Expansion of the C&I solar segment to reduce operational costs
Unlike utility-scale solar projects, which are facing execution- and payment-related challenges, the commercial and industrial (C&I) solar segment has been witnessing an increase in growth. The C&I solar segment is primarily driven by the need of end consumers to reduce their electricity bills as the landed cost of rooftop solar systems (Rs 3-Rs 4 per kWh) is much lower than C&I grid tariffs. Further, corporate establishments are switching to sustainable strategies in order to project themselves as environmentally conscious and attract more customers. Moreover, the implementation of comprehensive net and gross metering regulations and the adoption of the highly affordable opex model have led to rapid solar power deployments in the C&I segment. Even large institutional consumers such as metro rails, Indian Railways and airports have started bulk procurement of opex-based rooftop solar power. Thus, many specialised as well as large IPPs have entered this market as C&I consumers offer better PPA contract prices as compared to the highly competitive tariff-based auctions, with a higher certainty of payments than discoms.
While corporate PPAs are beginning to capture significant attention, there has
been a clear shift from traditional open access and third-party power procurement to the group captive model. This is mainly due to the withdrawal of open access waivers for new third-party PPAs across multiple states unlike group captive projects, which continue to enjoy a complete waiver of cross-subsidy surcharge and additional surcharge. This trend is likely to continue in 2021 as well, with more consumers and IPPs opting for group captive models to minimise risks and improve their financials. Further, it is expected that the demand for C&I solar projects will increase in the coming year, driven largely by group captive and opex-based rooftop solar projects.
Growing prominence of automation and digitalisation in solar and wind O&M
Effective operations and maintenance (O&M) of solar and wind power installations has become critical given the increase in the scale and size of projects, decrease in costs and focus on efficiency. With manpower contributing to a large part of O&M costs, efforts are being made to increase the integration of automation and digitalisation tools to save time and costs without impacting efficiencies. Thus, robotic solutions are being used to clean solar modules and drones for visual inspection. These automation and digitalisation tools are helping developers reduce manpower costs and maintain profitability despite their squeezed margins on account of rapidly declining tariffs. Moreover, the constant monitoring of equipment performance with data collection and analysis is imperative. Thus, the prime focus of many O&M players today is on analysing this data and identifying anomalies beforehand so as to prevent project downtime and save costly repairs through predictive maintenance techniques. Huge investments are being made on automatic data acquisition set-ups integrated with advanced monitoring and analysis systems based on artificial intelligence and machine learning software to optimise and enhance system performance. This will help in predicting energy generation, reducing O&M costs and enhancing equipment life. With Covid-19-induced lockdowns restricting the movement of O&M teams to project sites, the urgency of adopting automated and digitalised O&M has been highlighted. Going into 2021, with the pandemic still raging, the year will witness a transition from manpower-dependent O&M to partially or even completely automated one.
Increase in renewable energy financing
Renewables, especially solar, have emerged as one of the most attractive infrastructure sectors for investment. According to a recent report, titled “Clean Energy Investment Trends 2020: Mapping Project-Level Financial Performance Expectations in India” by the International Energy Agency and the Council of Energy, Environment and Water, investments in India’s renewable energy sector have reached almost $18 billion in 2019.
Some of the world’s lowest solar and wind power tariffs are being witnessed in India. The regulated returns from these fixed tariffs and the long-term nature of cash flows have attracted large international investors with deep pockets and a huge risk appetite. Further, several new options such as green bonds and InvITs have become popular for raising funds. Meanwhile, a favourable merger and acquisition environment has been created as many business groups that had entered the renewable energy sector in the past few years are now looking to sell their solar portfolios. This bodes well for large investors that want to expand their asset base quickly without having to go through the entire time-taking process of bidding for projects and getting the required approvals. This trend is likely to be witnessed in 2021 as well, as investors are looking to acquire assets and expand their portfolios. Thus, equity financing will continue to dominate the renewable energy landscape in 2021.
Domestic manufacturing of solar modules will be a core focus area
India’s domestic solar equipment manufacturing market has failed to keep pace with solar power deployments. According to IEEFA, India’s current cell manufacturing capacity stands at around 3 GW and module manufacturing capacity at about 15 GW. Further, estimates suggest that only 40-45 per cent of domestic production facilities are utilised and 7 GW of capacity is operational. India has relied mainly on imported modules due to its insufficient domestic module manufacturing capacity. At present, it imports over 80 per cent of its solar equipment, largely from China. Thus, the domestic industry has to make concerted efforts to meet the annual domestic demand for 10 GW of solar modules.
The Covid-19 situation and the resultant supply chain issues have underlined the importance of self-reliance. However, various initiatives to improve the country’s domestic manufacturing capabilities have failed in the past. The government has been laying emphasis on local production under the Atmanirbhar Bharat Abhiyan and Make in India initiatives. Apart from this, it is taking steps, such as extension of safeguard duties on imported solar cells and modules, promotion of manufacturing-linked tenders and identification of land parcels across major ports to set up production units, in order to incentivise local production. While players such as Adani, ReNew, Azure and Vikram Solar have already announced their manufacturing plans, more are likely to follow in 2021. With the production-linked incentive scheme and other such plans set in motion, it is expected that the vision of a robust domestic solar manufacturing industry may finally be realised in 2021.
Land constraints to drive the adoption of floating solar
A single megawatt of a ground-mounted solar project requires 4-5 acres of land. Acquiring these huge tracts of land for solar power deployment has been a pain point, leading to delays in tenders and project commissioning. Floating solar projects installed on waterbodies instead of land are a perfect solution to the land-related issues. Although the present installed capacity is small, the floating solar segment has huge potential for development. A vast capacity of floating solar projects can be set up on abundant large unutilised reservoirs at hydro and thermal power plants, thereby providing synergies by using the existing power evacuation and transmission systems.
Floating solar projects are commercially and technically viable, with a gradually emerging but competitive market. A large number of IPPs and investors have entered the segment as it becomes a popular choice for large PSUs such as NTPC and NHPC to increase their solar capacity. Further, domestic manufacturing bases are being set up by float manufacturers and various technology advancements are on to make floats lighter with less material costs, especially in Southeast Asian countries. This will help improve the cost economics of these projects. The year 2021 may witness the deployment of many large floating solar projects in the country, especially with a slew of projects at advanced stages of completion and more being tendered at a rapid pace.
Green hydrogen to emerge as a potential fuel for the future
An electrolyser is a device that splits water into hydrogen and oxygen using an electric current. When this current is produced from renewable energy, it can create green hydrogen. As India moves ahead with its ambitious renewable energy deployment plans, green hydrogen can play a key role in this journey. This versatile fuel makes a strong business case with declining renewable energy prices and growing awareness of its use in stabilising the grid by utilising excess renewable power. Moreover, hydrogen can be used for energy storage and power generation when solar or wind power is low in the grid. Although the current uptake of green hydrogen remains low, primarily due to cost considerations, several initiatives have been launched to increase its uptake. Moreover, the use of hydrogen fuel cells as a clean fuel alternative has increased over the years. While the uptake of green hydrogen in India is limited to small-scale demonstration projects, the focus on the use of hydrogen fuel cells as a clean fuel alternative has increased over the years. Recent months have witnessed an increase in deliberations and studies on this subject. The trend is expected to continue in 2021, with greater focus on understanding the commercial viability of green hydrogen in the Indian context, and setting up of demonstration projects.
The pandemic has given a few clear lessons to the government and the industry. In 2021, there is likely to be a greater focus on adopting automation and digitalisation, and improving domestic capabilities. The C&I segment may witness higher growth as more consumers switch to renewables from expensive grid power to save costs. Moreover, investments are expected to increase in number and size as investors opt for quick growth through acquisitions. The year will also witness innovations in technology and business models as various players aim for fast recovery and capture of greater market shares. This will increase the uptake of floating solar, hybrids, green hydrogen and energy storage projects.
Overall, 2021 will be a year of opportunities in the renewables space with huge scope for innovation and technology advancements. Players that are able to capitalise on this opportunity will have a much bigger share in the renewables’ market in the years to come.
By Khushboo Goyal