Renewable energy installations have grown by leaps and bounds in India, increasing from a mere 58.12 GW in 2016-17 to 104 GW as of November 2021. This comprises roughly 47 GW of solar and 40 GW of wind capacity, along with 10.3 GW of bioenergy and 4.8 GW of small-hydro power. It would be accurate to say that a significant contributor to this growth is solar power, which has grown significantly in the past few years and witnessed close to 35 GW of capacity additions between 2016-17 and 2021-22. Almost 90 per cent of the installed solar capacity can be attributed to large ground-mounted solar installations, whereas a small capacity comes from rooftop solar projects.
Meanwhile, wind projects increased in size. However, the growth of India’s wind power space has been subdued as compared to solar power. In fact, India’s renewable energy development so far has been on the back of large-scale ground-mounted solar power projects, while small-scale distributed solar has been lagging.
There are a couple of reasons for this trend. First, solar power costs were quite high when solar power deployment started gaining traction in India almost a decade ago. It was soon realised that like any other new technology, economies of scale were important to bring down costs. Thus, large projects were promoted through attractive feed-in tariffs and the viability gap funding scheme. Second, the competitive bidding mechanism was introduced to auction large projects, which led to the discovery of low tariffs and attracted many big domestic and foreign investors. Third, solar and renewable energy parks of sizes greater than 1 GW were planned and executed. In fact, India has some of the biggest solar parks in the world such as the 2,050 MW Pavagada Solar Park in Karnataka and the 2,245 MW Bhadla Solar Park in Rajasthan, which have been responsible, to some extent for making India a competitive market for solar power deployment. More such parks, including the 30 GW Kutch renewable energy park with both solar and wind power, are in the pipeline. Finally, and perhaps most importantly, the Indian government had set a target to achieve 175 GW of renewable power capacity by 2022 (now raised to 500 GW of non-fossil fuel capacity by 2030), and the fastest way to achieve these targets was large-scale solar and wind projects.
This strategy has worked well so far, especially in the case of solar projects. However, issues that were a mere inconvenience until three or four years back are now deterring large-scale capacity additions. In view of this, the question that now demands everyone’s attention is – will this strategy be enough to achieve the country’s tall target of 500 GW of non-fossil fuel based power by 2030? Or does the often-ignored distributed renewable energy segment need to be revamped to enable the country’s energy transition in a sustainable manner?
In this article, we assess the key issues in the implementation of large utility-scale renewable power projects and explore opportunities in the country’s distributed renewable energy space to identify the right strategy for the sector…
Challenges in the implementation of large projects
Large utility-scale renewable power projects being set up in India are largely allocated through the competitive bidding route with discoms as the ultimate power offtakers. The biggest issue in large-scale projects is related to offtakers, that is, state discoms. Owing to the poor financial health of most state discoms and the lack of strict penalties on payment defaults, there have been significant delays in clearing developers’ revenues. In some cases, developers remain unpaid for more than a year. This lack of contract sanctity threatens the entire sector as discoms are responsible for procuring the bulk of renewable power in India. Further, in many cases, discoms are unwilling to sign power sale agreements for new projects, for which bids have already been concluded.
The objective of these auctions, be it for solar, wind or hybrid projects, is to achieve the lowest tariffs possible. This price sensitivity creates many issues for developers. First, there have been instances of bid cancellations by various state discoms when higher tariffs have been discovered. These states often reissue the tender to discover the lowest tariff possible. In fact, a few states have resorted to renegotiation of PPAs for operational projects so that they pay less in accordance with the present tariff levels. This not only puts the specific projects at risk, but also severely dents investor confidence in the renewable energy sector.
Second, there is a delay on part of the state regulatory agencies in approving tariffs and PPAs after the auctions have been concluded. In some cases, the tariff approval process takes months. By then, the regulations or equipment costs or both can change, thereby affecting project cost economics. In some instances, these delays have led to developers even cancelling their projects. Third, as developers compete at extremely low prices and bid aggressively to win projects, there can often be slight compromises in project quality and operations and maintenance (O&M) owing to efforts to maintain project viability and profits.
In addition to legacy- and tariff-related concerns, challenges are encountered during actual project execution. Land acquisition is one such challenge, which takes significant time owing to complicated land transfer policies. Renewable energy projects require acres and acres of continuous land, and such land parcels are becoming more difficult to procure. In fact, there have been cases where the land acquisition process has dragged on for months, putting the entire project at risk.
Another major issue is inadequate transmission systems. Owing to the longer gestation timelines of transmission projects, there is often a mismatch between the commissioning of renewable energy generation and transmission assets. Thus, in many cases, the solar or wind power project is ready, but no transmission systems are available to evacuate power and transmit it to load centres. There have been instances of stranded assets in the past, where projects must incur costs owing to power evacuation systems not being available. Further, many bids have been postponed due to this issue. The green energy corridors (GEC) project has also not been implemented at the required pace and has progressed only in recent years. According to the latest government statistics, while all GEC interstate transmission system (ISTS) projects have been completed, 1,294 ckt. km of transmission lines and 7,421 MVA of substation capacity are still left to be completed under the planned GEC intra-state transmission system as of October 2021.
All these issues along with bureaucratic hurdles and the rapidly changing policy regime, especially in terms of taxes and import duties, have made the implementation of large utility-scale renewable energy projects a daunting task for many developers and investors. In fact, according to a recent ministry update, projects auctioned under the Solar Energy Corporation of India’s first ISTS tenders for wind and solar, in October 2017 and July 2018 respectively, have still not been completed. About 240 MW of wind power capacity is yet to be commissioned even four years after the auction. Similarly, 1,200 MW of solar power capacity is to be completed under the solar auction, most of which will come up in Rajasthan.
Potential of distributed renewable energy solutions
With so many hurdles delaying the implementation of large-scale projects, the time is right to redirect attention towards exploring the largely untapped potential of small distributed renewable energy systems. They are less complicated to execute and have a significantly shorter turnaround time than their larger counterparts, and thus can help hasten the pace of renewable energy development in the country, if executed in a systematic manner pan-India. Apart from the obvious advantage of not requiring large tracts of land, another benefit of distributed systems is that they do not require an elaborate power transmission network. In fact, if planned well, they can help in better management of demand and supply, and reduce energy losses as power consumption happens close to where energy is generated.
India has immense potential for the deployment of distributed renewable energy projects, especially in the solar power space owing to adequate solar resource availability across the country. The various available solutions include rooftop solar projects, floating and canal-top solar projects, energy storage systems, and solar pumping solutions. Further, there is a significant untapped potential in the waste-to-energy and bioenergy spaces.
Commercial and industrial (C&I) consumers pay exorbitant tariffs for the power they procure from discoms, which has a significant impact on their operating costs. However, power from discoms is often unreliable with prolonged power cuts. In addition, the power quality is often erratic, especially in smaller towns, which can hamper operations. Diesel generators are often used but are polluting and incur high fuel costs. Meanwhile, renewable energy, especially solar power, is cheaper, and thus is an attractive option for these consumers.
For industrial consumers that generate organic waste, the ideal solution is to set up bioenergy units to reduce energy bills as in the case of sugar mills that use bagasse for cogeneration. In fact, owing to their attractive cost economics, 9.4 GW of bagasse-based cogeneration units have been set up as of November 2021. Further, waste heat recovery plants are being set up to meet the heating and power requirements of industries. Solar pumps have also become a highly sought-after solution for farmers, especially since the launch of the PM-KUSUM scheme. Farmers now deploy solar pumping systems to meet not only their irrigation requirements, but also other power requirements in their houses and even sell power to discoms for extra income.
Moreover, rooftop solar units can be easily set up at the consumers’ premises to provide clean and secure power supply. Reliability can be further improved if energy storage is also used. Even for residential consumers that pay large bills, rooftop solar is an ideal choice to not only reduce monthly expenditure, but also the avoid the nuisance of power cuts. The attractive and highly popular opex model, enabling policy mechanisms such as net and gross metering, exemptions on transmission and wheeling charges, and waiver of cross-subsidy surcharge have promoted growth of the distributed solar segment to a large extent. The opex model gives consumers freedom from project implementation as well as O&M, all at a fair and affordable price. Thus, the segment is fast gaining traction. In this year (April-November 2021) itself, 1.7 GW of rooftop solar capacity has been installed as compared to 5.4 GW of ground-mounted solar installations.
Several specialised independent power producers and even large developers have forayed into this space and provide these power procurement options at attractive prices, which is a more favourable option for C&I consumers as compared to power procurement from discoms. These developers also prefer C&I consumers as they do not have to depend on tenders for securing projects. Further, the revenues are timely and higher due to higher tariffs. Since developers have the freedom to choose their clients, the contracts can be designed in a manner that favours all parties.
The only hiccup is that discoms often do not want to lose their high-paying C&I consumers, and thus create hindrances in approvals. Further, there have been reports that net metering permits take a lot of time and effort in many states. In a few states there is uncertainty regarding transmission and wheeling charges. If these issues are resolved, the segment can grow rapidly, especially given the large potential consumer base.
Already a few discoms such as Tata Power Delhi Distribution Limited, BSES Rajdhani Power Limited, BSES Yamuna Power Limited and others have taken measures to promote rooftop solar through innovative business models. The central theme in most of these models is that the discom assumes the role of an aggregator and ties up with the developer to install and operate rooftop systems across residences and housing societies. Discoms get the benefit of cheap solar power and effective load management, particularly during the hot summer months. Thus, it is a win-win situation for all.
With the slowdown in India’s renewable energy capacity additions over the past few years, it is quite clear that the one-track strategy of large auction-based project deployment will not be sufficient to achieve the country’s ambitious targets. Instead, a mix of large utility-scale and distributed renewable energy projects will have to be promoted for a sustainable renewable energy development pathway. This will allow optimum land and transmission utilisation, enable capacity deployment at all scales and locations, help manage grids more effectively and provide an opportunity for growth to all stakeholders rather than select large developers. Further, this mixed strategy will usher in new advanced technologies for smart grids, electric vehicle charging, energy storage solutions, digital tools for advanced O&M as well as green hydrogen applications.
This is easier said than done. This mammoth task will require a great deal of coordination among the government, regulators, grid operators and industry. Apart from this, there is a need for right policy and regulatory interventions, awareness and adequate financing arrangements, to bring India closer to its goal of 500 GW of clean power by the end of the decade.
By Khushboo Goyal