A Mixed Year: Developers’ views

The government has taken several measures to strengthen the renewable energy project development scenario over the past one year. While there have been many hits, there are also concerns regarding developments such as import restrictions on solar cells and modules, as well as discom health. Senior executives of leading renewable energy developers share their perspective on the key developments, challenges and policy initiatives in the renewable energy space. Excerpts…

What have been the key developments in the past one year that have shaped the Indian renewable energy sector?

Sharad Pungalia

There has been an increase in the focus on domestic content. This has directly im­pacted the solar space. The Govern­ment of India has now put a condition that all solar projects in the country must use only Made in India modules and that is expected to be a big game changer for the solar manufacturing sector in the country. On the generation side, the focus is shifting more from vanilla solar to wind-solar hy­brids and battery storage, reflecting new avenues for the future of renewable energy in the country

 

 

Shriprakash Rai

The Ministry of Power’s (MoP) notification on green open access last year has been very positive, especially for the commercial and industrial (C&I) segment. This is because developers have been trying to persuade the Ministry of New and Rene­wable Energy to come up with guidelines that give a clear vision to all the states about open access. We do understand that electricity is a concurrent subject and every state will have its own decisions and measures to be adopted, however, open access is an important vertical and it has to be adopted by all states.

Reduction of contract demand is another positive development. From the capacity point of view, the megawatts a customer co­uld actually take was dependent on contract demand. But now, the contract demand res­triction on power consumption has reduced, which is a welcome step. The transmission waiver for ISTS pl­an­ts and C&I consumers has also been a positive change. However, there is no ex­tension for projects approved after Oc­to­ber 1, 2022 on the Approved List of Mo­d­els and Manufacturers (ALMM) complian­ce, whi­ch seems to be unfavourable. Mo­re­­over, for the ALMM, open access or rooftop projects should not be applicable.

 

Colonel Narendra Verma

The renewable sector and the overall economy, both domestic and global, have been impacted by significant recent geopolitical upheavals. The energy crisis due to the Russia-Ukraine conflict clearly points to larger investments in green po-wer. The Government of India has taken many initiatives in recent times to promote and provide a favourable environment for the gr­ow­th of renewable energy. India has also played a major role at COP27 and on various international platforms to espouse the need for action on climate control. The proposed amendments to the Energy Co­nservation Act that have been passed in the Lok Sabha will empower the country to increasingly strive towards its net zero commitment of 2070, with further impleme­ntation of the Nationally Determined Contri­bu­­tions in a timely manner.

 

 

 

 

What has been the impact of global inflationary tendencies and supply chain disruptions on the project development strategy for deve­lopers?

Sharad Pungalia

Like all other industries, we have also be­en hit by these macroeconomic factors. Tariffs have gone up in a few of our projects that we had already committed. The­re has also been a sudden increase in commodity pri­ces, because of which our margins have taken a hit. However, the industry is now getting back on its feet. While planning for future developments and projects, we are considering these changes and designing our strategies accordingly. As we deal in the C&I market, where gestation periods are usually short, the impact on projects has been minimal. However, due to currency depreciation, some projects have been delayed by two or three months.

Shriprakash Rai

Today, the entire world is connected and businesses all over the globe have been impacted because of the macroeconomic factors in the current scenario. In the past six to nine months, there has been a rise in the interest rates rated by the Fed to tame the inflation in the US. Its impact can be very well seen in project development in India.

Currency devaluation in India has had several impacts as well, especially in ter­ms of the timeline of project completion. De­lays are more severe for utility-scale pro­­­jects, which have a longer developme­nt life cycle as compared to C&I projects. Thus, basic assumptions taken pri­or to pro­ject development as well as with res­pect to tariffs have to be adjusted acc­ordingly. Assumptions regarding module prices, exchange rates and interest rates also have to be factored in.

Colonel Narendra Verma

The Covid-19 pandemic, coupled with ge­o­political tensions between various neighbouring countries, has led to one of the worst inflationary and supply chain disruptions the world has seen. The entire world is now hit by either pandemic-related restrictions or global sanctions on Ru­ssia, leading to a scenario of complete un­certainty and chaos. China being the largest source of components continues to be impacted by the zero-Covid policy and supplies remain under risk of fulfilment and cost. In such a scenario, project development for developers, even a short-term project of six months, requires meticulous planning. A few key aspects developers can plan are assessing country/region-wise risks and their mitigation plan, buying locally as much as possible, hedging major commodities and currency risks, and purchasing critical equipment from reliable sources, considering the su­pply chain risks of fulfilment. Finally, contracts must also be drafted, duly considering these risks and their mitigation.

What is your view on tariff and non-tariff barriers on imported solar components? How have these barriers impacted developers?

Sharad Pungalia

These barriers have impacted us, the primary reason being that we do not have adequate capacity in the country today. Due to inadequate capacity, such barriers will lead to a disequilibrium in the market. With rising demand and inadequate supply, one can expect high prices, which ev­entually the consumer will have to bear. Th­us, tariff and non-tariff barriers have slo­w­ed down our growth a little bit.

Moreover, there are concerns regarding the ALMM restriction, which has been im­posed upon private players in the open access market. This regulation is acting as a huge roadblock in our current journey due to unavailability of adequate and good quality domestic commodities and modules. Reconsidering the ALMM res­tric­tion and exempting open access projects and net metering projects from ALMM requirements can be a useful measure for developers in the country.

“With rising demand and inadequate supply, one can expect high prices, which eventually the consumer will have to bear.” – Sharad Pungalia

Shriprakash Rai

For us as developers, it will be ideal to source all modules from India. This will re­duce our working capital cycle, ensure av­ailability of products and create less de­pendency on imports from other countri­es. The manufacturing announcement that was notified is still in the pipeline. One can expect at least two years’ time for first modules to be rolled out, where the entire backward integration has occurred. This includes polysilicon, wafe­rs, cells and modules for the entire cycle of a project. Until this is established, we will continue to be dependent on imports of polysilicon, wafers and cells.

Non-tariff barriers in the form of the ALMM are a major concern. Due to non-availability of domestically produced components and modules at present, there is a complete vacuum, which has been created for all projects where we have to use modu­les made in India with higher prices. Thus, this barrier has created challenges of av­ail­ability, higher prices and quality.

Colonel Narendra Verma

Solar panels, which form almost 60 per cent of the solar project cost, have been se­verely hit by the tariff barrier of 40 per cent basic customs duty from April 1, 2022. This has led to an increased viability gap of solar projects with respect to non-renewable projects. Inflationary pressures due to commodities and logistics are also adding to the capex. The imposition of non-tariff barriers such as the ALMM is intended to encourage Make in India and develop the local ecosystem, but the­se do not seem to align with the current demand and supply equation in the Indian market. Despite limitations with our dom­estic manufacturing capability to meet the domestic demand, not a single international module panel supplier has been registered in the ALMM. More so, the basic material needed to manufacture these panels continues to be imported. If we look at projects under execution, since April 2022, the number of new projects has reduced drastically to almost 10 per cent of what it was last year. Most of the projects being developed today are those not impacted by the customs tariff barrier and the ALMM, as these projects were awarded prior to these restrictions.

“The imposition of non-tariff barriers such as the ALMM are intended to encourage Make in India and develop the local ecosystem, but these do not seem to align with the current demand and supply equation in the Indian market.” – Colonel Narendra Verma

Which new technologies (AI, ML, trackers, bi-facial, green hydrogen, etc.) are renewable energy project developers investing in? What are the key benefits of these technologies?

Sharad Pungalia

At Amplus, we have developed our own in-house analytical tool called “Hawk Ai”. This tool has been indigenously developed and it helps us to efficiently monitor and operate our projects. We have dep­loyed it across all our projects and the pr­o­duct has reached a level of being ro­bust. Also, for our new planned project in Raj­as­than, we are deploying robotic cle­aning for the entire project. As a result of this, a lot of water might be saved. Thus, there has been a lot of advancement in this space and we are trying to adopt th­em as effectively as possible.

Shriprakash Rai

As far as the use of new technology is concerned, some of our ISTS-connected plan­ts will be supplying power to C&I consumers. We are using trackers and bifacial mo­dules. However, land acquisition is a challenge for all developers. Looking at the current scenario, the input cost im­pacts the overall tariff, so for developers like us it be­comes very important how we can optimi­se our costs utilising these em­erging technologies.

Colonel Narendra Verma

At Cleanmax, we keep a close eye on te­chnological advancements such as cell and module technology, single-axis trackers, and wind turbine technology advan­ce­ments backed by predictive and preventive maintenance during O&M, primarily to achieve the least levellised cost of electricity (LCoE) and maximise revenue by dep­loying the best-suited technologies. The PV industry is experiencing a proliferation of innovation in cell and module designs. On the cell side, passivated emi­tter and rear cell (PERC) and bifacial PERC, as well as multiple variants of n-type cells, including TOPCon, have enter­ed the market. On the module side, there are even more variati­o­ns including half-cells, dual-glass and bifacial, shingled cells and multi-busbar innovations. Based on site conditions, optimis­ed module technology selection may provide the better LCoE advantage.

Similarly, for wind turbine generators, rotor diameter and hub height continue to grow to achieve higher capacity utilisation factors, and at the same time, a higher generator rating is providing a cost advantage by optimising the balance of system cost per MW. Although larger rotor diameter and higher hub height pose challenges in me­e­ting site load parameters, the structural requirement is optimised through the control software and appropriate site-specific load evaluation.

Grid balancing challenges due to variable renewable energy generation are minimised through forecasting and scheduling and innovative developments such as wind-solar hybrid projects or round-the-clock renewables generation.

What are the potential challenges (policy, regulatory and market) that developers may face over the next five years? What are your suggestions to solve these challenges?

Sharad Pungalia

One major challenge in the electricity sector, which has existed for many years, is the concurrent nature of the sector. If both state and central governments work in coordination, then many policy challen­g­es would no longer exist. The government has given a tremendous impetus to rene­wable energy policies. However, many a time, there is a push back from state governments, which creates hurdles.

Second, discom health is another concern. Third, now we see a rising demand for residential rooftops as compared to their de­mand back in 2014. However, lack of av­ailable financing options is a major challenge for this segment. Financing sol­u­tions can make way for tremendous growth in this space. Additionally, the subsidy prog­rammes that have been ann­ounced get delayed, leading to restrictions in the growth of the sector. If these two aspects are taken care of, we can expect good de­mand from the residential space over the coming years.

Shriprakash Rai

The outlook for the renewable energy market is positive. Overall, the inclination of corporations to adopt renewable en­ergy has increased tremendously. The rene­wable energy business is going to grow by leaps and bounds in India. How­ever, there may certain hiccups, subject to how well the manufacturing sector develops in the coming years. Moreover, the MoP’s announcement on open acc­ess and giving directions to states to ad­o­pt is important. Going forward, all states should be able to adopt a clear uniform policy ac­ross India. Furthermore, ISTS waivers are being proposed. I would su­g­gest these ISTS waivers to be further inc­reased for the next three years so that capacity addition on the corporate side can keep on growing.

“The renewable energy business is going to grow by leaps and bounds in India. There may be certain hiccups, subject to how well the manufacturing sector develops in the coming years.” – Shriprakash Rai

Colonel Narendra Verma

While the government has come out with many policy initiatives to promote green energy, electricity is a concurrent subject as per the constitution. As per the provision for items in the concurrent list, uniformity is desirable but not essential. Open access is thus governed by state regulations and the majority of states have been imposing various charges with different calculations to have policy and regulatory barriers to open access. Thus, for the gro­wth of the renewable energy sector with the participation of the C&I segment, it is necessary that there is uniformity and consistency in regulations and long-term visibility. Other initiatives such as the Energy Con­servation (Amendment) Bill, 2022 will be instrumental in creating a renewable energy market to enable developers to come forward for the increased generation of renewable energy.

Technology and innovation will play a major role in overcoming the intermittency associated with wind and solar power, especially as the grid becomes greener. Hy­bri­di­sation of solar with wind, which has started gaining acceptance and po­pularity, has come up as a solution to this limitation, as it increases the overall plant load factor (PLF) of renewable energy, thereby flattening the generation curve and making it easy for blending it with the grid.

Further, innovations in hybridisation with pumped hydro and energy storage solutions will further take renewable energy to­wards firmness. Moreover, the success of offshore wind in the country and its hybri­disation with solar will be interesting to see. It will not only solve the issue of PLFs but also resolve the issue of dec­reasing appropriate sites for onshore wind, to maximise the usage of wind energy, given India’s huge coastline.