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Wednesday, Sep 18, 2019

The next five years will be crucial to build a healthy renewable sector in India | Analysis

To realise its ambitious energy goals, the government needs to overhaul its policy framework for renewables

analysis Updated: Aug 22, 2019 21:32 IST
Manoj Kohli
Manoj Kohli
India will need $300 billion to realise its goal of 260 GW of installed renewable capacity by 2024
India will need $300 billion to realise its goal of 260 GW of installed renewable capacity by 2024 (Reuters)

With 15 of the top 20 polluted global cities in India, and energy being the primary source of pollution, it’s critical for the country to transition from fossil fuel to renewable energy, and Internal Combustion Engine (ICE) automobiles to electric vehicles (EVs). In the last five years, the renewable sector in India has had some achievements, thanks to the proactive polices of the government. India is now the fourth and fifth largest country in terms of installed capacity of wind (36.3 GW) and solar (29.5 GW) in the world. The sector also saw the transition from feed-in tariff regime to transparent competitive reverse auctions, leading to record low tariffs of Rs 2.43/ unit in wind and Rs 2.44/ unit in solar.

Though the last government also ramped up the renewable capacity, the non-allocation of land, inadequate transmission capacity, frequent changes in RfS/bid documents, cancellation of reverse auctions, and poor financial health of Discoms have impacted sector’s growth. The biggest problem is the poor financial health of the Discoms, the weakest link in the electricity supply chain. Due to poor billing (84.9%) and collection (95.3%) or sale of power at unviable tariff, most of the Discoms are suffering from losses. Through the UDAY scheme, the Centre has tried to reduce this debt burden, but without attaining 100% efficiency in billing and collection, and reducing technical losses from the current average of 19%, the companies will find it difficult to continue.

With the government aiming to have 260 GW of installed renewable capacity by 2024, and aspiring to replace the thermal plants in next couple of decades, India will be require $300 billion worth of investments. Almost 90% of this investment will be foreign direct investment. Thus the next five years are crucial for building a financially healthy renewable sector.

To do so, the government should focus on the following:

Five-year bidding plan: To achieve the 2024 target, the sector needs a consistent and stable five-year bid trajectory plan with annual and quarterly breakup to provide clear visibility for each year.

Strengthening of power purchase agreements (PPA): India must have international standard PPAs which address the concerns of developers and bankers. The clause of payment security needs to be strengthened to ensure secured and timely payments to the developers. This can be achieved through the creation of a payment security fund, and entering into a tripartite agreement between all stake holders.

Allocation of waste land: The central government in consultation with states should prepare a national policy for allotment of wasteland. If this is done, states can benefit in three ways:

One, generate revenue through leased waste land during project lifecycle (30 years) and upfront area development charges.

Second, the state will become power surplus; and third, create new jobs. As per estimate, 1 GW of project creates 5000 new jobs during construction phase and 200 jobs during operations phase.

Proactive transmission planning: For future growth of renewables, transmission can be a major bottle neck. To date, renewable projects were utilising existing free transmission capacities or the unutilised capacities of thermal power stations, which have been impacted due to low PLF’s or stoppages because of financial and operational constraints. At present, the government has planned to develop transmission capacity for 66.5 GW. The details of planned evacuation infrastructure capacities should be made available to developers for project planning. The government should ensure timely commissioning of new transmission lines.

Low cost of financing: At present, the renewable sector faces weak liquidity and high interest rates due to payment security issues, delay in energy payments, uncertainty with land and transmission, implication of goods and services tax and non-bankable PPAs. The government should provide status of priority sector lending to renewable, and ensure that it does not have to bear the impact of conventional sector NPAs.

To realise our vision of becoming a global renewable leader and with recent steps taken by the power minister in understanding the issues faced by the industry, I am sure that new government will create a constructive macro environment for efficient execution of both generation and transmission projects, create financially healthy Discoms and provide access to low-cost capital.

Given the fact that the thermal sector continues to struggle with an overload of non-performing assets (NPAs), ensuring a healthy financial future for the renewable sector will be critical to attract global investors who will be the mainstay of the sector in the years to come. Green power for a healthy future of our children should be the motto of the government.

Manoj Kohli is executive chairman of SB Energy

The views expressed are personal

First Published: Aug 22, 2019 19:45 IST