The Narendra Modi-led Union government has upscaled a number of programmes with panache. One notable programme is the renewables, especially solar. While the United Progressive Alliance-II set a target of 20 gigawatt (GW) by 2022 starting from scratch, the Modi government decided to target 100GW by 2022, about five times the original target.
With regard to solar capacity addition, the view of the earlier government was—not much of technological breakthrough having happened—the way forward to reduce solar tariffs was through market forces. If setting up of substantially large capacities could be facilitated, the solar panel prices would come down resulting in lower solar tariffs. In the initial period, for a limited quantity the lowering of solar tariffs could be further assisted by blending solar power with conventional thermal power (15% of the capacities created by central public sector units is available with the central government for adhoc allocations to different states, called ‘unallocated power’). Such blending would moderate and make ‘affordable’ the purchase price for distribution companies (discoms), even while giving high tariffs to solar power generators. Given the financial condition of discoms, solar power producers in addition would require comfort that payment for the power supplied would indeed be made to them. These supply-side steps might not be sufficient to ensure buying by discoms. Hence a demand-pull would have to be put in place by mandating certain minimum purchase of solar power by discoms and a separate renewable purchase obligation (RPO) for solar would be required.
Thus the architecture for solar power development in the country was clearly laid out—a substantial ordering of solar capacity (1,000 megawatt, or MW) under Jawaharlal Nehru Solar Mission (reverse bidding was used to discover best tariffs), blending arrangement for 1,000MW solar with equivalent conventional thermal capacity, default guarantee by the government of India for 1,000MW and a separate RPO for solar (though small at 0.25% to begin with but to increase to 3% by 2022) with penalties for non-adherence.
As targeted capacities increase, scale and volume to drive down prices will be in place. Blending was not thought of beyond the initial 1,000MW and in any case is not feasible as the volume of ‘unallocated power’ available with the government is insignificant compared with the huge solar capacities likely to be created. Again, since huge capacities are likely to be created, giving payment guarantees for all capacities created will also be infeasible. Confidence about payment for power procured among solar generators will only come from financial credibility of organisations calling for bids and with whom power purchase agreements will be signed irrespective of the retailer, namely discoms. Organisations such as NTPC Ltd will be highly attractive to solar generators, or for Solar Energy Corp. of India Ltd which is a fully-owned government enterprise and the only one dedicated to solar energy. Since this will not cover the entire gamut of capacities being attempted, the financial condition of discoms will have to be improved to give comfort to developers. On the demand side, 3% RPO for solar will not be sufficient to create the pull required and needs to be scaled up.
Thus to achieve the target of 100GW, the financial condition of discoms has to be improved and a higher solar RPO has to be mandated and enforeced.Ujwal Discom Assurance Yojana, the scheme to improve the financial condition of discoms, has been launched more than a year ago. It is to clean up the balance sheets of discoms and also provide for increasing operational efficiencies to ensure that discoms remain commercially viable.The first task has more or less been achieved. As per reports, 70% of the balance sheet of participating discoms has been cleaned up. However, not much has happened on the second task, namely, increasing operational efficiencies. If this doesn’t happen, discoms will continue to remain financially challenged and will not be able to procure and pay for the increasing solar power generation, denting the confidence of solar generators.
The government has recently mandated increased solar RPOs—for the three fiscals 2017, 2018 and 2019, the targets have been set at 2.75%, 4.75% and 6.75%, respectively. Now, it is for each state regulator to accept these targets or modify them as per the conditions of the respective state. These targets being exceptionally steep, several times what is currently in force, their acceptance is uncertain. Even if they do so, what is the certainty that they would get implemented? So far, there has been no penalty imposed by any regulator for non-compliance. Hence, unless the enforcement and compliance mechanism becomes rigorous, it is difficult to see pressure building on discoms to procure adequate solar power to meet the eventual target of solar capacity addition of 100GW.So, to achieve the ambitious target of 100GW, focus has to be on improving operational efficiencies of discoms and enforcement of compliance of solar RPOs.