Low tariffs, rising module costs, GST rollout were among the challenges that India’s clean energy industry faced in 2017
New Delhi: From yoga guru Baba Ramdev’s Patanjali Ayurved Ltd diversifying into solar equipment manufacturing to companies amassing dry powder to bid for a mammoth 100 gigawatts (GW) of solar and wind contracts, India’s clean energy space is expected to witness a lot of action in 2018.
To add to the jamboree are big-ticket wind and solar power auctions, battling to land record low tariffs.
A case in point being wind power tariffs plummeting to Rs2.43 per kilowatt-hour (kWh) at an auction conducted by state-run Gujarat Urja Vikas Nigam Ltd last week, beating the record low solar tariff of Rs2.44 per unit registered in May.
While solar power tariffs rose to Rs2.65 per kWh at an auction conducted by the Gujarat government in September, last week’s auctions conducted by state-run Solar Energy Corp. of India threw up winning bids of Rs2.47 and Rs2.48 per unit.
This in turn has created a peculiar situation for solar power developers who have led the tariff race to the bottom, betting on cheaper Chinese solar modules.
With China extending the feed-in tariff (FIT) regime, which ensures a fixed price for power producers, and module prices increasing post the US International Trade Commission’s observation in September about cheap imports hurting US manufacturers, sparking a stockpiling by US developers, availability of Chinese modules has become limited.
Experts believe that these trying times for India’s green energy space may well extend into the new year.
“Total RE (renewable energy) capacity addition in 2017 is estimated to come in at an all-time high of 13.9GW, a fantastic 66% rise over last year. But from almost every other perspective, it has been a year to forget for most investors, contractors and manufacturers alike. Fierce competition because of slowdown in new tender issuance has resulted in all-time tariff lows. But costs have kept going up with increase in module prices, GST (goods and services tax) rollout and import duties on modules making many of the recently auctioned projects unviable,” said Vinay Rustagi, managing director at consulting firm Bridge to India.
India has also been conducting an anti-dumping duty (ADD) investigation on solar equipment from China, Taiwan and Malaysia.
“ADD investigation is another major source of uncertainty. Such challenges and the rising incidence of tender cancellations and tariff renegotiations means that private sector confidence has taken a major hit. The government has got its job cut out to revive the sector,” added Rustagi. These concerns are widely shared by the renewable power industry.
“The industry has been facing some issues on a few fronts. In wind, the slowdown in new capacity installations largely due to the cessation of new project awards under the FIT mechanism was a clear point of concern this year. On the solar front, the anti-dumping duty continues to be a point that the industry will be watching closely,” said Vikram Kailas, chief executive officer and managing director at Mytrah Energy, a clean energy project developer.
India’s wind sector is transitioning from a feed-in tariff regime to tariff-based competitive auctions.
“As bids dried up, coupled with sharp decline in solar panel prices, accentuated by developers’ adrenalin rush, tariffs simply fell off the cliff, making solar one of the cheapest sources of power in India. However, following GST and associated initial pangs with respect to classification, etc., coupled with an unexpected increase in imported module prices over the last few months, suddenly erstwhile lower tariffs look stretched and feasibility is on a precipice,” said Sanjay Aggarwal, managing director, Fortum India Pvt. Ltd and global head for solar at Finland’s state-controlled power utility Fortum OYJ.
Aware of the strategic task at hand, the National Democratic Alliance government is considering a 30% capital subsidy as part of a new solar manufacturing policy to spur domestic manufacturing of solar power equipment.
However, India’s ambitious target of 175GW of clean energy capacity by March 2022 still seems a tall order given that most states are yet to align their renewable purchase obligation (RPO) trajectory with that of the Union government’s. According to the RPO trajectory projected by the centre, states shall procure 11.50% of their electricity demand from clean energy sources (solar and non-solar) in 2016-17, 14.25% in 2017-18 and 17% in 2018-19.
Experts believe that RPOs hold the key to India’s ambitions around a green economy.
“The central government has announced a strong ambition to achieve its targets for green energy and a few tender announcements have been made. However, the key point to see is how the state discoms will respond to this. Given the supply overhang in the power sector for the next few years, many discoms have not shown enthusiasm to procure more power, green or otherwise. This could slow down the pace of capacity addition,” said Santosh Kamath, partner and lead for renewable energy at consulting firm KPMG in India.