AHMEDABAD: India’s renewable energy sector is in a catch-22 situation.
On the one hand, the policy direction points towards a clean energy and sustainable environment, while on the other, multi-layered cost structure and uncertainty in honouring the contracts pose an existential challenge to the developers.
A recent proposed cancellation of 100 MW of solar bid by Azure Power in Gujarat has set off a debate on the ‘viability’ of renewable projects even as States try to hammer prices to the lowest possible levels.
In its recent letter to the Gujarat Urja Vikas Nigam Limited (GUVNL), the private sector developer had expressed its inability to implement the ‘awarded’ 100 MW project for a tariff of ₹2.45 per kWh, just a paise more than the historic low tariff achieved in solar auctions held at Bhadla Solar Park recently.
Azure Power had rushed to bid for the solar power auctions held by GUVNL for 500 MW.
While Giriraj Renewables bagged 300 MW, Aditya Birla Renewables and Azure Power emerged successful in getting 100 MW each.
Azure Power is understood to have requested GUVNL to cancel its bid.
GUVNL officials, however, declined to reveal the reasons cited by the company for cancellation. But they admitted that a decision will be taken soon on the next course of action.
While this is being worked out, it has triggered a wave of speculation about the viability of the projects by other successful bidders.
Factors such as escalating cost of modules in Chinese markets, from where most of the solar panels are imported, coupled with depreciating rupeeand the tax structure including the Goods and Services Tax (GST), have enough potential to shatter the solar dream of our policymakers. Harry Dhaul, Director-General, Independent Power Producers Association of India (IPPAI), expressed disappointment over the lack of proactive support from the bureaucrats.
Investor confidence hit
“They are not willing to honour the contracts. When there is lack of sanctity in honouring a contract, there emerges the uncertainty. And when there is an uncertainty, the investor confidence goes down. What we have observed is that one arm of government at the top has got the vision for clean energy and reduce dependence on fossil fuels. The other arm, the executive officials, are actually destroying this vision,” added Dhaul.
However, according to Kameswara Rao, Partner, PwC, “the challenge of lower solar tariffs is not their viability, as these projects will still deliver some returns albeit low.
The worry is that the number of bidders diminishes at such levels and it discourages the flow of investments.”
Experts don’t see the lower tariff unachievable, given the State-level policy support.
“The State governments can help achieve lower tariffs too by reducing the project risks and improving investor confidence as Madhya Pradesh demonstrated this successfully with its recent solar rooftop tender,” added Rao.