How upcoming budget, general elections may decide for India’s renewable energy sufficiency dream
In the budget for the FY 2018-19, the Finance Minister had proposed an investment of upto $85.2 billion in creating and upgrading infrastructure in one of the fastest growing economies in the world, India. As per reports generally available, India’s total investment in infrastructure sector stands at 7 percent of its GDP, pegging India much higher compared to other economies like Brazil (at 2 percent) and China (at 5.5 percent), which demonstrates that India is slated to achieve the target growth of $5 trillion by 2030 as proposed by Niti Aayog in its latest report.
The total investment in clean energy sector in the first half of 2018 totaled to approximately $ 7.4 billion, and renewable energy technologies contributed a record 13.4% to the total energy generation in India in August 2018 itself. India also added a record rooftop solar capacity of 1,538 MW in the 12 month period ending September 2018, registering an increase of 75% growth compared to previous 12 month period.
Though the statistics seem to be portraying a very positive picture, but a much deeper analysis of the ground situation may not inspire the same confidence going forward.
Renewable energy sector, which had shown an immense promise and potential on the Indian energy map had reported an overall growth decline in 2018. An analysis on the solar installations in India, as per the recent Mercom report shows a decline in Q2 FY 2018, after four consecutive quarters of growth. Crisil Report – August, 2018, also indicates that the projected solar installations in FY 2019 would fall to 7,400 MW from 9,363 MW in FY 2018. Renewable energy sector as a whole, since last few quarters has been entangled in a web of problems with no immediate resolve in sight for the stakeholders.
Permutation and combination of problems like fluctuating interest rates, capital inadequacy of banks with existing non-performing assets, safeguard duty, lack of adequate transmission infrastructure, issues with the existing purchase power agreements (PPAs) and uncertainty of payments from discoms are not only crippling the sector but are creating a rough terrain for the stakeholders, especially the investors who had initially ventured in the sector expecting certain stability and return on their investment.
Low tariff bidding and recent bid cancellations by SECI are only adding to the existing woes of the renewable energy sector.
While long term resolutions may take time, few curative measures have been initiated. Amendment to specific relief act restricting injunctions on infrastructure projects, implementation of hybrid policy by MNRE, and CERC’s directions to compensate solar power developers for GST impact, are confidence boosting and provide credence to government’s resolve.
To ensure that the sector continues to post growth, developers will have to adopt innovative measures and consider other potential opportunities like open access and captive projects, which have not yet been tapped to their full potential.
India’s aspiration to substantially substitute the existing non-renewable capacity with renewable capacity may be challenging but not impossible. As per IEEFA, India’s non-fossil fuel capacity is projected to cross 40% market share by the close of calendar year 2019 which is a decade earlier than the target set as per the Paris agreement for reduction of carbon footprint.
The upcoming budget and the result of national elections will decide a lot for the future of renewable energy sector in India. While the stakeholders would want to continue to be positive about the situation, the above two factors will decide the tilt of balance between the growth of renewable energy and short term mass appeasing schemes.
This article has been co-authored by Ajay Sawhney, Partner and Kaif Ahmed, Principal Associate, Cyril Amarchand Mangaldas