IEEFA India: Policy certainty and stability sought to increase renewable energy development and investment

Removal of solar trade duties, discom reform, and better central-state government coordination to increase renewable project development and transmission capacity urgently needed

13 February 2020 (IEEFA India): Policy certainty will increase domestic and international investing into India finds a new report out today by the Institute for Energy Economics and Financial Analysis (IEEFA).

The new report India’s Renewable Energy Policy Headwinds – Recommendations for Urgently Accelerating Activity in the Renewable Energy Sector finds a number of recent policy positions have undermined growth in India’s renewable energy sector.

“India is one of the world’s largest and fastest growing markets for renewable energy and power transmission,” says report author and IEEFA’s Director of Energy Finance Studies Tim Buckley.

“Domestic renewable energy tariffs are now two thirds the cost of domestic coal-sourced power tariffs and half that of new imported thermal power costs.

“India must be very proud of this result, and they must leverage this opportunity to enhance energy security whilst securing deflationary domestic energy investments.

“The opportunity cost of delaying India’s electricity sector transition is too high.

“With a few policy tweaks, India could be back on track to meet its’ ambitious target of 450 gigawatts of renewables by 2030.”

The IEEFA report identifies a number of policies currently stifling growth in renewable energy in India. They include the imposition of the solar cell and module trade duty in 2017, which the government is now looking to extend beyond 2020.

The duty has neither reduced imports nor significantly improved the competitiveness of Indian manufactured solar cells. Instead, it has severely slowed down solar installs in India, both because of the extra cost imposed but equally due to the confusion on delayed implementation.

“The uncertainty of this trade duty has been one of the most serious impediments to India’s renewable energy momentum,” says co-author Kashish Shah, IEEFA’s energy finance analyst.

“Instead of trying to make Indian manufactured solar cells competitive by increasing the price of imported modules, the industry needs an assured offtake in domestic markets, as was achieved in the recent, very successful solar manufacturing tender. It also needs to be incentivised for exporting.”

Better centre-state coordination on renewable energy development and increasing the expansion of necessary transmission networks and balancing capacity (batteries, pumped hydro storage, demand response management and more flexible thermal capacity) are further policy areas requiring immediate attention.

“Renewable energy developers are currently experiencing delays and cost overruns while waiting for the central and state governments to talk to each other and streamline their activities. This is jeopardising their project economics and stalling further investment,” says Shah.

The report finds a key prerequisite for continuing India’s renewable energy investment ambition is concurrently building out and modernising India’s national transmission grid to accelerate the enormous progress achieved over the last decade.

“India could attract US$500 to 700bn in new investment by 2030 – the opportunity is huge,” says Buckley.

“To do this, India’s grid must be urgently expanded. The slow-down in transmission capacity is slowing India’s renewable energy ambition.

“And the continuing ballooning underfunding of subsidies and rising state-discom debt is severely hampering the financial industry’s ability to finance new renewable energy development, as is some state’s desire to renegotiate on projects. This is not on – and creates instability for investors.”

The report concludes that sovereign risk, policy risks and erratic discom payments are all creating unnecessary financial constraints for the Indian renewable energy sector.

“US$40-60bn of non-performing assets in the thermal power generation sector has combined with discom payment delays to impair various financial institutions’ ability to lend to the renewable sector at a time when investment is needed,” says Buckley.

“It is extremely important to reshape policies hindering transmission capacity building and renewable project development while freeing up liquidity in the domestic banking system as soon as possible to keep India’s renewable energy ambition on track.”

About IEEFA : The Institute for Energy Economics and Financial Analysis (IEEFA) conducts research and analyses on financial and economic issues related to energy and the environment. The Institute’s mission is to accelerate the transition to a diverse, sustainable and profitable energy economy.

Source : ieefa