 "Renewable energy gets new lease of life")
The renewable energy sector has emerged as one of the major investment magnets. While record capacity addition and low tariffs in solar power have made headlines, there are several issues that have been overlooked. In a two-part series, Business Standard looks at the bright spots of the Indian green energy sector and looming threats
One sector that has got a lot of attention with the coming of the NDA government is renewable energy (RE). Piyush Goyal, minister of state for coal, power and renewable energy, said a year ago that India would invite $2 billion worth of investment in green energy. Back-of-the-envelope calculations show that it has actually happened, especially in solar and wind energy.
Around two gigawatt (Gw) of solar projects were commissioned during the past financial year translating into $0.2 billion worth of investment. Total wind power projects commissioned were 3.6 Gw, the highest in the past two financial years totalling an investment of $2.1 billion.
"The two Gw of solar projects that got commissioned in 2015-16 were already in the pipeline and has less to do with current policy and regulations. The hype has been built now. So, we can expect six Gw to be installed during the current calendar year and around 10 Gw in 2017," said Jasmeet Khurana, associate director at solar consultancy Bridge To India.
Moreover, international private equity investors poured $1.5 billion in RE companies in India in 2015.
Among the major deals that culminated last year were ReNew Power Ventures. Goldman Sachs-backed ReNew raised around $200 million from Abu Dhabi Investment Authority. Around $65 million was put in by Goldman Sachs and Global Environment Fund.
Aditya Birla-Abraaj joint venture was formed with $200 million to invest in solar power projects in India. Singapore government's investment arm, GIC, signed an agreement with Greenko Group Plc for the $253-million acquisition of Greenko Mauritius, which runs the Indian assets as well.
India also announced International Solar Alliance - an alliance of 123 countries for harnessing solar power. Also, several states - Andhra Pradesh, Telangana, Rajasthan, Karnataka, Madhya Pradesh, etc - came out with 500 Mw project tenders.
Wind energy might have missed big headlines but the deal street was buzzing with action. Dilip Sanghvi, chairman of Sun Pharma, bought 23 per cent stake in Suzlon Energy as a personal investment.
Ostro Energy, a wind energy developer raised $230 million from Actis Advisors Limited. Orient Green Power Limited raised $153 million from Forefront Capital Management Limited.
Industry insiders, however, claimed that the largest investment deal was between GE Energy Financial Services and Welspun Renewables Energy.
GE Energy Financial Services acquired an undisclosed equity stake in the company.
Bright future
If all goes right and India issues solar power project tenders worth 10 Gw, it would be on the way to become the fourth largest solar power market. India is likely to cross the Japan's growth in solar by 2018. "After the US, China and Japan, India's solar market size would be that of the UK and Germany put together in the next two years," said Khurana.
According to industry estimates, last year, 35 solar power project tenders were issued with a cumulative capacity of 15.5 Gw. On a rough calculation, it comes out to be $11 billion of expected investment in the next 18 months, which is the commissioning time for solar power project.
Forty banks and non-banking financial companies have sanctioned Rs 71,202 crore to finance the various renewable energy projects and disbursed Rs 29,530 crore against the sanctioned amount between February 2015 and March, 2016, according to a recent government release.
Falling prices
Last year was also the first time that tariffs went below Rs 5 a unit and still continue to be. While the Indian government has maintained that Rs 5.5 a unit is the relevant tariff, some foreign players and recently Indian ones as well have quoted half and even less of Rs 4.43 a unit.
Solar panel prices have crashed globally and developers claim that is reflected in the cost of setting up power plants.
"After 2014, we have seen a decline of five per cent in panel prices. The average market price of panel is 46 cents per unit, at present. In 2015, the price was 50 cents. In 2012, it was more than $1 a unit. Most of this decline happened due to excess capacity in China where we are seeing consolidation and bankruptcies in major Chinese companies," said Sujoy Ghosh, chief executive officer of First Solar.
The interest rate for renewable power projects has come down by at least 50 basis points in the past financial year. Land is still one issue but with government agencies offering plug and play model with assurance of off-take of power, developers are visibly aggressive in their bids.
"This has been a healthy year for renewable energy sector in India. While the government's focus has been mostly on solar, both wind and solar witnessed their best growth years in 2015-16," said a senior executive with a leading wind company.
Wind energy: Missing the bus?
The wind energy sector is hopeful of adding 4,500 Mw during the current financial year, though policy flip-flops over tax benefits and generation incentives are likely to dog the sector in 2017-18.
The Union Budget capped the accelerated depreciation tax benefit provided under the Income Tax Act at maximum 40 per cent effective from April 2017. The wind energy sector, which till now enjoyed AD of 80 per cent, is likely to take a major hit. Also, the generation-based incentive (GBI) of 50 paise per unit to wind power units will also cease to exist from March 31, 2017.
"This financial year, wind power producers would stretch to add around 4,500 Mw somehow. This is the last year for any incentive scheme available for wind and for the coming years, there is no clarity," said a senior wind energy executive.
He added that 2017-18 would be devoid of any incentive and this has made the investors anxious. "Like it happened in 2012-13, when the annual capacity addition fell by half due to lack of any incentive, the same is being feared for the next financial year," said the executive.
One sector that has got a lot of attention with the coming of the NDA government is renewable energy (RE). Piyush Goyal, minister of state for coal, power and renewable energy, said a year ago that India would invite $2 billion worth of investment in green energy. Back-of-the-envelope calculations show that it has actually happened, especially in solar and wind energy.
Read more from our special coverage on "RENEWABLE ENERGY"
- India to get $250 mn for renewables from BRICS New Development Bank
- Growth of RE to challenge conventional power in India: Moodys Investor Services
- Tamil Nadu hikes tariff for wind power, slashes it for solar power
- ADB, USAID to assist India in developing clean energy projects
- India leads renewable energy charge
Around two gigawatt (Gw) of solar projects were commissioned during the past financial year translating into $0.2 billion worth of investment. Total wind power projects commissioned were 3.6 Gw, the highest in the past two financial years totalling an investment of $2.1 billion.
"The two Gw of solar projects that got commissioned in 2015-16 were already in the pipeline and has less to do with current policy and regulations. The hype has been built now. So, we can expect six Gw to be installed during the current calendar year and around 10 Gw in 2017," said Jasmeet Khurana, associate director at solar consultancy Bridge To India.
Moreover, international private equity investors poured $1.5 billion in RE companies in India in 2015.
Among the major deals that culminated last year were ReNew Power Ventures. Goldman Sachs-backed ReNew raised around $200 million from Abu Dhabi Investment Authority. Around $65 million was put in by Goldman Sachs and Global Environment Fund.
Aditya Birla-Abraaj joint venture was formed with $200 million to invest in solar power projects in India. Singapore government's investment arm, GIC, signed an agreement with Greenko Group Plc for the $253-million acquisition of Greenko Mauritius, which runs the Indian assets as well.
India also announced International Solar Alliance - an alliance of 123 countries for harnessing solar power. Also, several states - Andhra Pradesh, Telangana, Rajasthan, Karnataka, Madhya Pradesh, etc - came out with 500 Mw project tenders.
Wind energy might have missed big headlines but the deal street was buzzing with action. Dilip Sanghvi, chairman of Sun Pharma, bought 23 per cent stake in Suzlon Energy as a personal investment.
Ostro Energy, a wind energy developer raised $230 million from Actis Advisors Limited. Orient Green Power Limited raised $153 million from Forefront Capital Management Limited.
Industry insiders, however, claimed that the largest investment deal was between GE Energy Financial Services and Welspun Renewables Energy.
GE Energy Financial Services acquired an undisclosed equity stake in the company.
Bright future
If all goes right and India issues solar power project tenders worth 10 Gw, it would be on the way to become the fourth largest solar power market. India is likely to cross the Japan's growth in solar by 2018. "After the US, China and Japan, India's solar market size would be that of the UK and Germany put together in the next two years," said Khurana.
According to industry estimates, last year, 35 solar power project tenders were issued with a cumulative capacity of 15.5 Gw. On a rough calculation, it comes out to be $11 billion of expected investment in the next 18 months, which is the commissioning time for solar power project.
Forty banks and non-banking financial companies have sanctioned Rs 71,202 crore to finance the various renewable energy projects and disbursed Rs 29,530 crore against the sanctioned amount between February 2015 and March, 2016, according to a recent government release.
Falling prices
Last year was also the first time that tariffs went below Rs 5 a unit and still continue to be. While the Indian government has maintained that Rs 5.5 a unit is the relevant tariff, some foreign players and recently Indian ones as well have quoted half and even less of Rs 4.43 a unit.
Solar panel prices have crashed globally and developers claim that is reflected in the cost of setting up power plants.
"After 2014, we have seen a decline of five per cent in panel prices. The average market price of panel is 46 cents per unit, at present. In 2015, the price was 50 cents. In 2012, it was more than $1 a unit. Most of this decline happened due to excess capacity in China where we are seeing consolidation and bankruptcies in major Chinese companies," said Sujoy Ghosh, chief executive officer of First Solar.
The interest rate for renewable power projects has come down by at least 50 basis points in the past financial year. Land is still one issue but with government agencies offering plug and play model with assurance of off-take of power, developers are visibly aggressive in their bids.
"This has been a healthy year for renewable energy sector in India. While the government's focus has been mostly on solar, both wind and solar witnessed their best growth years in 2015-16," said a senior executive with a leading wind company.
Wind energy: Missing the bus?
The wind energy sector is hopeful of adding 4,500 Mw during the current financial year, though policy flip-flops over tax benefits and generation incentives are likely to dog the sector in 2017-18.
The Union Budget capped the accelerated depreciation tax benefit provided under the Income Tax Act at maximum 40 per cent effective from April 2017. The wind energy sector, which till now enjoyed AD of 80 per cent, is likely to take a major hit. Also, the generation-based incentive (GBI) of 50 paise per unit to wind power units will also cease to exist from March 31, 2017.
"This financial year, wind power producers would stretch to add around 4,500 Mw somehow. This is the last year for any incentive scheme available for wind and for the coming years, there is no clarity," said a senior wind energy executive.
He added that 2017-18 would be devoid of any incentive and this has made the investors anxious. "Like it happened in 2012-13, when the annual capacity addition fell by half due to lack of any incentive, the same is being feared for the next financial year," said the executive.