Clouding renewable power

State agencies should honour their commitments

The renewable energy sector that has been maintaining robust growth to generate hopes of meeting the ambitious goal of 175 Gigawatts (GW) capacity ahead of the 2022 schedule seems to have run into a bad patch. The capacity addition programme has slowed down since last year, prompting Crisil, a rating agency, to predict that the target is set to be missed by a huge 42 per cent. With business as usual, India may, at best, be able to add 40 GW to its present green power capacity to lift the total to only 104 GW by 2022. If this prognosis holds true, Prime Minister Narendra Modi’s announcement at the recent United Nations Climate Action Summit in New York to expand the non-fossil energy potential to 450 GW might also come under a cloud.

However, there is still no cause for despair. The constraints besetting this sector may be too many, but most of them are not insurmountable. These range from unstable policies and regulatory challenges to a free fall in tariffs and reneging by state governments and power distribution companies on power purchase agreements (PPAs). Besides, the cost-push effect of the safeguard duty levied on the imported solar equipment and depreciation of the Indian rupee against the US dollar have also added to the woes of this sector, as a result of which investors’ interest in this sector has seen a sharp dip. Little wonder, therefore, that nearly a fourth of the 64 GW solar power capacity put up for auctions by the Centre and state governments in recent months has gone virtually abegging. Many of the sanctioned solar projects are also facing glitches in the implementation process, resulting in inordinate delays in their execution. The situation in the wind energy sector is even worse with the bidding process having almost come to a halt. The shift from fixed tariffs to competitive bidding and the increase in the capital cost seem to have shoved the wind power sector into the doldrums.

The trigger for the current slump in capacity addition can be traced to the refusal of some state governments and power distribution companies to honour the commitments made under the PPAs regardless of the court orders and the Centre’s counsel against doing so. Following Andhra Pradesh’s move to ask project developers to reduce the tariffs mentioned in the PPAs, the Uttar Pradesh government is seeking to achieve the same goal through relatively more coercive means. It has practically stopped procuring wind power on the specious plea that the tariffs have not been approved by the Central Electricity Regulatory Commission, though these rates are about 7 per cent lower than the overall average power procurement cost of the state. Going a step further, the Rajasthan government has mooted in its draft solar and hybrid policy a plan to levy a deterrent charge on plants which sell power to other states. If implemented, this can adversely affect investment prospects in the state, which has the highest clean energy generation potential. As a consequence of all this, the renewable power sector is no longer the preferred destination for foreign direct investment. The banks, too, are turning wary of lending to these projects because of the steady erosion of their viability. These issues, therefore, need to be addressed expeditiously to put this sector back on a high growth trajectory.