India’s latest tendering target is a case of ambition overtaking the policy environment for doing business
Indian developers of renewable energy projects are finding themselves facing progressively higher hurdles each year, raising the question of whether India needs new targets or supportive policies. This month, New Delhi set a new tendering target of 250 gigawatts (Gw) of renewable energy by financial year 2028. On an annual basis, that is over twice the yearly bids that have been called for in the past to set up solar facilities and wind farms.
If India is trying to get to net zero by 2070, and along the way, generate half of its electricity from non-fossil fuels, then 50 Gw a year of tendering goals needs to be buttressed by policy measures. Here, the opposite seems to be happening.
Renewables seems a clear case of government overdrive in setting goals and misplaced priorities. The industry needs policy enablers, grid upgrades and incentives for green financing rather than a focus on installations, industry officials said. The government should have first studied why India missed an initial target, and why renewable additions slowed, rather than announce new goals, officials said.
India set a previous target in 2015 for variable renewable energy installations (VRE) of 175 Gw by 2022. This included 100 Gw from solar power, 60 Gw gigawatt from wind power, 10 Gw from bio-power and 5 Gw from small hydro power. At last count, VRE capacity totaled around 122Gw, or 30 per cent of the 412 Gw of installed power capacity in the country, according to Central Electricity Authority data. But solar, wind and biomass accounted for only 12 per cent of the total generation this year.
Only around 68 per cent of the 175 Gw target was achieved. Nearly 24 Gw of solar and hybrid tenders were issued between 2020 and 2021 but only 13-15 Gw of capacities were installed in 2022, according to data from Crisil Research. Tender awards were even lower, with an allotted capacity of 114 Gw for 161 Gw of tenders issued for solar, wind and hybrid from 2010 to 2022, according to data from US think tank Institute for Energy Economics and Financial Analysis (IEEFA). Variable renewable energy tenders issued annually in India have fallen by 30 per cent since 2019.
Over the past few years, tendering of utility-scale projects has slowed, said Vibhuti Garg, IEEFA director, South Asia, in a note. Explaining the slowdown, Sharad Pungalia, CEO, Amplus Solar, said that although there is immense potential for renewables capacity addition in India, there needs to be an introspection on high import taxes and other barriers such as mandating domestic sourcing of solar panels to boost the affordable supply of key components. тАЬAlso, the government needs to ramp up grid infrastructure to enable evacuation of such high renewable capacity,тАЭ he added.
Lower supply of modules from China, slow installations reflect the imposition of the ALMM (Approved List of Models and Manufacturers) regime on bids after April 2021 and basic customs duty of 40 per cent on modules and 25 per cent on cells, said Hetal Gandhi, director, research, at Crisil Market Intelligence and Analytics.
High taxes have also impacted capital costs. A rise in module prices by 10-15 per cent last financial year from a year earlier sent capital costs higher by 20-25 per cent, Crisil data shows. This has sent tariffs higher by at least 25 per cent from the Rs 2 per kilowatt hour lows seen in the past. Distressed discoms will not be able to absorb such high tariffs in a price sensitive market such as India, an industry official said.
тАЬIndia needs to address the issue of slow and below-target tendering to meet its targets,тАЭ said Asif Khan, director, purchase & service at Servokon, a manufacturer of power conditioning equipment and transformers. тАЬIndia may include streamlining procedures, and reducing bureaucratic hurdles such as using e-tendering platforms and reaching out to more local and international companies,тАЭ to speed up tenders.
The government has announced a new 500 Gw renewable capacity target at COP26 instead of evaluating where the country stood with respect to the 175 Gw goal. The new tendering goal of 250 Gw is designed to plug the gap between existing and targeted capacity. But what New Delhi has failed to account for is that the external environment has changed after the pandemic and the Ukraine war.
Existing installations were helped in no large part by low cost module imports from China, low import taxes and a freedom to source modules from anywhere in the world. Finance was much cheaper than what is now, and easily available. But more important was the hands off approach of Prime Minister Narendra ModiтАЩs government in its first term.
But aatmanirbharta has queered the pitch. The long-term benefits of manufacturing most things locally are debatable, and given the programmeтАЩs protectionist emphasis on import barriers and local sourcing rather than on innovation and productivity, the near-term impact on self-reliance may bite renewable installation goals.
IndiaтАЩs lofty targets are also increasingly colliding with a volatile global environment, higher financing costs and supply chain issues. Most of the record 50 Gw of renewable tendering annually over five years will comprise solar, with an all-time high of 10 Gw allocated for wind capacity, according to a government document. Under the plan, India will invite offers for 15 Gw each in the first two quarters of this financial year, and bids for 10 Gw each will be invited in the next two quarters.
India has around 82 Gw of renewable capacity addition at various stages of implementation and about 41 Gw under tendering stage, according to the Ministry of New and Renewable Energy. This includes 64 Gw of solar, 42 Gw of wind power and around 11 Gw of biomass power. The ministry of power is already working on upgrading and adding the transmission system capacity for evacuating 500 Gw of electricity from non-fossil fuel, according to Power Minister R K Singh.
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