India’s Renewable Energy policy 2020

By Aditya Chhatre

India, currently nearing the population of 1.4 Billion, is a critical energy market in the global energy scenario. India’s growth is also closely linked with its growth in the demand of electricity. Satisfying the needs of such a growing country, India has made progress in recent years in implementing various reforms and energy policy objectives. Along with the need of generating additional energy, there are also other global challenges which India is bound to tackle. On the path of enhancing the energy system, the Indian government is focusing on energy security, energy affordability and energy transition to cleaner resources.

International Energy Agency(IEA) is a platform for global energy dialogues, providing analysis, policy recommendations to governments. It is an autonomous inter-governmental organization opening doors for emerging economies such as India, China and Russia. The main objective of IEA is to work with governments and industry to shape a secure and sustainable energy future for all. IEA broadens the focus on energy policy by extending support with in-depth policy review. This article is a review of the IEA report on renewable energy which highlights India’s current practices and further recommendations in the ambitious energy transition, policy development from international experience.

Overview

As of 2020, India has an installed grid capacity of 373 GW, with installed renewable energy capacity of 87 GW. By 2022, which would be the 75th year of India’s independence, the country aims to have 175 GW of installed renewable electricity capacity. Further plans pan out to be having targets of 275 GW up till 2027. Prime Minister of India also announced an ambitious goal of 450 GW in 2019 during the UN Climate Summit, New York.

Figure 1. Percentage Share of energy resources of electricity generation

Analyzing the trends of electricity from renewable energy resources, it displays an uneven trend from 1990 with 25% of share of renewables to approximately 21% in 2019. During the 1990s, strongly increasing electricity demand was met with increasing generation capacity with coal, oil and gas power plants. This reduced the share of renewable energy resources to 15% during the early 2000s. However, this trend has improved within the last 5 years wherein the rapid expansion of solar and wind power plants has kept the share of renewables above 20%. Government of India (GoI) has set on the individual targets to achieved 175 GW of renewable electricity installed capacity by march 2022, wherein wind and solar have the highest potential targets of 60 GW and 100 GW respectively.

Figure 2. India’s 2022 renewable energy targets

Finance and Policy

The roadmap for India’s renewable energy journey seems opportune, although there are many financial hurdles which needs to be carefully resolved. According to the IEA the hurdles of investments in renewables sector are mainly related to small size of energy projects, credit rating of the off-taker, the absence of clear business models for rooftop solar and the disaggregated markets. Having identified the sectors to work upon, GoI has executed various schemes and policies to tackle each issue.

Distribution companies (DISCOMs) are the roots of the growing tree when considering investment in solar. DISCOMs are the entities buying electricity from the generators and selling it to the customers. The financial stability of these bodies is a necessity to achieve solar PV targets. The finances of such entities are volatile in India because of the reasons such as poor metering and poor payment discipline. To address this issue GoI in 2015 had introduced UDAY scheme in which 75% of the utility debts were taken over by the state and in return DISCOMs were expected to improve their financial and operational systems and making grid more efficient. Although, this scheme’s success was varied across states, Maharashtra and Uttar Pradesh were the states which got the most benefit from the scheme. Many states like Kerala and Bihar are struggling even today.

When it comes to decentralized projects such as solar rooftop, irrigation solar pumps, mini-grids it is difficult to find funding from local banks. Local banks prefer to fund large scale projects such as utility, the reasons being fair, that the smaller customers usually lack framework and also it takes time to evaluate the valuation. Hence, even though there is huge potential in volume in such projects, it is not possible for local banks to fund small-scale projects. Acknowledging the problem in the system, RBI has included renewable energy projects in the priority sector funding and advised all public sector banks to provide loans to rooftop solar systems as home/home-improvement loans.

The markets in various Indian states are met with strong development risks. The development risks start with land acquisition problems in the states such as Jharkhand, Uttar Pradesh, Bihar and Odisha. These land issues may be due to outdated and disintegrated records. Further renewable energy projects face problems in availability of infrastructure in rural areas and then grid connection is always a risk to be considered while developing the project. The Green Energy Corridor was a project started in 2013 to get rid of these disaggregated markets by enabling intra and inter-state transmission. Also, the policy to relax transmission taxes for 25 years on commissioned renewable energy projects until 2022 has facilitated wind and solar power plants. India to overcome land acquisition and connectivity issues has implemented a concept of 47 solar parks with combined capacity of 25 GW across the country. Solar parks are expected to contribute approximately 50% of its total state solar installation. The instrument of solar parks has experienced some delays, so a similar strategy for wind projects will require high resourced land and its lack of availability will lead such a plan being a challenge for implementation for on-shore wind power plants.

Besides development risks, there are also operational risks of renewable energy projects which can also be an obstacle and hence needs pre-planning. The operational risks are closely related to the power prices. The prices from renewables are expected to be lower than INR 3/kWh by the states, but these expected prices may vary after the states perceive lower price in other states. In 2018, to protect national manufacturers of PV panels an import duty tax of 25% was imposed on the panels from China and Malaysia. This created cost uncertainties within ongoing projects for various developers. Increased investments and continuous R&D is helping to improve technology like Solar PV and Wind. This has an positive impact on the cost of the equipment and products. Although this reduction in cost could create chances of renegotiation of CAPEX for contracts leading towards changes or cancellations. In July 2019 the price drop of solar panels caused the government of Andra Pradesh to take a decision to cancel and renegotiate unilaterally the Power Purchase Agreements (PPA) in pipeline. Such unsteady prices may lead to delay or cancellation of PPAs. To avoid such scenarios, instead of the having the conventional ‘one plan forever’ approach, ‘portfolio approach’ to projects where we decide upon portfolio of plans within the process which evolve over time when preconditions change, could be enforced before the commissioning of the project. Along with it, long term equipment provider contracts and the sanctity of the contracts by the regulators should be taken care of. Moreover, rapid timelines and standardization of PPAs would help to speed up the projects.

Policies are the catalyst for implementing and driving the system towards achieving these levels of renewable energy installations. Policies are dynamic in nature and have to be regulated in a different manner for specific sectors. The continuous evolving policies and strong political support could enhance the growth of renewable electricity of India and help to meet the energy policy objectives. India has focused on some prime sectors which in a longer run will be helpful to uplift the share of renewables.

Utilities 1. Renewable Energy Certificates (RECs) were implemented in 2010 to increase the use of renewables and trade for discrepancy

2. In 2018, the renewable purchase obligations (RPO) obligatory criteria’s were raised from 17% to 22%

3. In 2019, hydropower sector included in renewables

4. SECI auctioned 47 solar parks with 25 GW combined capacity


5. Renewables energy projects commissioned until 2022 are exempted from transmission charges for 25 years
Rooftop Solar1. Target of 40 GW until 2022 in 100 GW solar target

2. Central financial assistance for residential, institutional, social and government buildings

3. Regulations implemented for net metering systems in 28 states

4. Agreement of CAPEX for governmental rooftop projects

5. 6.5$ Billion approval for promoting solar among farmers
Offshore wind1. Collaboration with European Union to find bottlenecks
Off-grid solar1. In 2015, Deen Dayal Upadhyaya Gram Jyoti Yojana (DDUGJY) adopted to support decentralization

2. In 2017, Off-Grid and Decentralized Solar PV Programme implemented for lighting and water pumping application in rural areas

3. In 2018, Atal Jyoti Yojana (AJAY) implemented for installing 3 million solar street lights

4. In 2019, KUSUM scheme implemented to replace diesel pumps
Bioenergy1. Promotion of Biomass-Based Co-generation in Sugar Mills

2. Policy to instigate low-level biomass co-firing (5-10%)

Recommendations

After a comprehensive analysis of targets, energy policies, schemes and implementation burdens, IEA bottles down the review to the recommendations which could be beneficial and supportive to the Government of India in the journey of achieving energy goals and emerging as a leader in renewables. India needs an integrated strategy including electricity, heat & cooling demands and transport sector to tap the large potential of renewable energy in the country. Supporting distribution systems by incentives and standardization of rooftop solar projects will turn as a realistic business model strengthening the growth of the market. The business model also can be advised by including the best practices and learnings from the international and national players in the market. India should focus on complete implementation of the UDAY scheme which has proven financially strengthening the DISCOMs for some states and further also ensure the compliance of RPOs which increase the share of renewables in the grid. For building such a strategy, the intensive auction strategies of Solar Energy Corporation of India (SECI) which was a successful attempt, can be adopted to meet the goals of 175GW of renewables until 2022. The plan which India is working on till 2020 needs to be supported by also the longer agenda of 275GW and 450GW eventually, creating conviction and trust in this sector for investors.