Renewable energy sector stifled by a host of issues — from low tariffs to lack of government push

When the BJP Government assumed office in 2014, the Indian solar industry was on tenterhooks. The Ministry of Commerce had recommended anti-dumping duties ranging between ₹6 and ₹47 per watt of solar modules imported from China, Malaysia, Taiwan and the U.S., and the recommendation had to be only formally notified by the Ministry of Finance.

Solar power had barely begun to take roots in India, and the country had a total installed solar power capacity of 2,632 MW. The industry was taking baby steps with the aid of cheap, imported modules. The anti-dumping duty was going to kill it. On the other hand, a clutch of domestic players had set up module manufacturing plants in India, eyeing business from a sunrise industry. Crushed by cheap imports, they looked up to the government for protection.

Faced with a vexing dilemma, the new government made a pragmatic choice. It said ‘no’ anti-dumping duties; it also told the domestic manufacturers, ‘don’t worry, we will get the government-owned companies buy from you.’

The way the government handled a rather ticklish problem engendered confidence, which strengthened soon when the government set up an ambitious target of 175 GW for renewable energy — 100 GW for solar, 60 GW for wind and the rest for biomass and small hydro — to be met by 2022. Since the solar target was five times that set earlier by the previous government, it caused ripples of excitement around the world. It looked like the Ministry meant business. After such a brisk start, acche din, it seemed, was just around the corner.

State of disarray

Five years down the line, the Indian renewable industry is in a state of disarray. Wind and solar power capacity additions have been far less than satisfactory and hardly on the path to meeting the targets. Both sectors are buffeted by a range of issues — some caused by the government — but as we will see a little later, no help from the government was forthcoming.

And, outside of wind and solar, too, precious little has happened. For instance, solar heating is a segment that gives the best bang for the buck in the clean energy space, but no policy josh is seen. Offshore wind is still distant despite international players responding overwhelmingly when asked to express interest.

The government has not had the long-term vision to look into other emerging areas where India could leapfrog and lead the world — such as ocean and geo-thermal energy. Biomass and small hydro are moribund. So, what did the Ministry of New and Renewable Energy (MNRE) do in all these five years? Its singular achievement was bringing down tariffs of wind and solar power that is sold to the electricity distribution companies. In the single-minded pursuit of hammering down tariffs, a lot else has been missed.

Even the depression of tariffs, which has benefited only the discoms and not the consumers, has come at a big cost — slow capacity addition. Since 2014, India added 28,000 MW of solar power and 14,500 MW of wind power. (Today, India has 30,600 MW of solar power capacity and 35,600 MW of wind power.)

The solar number appears respectable, but that is thanks to the tailwinds provided by the steep fall in the prices of the principal component of a solar plant — the module. Module prices plunged from around 63 U.S. dollar cents a watt in 2014 to around 23 cents now. The growth in solar power installations happened, therefore, due to fortuitous module prices.

Record addition

As for wind, there was one outlier year — 2016-17 — when new capacity additions reached a record 5,500 MW, as energy companies rushed to get their foot in before some incentives expired. If you discount that year, the achievement is nothing much to write home about. The reason for the state of affairs is over-emphasis on keeping tariffs low. In different bids, wind and solar tariffs fell to a low of ₹2.44 a kWhr. Many feel that such a low tariff is unviable and, quoted by bidders only in a rush to grab projects.

However, the policy makers have taken that number to be some kind of a benchmark. Ceilings on tariffs have been brought in for solar and wind so as to keep tariffs depressed; bids have been cancelled just because the government lowers tariffs than quoted.

While, ‘solar’ has had to face uncertainties in terms of safeguard duties, GST rates and a falling rupee, wind installations have been crippled by land problems in Gujarat, the State that most of the developers flocked to.

To avoid such flocking to the windiest sites, the industry has been asking the government to bring in State-wise or even sub-station-wise tenders, so that the setting up projects could be more spread out, but to no avail. Nor has the government been sympathetic to the industry’s request that there could be just a closed tender, where the bidder who offers the best price bags the project, as opposed to the current method of holding auctions, in which bidders try to outbid each other. The government has shaken its head.

Tulsi Tanti, the chairman of the Indian Wind Turbine Manufacturers Association, and CMD, Suzlon Energy, notes that in no other sector, say railways or defence, are auctions held for awarding contracts — it is always a closed tender.

Then the industry pleaded for a fixed tariff which would come down annually so that the energy companies earn more in the initial years so that they could pay off their debts.

Again, the plea only fell on deaf ears. And, the industry says it has to contend with rampant corruption or extortionate prices while securing right-of-way in all States. On top of all this, the State government-owned utilities have been delaying paying their dues to the energy companies. The government could have helped by getting at least the BJP-ruled States to pay the dues on time, say industry insiders.

In April 2018, a call for expression of interest to set up 1 GW of offshore wind off Gujarat coast drew overwhelming interest from domestic and global players.

The MNRE announced ambitious targets — 5GW for 2022 and 30 GW for 2030. A government press release said, “Experts laud India’s ambitious offshore wind targets, express optimism.” In October, at the RE-INVEST event a MNRE official said the Ministry needed just one more approval before rolling out the offshore wind tender.

The tender is yet to come. Looking beyond conventional wind and solar plants, too, the MNRE has little to show. For instance, the adoption of solar-powered agricultural pumps is way below the potential; it was not until February 2019 that the government came out with a scheme to get farmers use such pumps.

And there are other areas where one would expect the government to display long term vision.

Ocean energy (from waves, tides and currents), for instance, shows great promise, can provide steady, 24x7 power. After a December 2014 study by CRISIL and IIT-Madras, which recommended kick-start support by the government, there has been absolute silence.

True, it is expensive — just as solar was a decade ago — but a far-looking government would begin some ground work. Yes, the government began on a positive note, but seems to have lost steam during its run.