Renewable energy has experienced tremendous growth in the past one year, with its cumulative installed capacity surpassing that of hydro power. As of end-March 2017, the country’s total renewable energy capacity stood at around 57.26 GW, accounting for 16 per cent of the total installed capacity as against hydro projects, which stood at 14 per cent. The growth in capacity can be mainly attributed to the favourable regulations and policies for achieving the 175 GW renewable energy target by 2022. Factors such as a continuous fall in capital costs and a conducive business environment at the central and state levels have also helped drive the growth. Until recently, the renewable energy sector was driven by grants and subsidies. However, with the government eliminating generation-based incentives (GBIs) and reducing accelerated depreciation (AD) benefits from 80 per cent to 40 per cent from April 2017, the sector is fast moving towards self-sustainability.
Of the country’s total installed renewable energy capacity, solar power accounts for 12.3 GW (as of March 2017), while wind power capacity stands at 32.3 GW. The previous fiscal year (2016-17) was the most successful for the renewable energy sector as it saw a capacity addition of 11.3 GW, at par with the thermal capacity addition. In fact, 5.8 GW of this capacity was added in a single month before the close of the financial year. Some other significant highlights during the year were the tenders of the 750 MW Rewa and 250 MW NTPC Kadapa projects that saw solar tariffs falling to an all-time low of Rs 3.30 per unit and Rs 3.15 per unit respectively. Besides, the wind segment switched from the traditional feed-in tariff (FiT) regime to competitive bidding for project allocation, with the first tender floated by the Solar Energy Corporation of India (SECI) for 1,000 MW of capacity.
In 2016-17, the cumulative solar capacity surpassed the 12 GW mark as compared to 6.7 GW as of March 2016. The segment added 5.5 GW of new capacity, an increase of 83 per cent over 2015-16 when only 3.01 GW was added. Notably, until February 2017, only 2.8 GW of solar projects had been commissioned. However, March 2017 alone saw a surge in commissioned projects with 2.7 GW of additional capacity.
In addition to record installations, the year also saw tariffs falling to a low of Rs 3.30 per unit (750 MW Rewa solar project). Mahindra Renewables, ACME Solar Holdings and Solenergi Power won a tendered capacity of 250 MW each. Many factors such as timing and ready offtakers contributed to Rewa’s success despite the challenges facing the solar segment such as delays in discom payments, and land acquisition and power evacuation issues. In April 2017, the tariffs fell further owing to NTPC’s auction of 250 MW of capacity at its Kadapa ultra mega solar park in Andhra Pradesh. Solairedirect won the entire auctioned capacity at a tariff of Rs 3.15 per unit.
Another key development during the year was the revision of the government’s capacity addition target for solar parks by another 20,000 MW in Union Budget 2017-18. The cumulative target for solar parks now stands at 40,000 MW.
Despite being a record year, capacity addition in the solar segment could not meet even half of the 12 GW target. One of the key reasons was the disappointing performance of the rooftop solar segment, which added only 500 MW of capacity during the year. However, it is likely to increase significantly on the back of lower tariffs and the mandate to install rooftop solar plants on all government-owned buildings. Further, Indian Railways has committed to install 5 GW of renewable energy by 2025 at an investment of $3.6 billion. Of this, around 1.1 GW is expected to come from rooftop solar installations.
The wind energy segment continued its upward growth in 2016-17 with a record capacity addition of 5,400 MW, taking the total capacity from 27 GW as of end-March 2016 to 32.27 GW as of end-March 2017. The capacity addition marks a growth of 60 per cent over 2015-16, when only about 3,400 MW was added.
The regulatory changes brought in by the government were primarily responsible for the high capacity additions that took place during the year. The reduction in AD from 80 per cent to 40 per cent starting April 2017 compelled developers to commission projects before the deadlines. In addition, uncertainties surrounding the fate of GBIs in the new financial year have also played a key role in increasing capacity additions. Another significant change in the wind segment was the introduction of the competitive bidding regime. The first reverse auction for wind energy took place during 2016-17. The 1,000 MW of capacity auctioned by SECI was oversubscribed by nearly 2.6 times. Tender results released in February 2017 saw the prices falling to a record low of Rs 3.46 per unit, nearly disrupting the segment which, until now, had seen high tariffs as per the FiT regime
As of March 2017, the cumulative small-hydro power (SHP) capacity stands at 4,379.8 MW. The segment added only 105.9 MW in 2016-17 against the target of 250 MW set by the Ministry of New and Renewable Energy (MNRE). Policy ambiguity and technological issues such as long gestation periods as well as uncertainties due to erratic rainfall and the lack of accurate weather forecasting methods have restricted the growth of this segment even in places that have high potential. Developer interest too has been waning on account of falling tariffs. To increase interest, the government plans to introduce a competitive bidding regime for the allocation of SHP projects. However, not all stakeholders have supported the move.
Over the past two years, the government has tried to focus its attention on the biopower segment. A Rs 100 billion Integrated Bioenergy Mission is planned to be launched for the period 2017-18 to 2021-22, to achieve the target of adding 10 GW by 2022. The cumulative capacity stands at 8,182 MW as of March 2017, with about 161.95 MW added during the year. This, however, is far short of the annual target of 400 MW. Limited regulatory support, lack of availability of raw material at low prices, poor storage infrastructure and poor operations and maintenance have contributed to the sluggish growth of this segment. The waste-to-energy (WtE) segment recorded a capacity addition of 23.5 MW as of March 2017, against a target of 10 MW bringing the cumulative capacity to 130.08 MW.
The renewable energy sector faces many challenges, the key one being the issue of grid integration. The intermittent and variable nature of renewable energy requires a sophisticated grid network for efficient power evacuation. Moreover, efficient forecasting and scheduling guidelines need to be established and adhered to for better grid integration.
The solar segment in particular has been facing evacuation challenges, thereby dampening investor interest. States such as Tamil Nadu and Rajasthan have asked operators to reduce generation due to the grid’s inability to evacuate power from the plants. This led to a lukewarm response to the latest tenders. For instance, a recent tender floated by the Tamil Nadu Energy Development Agency received bids from only the state’s own distribution company, Tamil Nadu Generation and Distribution Corporation. In another case, in April this year NTPC retendered 750 MW of solar capacity at its Pavagada Solar Park, which was first tendered in February 2017, due to the lack of evacuation infrastructure.
Apart from power evacuation issues, the wind segment also has to contend with challenges associated with old projects occupying sites with good wind potential. Besides, there are delays in the signing of power purchase agreements with discoms, issues related to delayed payments by offtakers and a general sentiment against procuring power from wind projects due to its expensive nature.
The renewable energy sector is growing rapidly on the back of the government’s efforts to achieve the target of 175 GW of installed capacity by 2022, which resulted in record capacity additions in 2016-17.
The quantum of investments in the renewable energy sector has also increased. In 2016-17, investments stood at $14 billion, twice the level of those in 2015-16 and more than thrice those in 2014-15, when the total investment in the sector stood at $4 billion.
As of March 2017, 14 GW of capacity is under construction in the solar segment, most of which is expected to be commissioned in fiscal year 2017-18 . In addition to this, 6 GW of solar capacity will be auctioned. Going forward, the share of renewable energy in the country’s power generation portfolio is set to increase significantly, in line with the government’s commitment of becoming a greener economy at the Paris summit.