Original Post: Rachel Parkes
The BJP’s general election victory in 2014
triggered hopes that in BJP leader Narendra Modi, India may have the renewables
champion to help it realise its vast potential. A year on, Rachel Parkes looks
at how India’s renewables market is developing.
The victory of the centre right Bharatiya Janata Party (BJP) in
India’s general election in April 2014 was controversial in many respects, and
unexpected in its decisiveness. But for the renewables industry in the country
it represented the possibility of a revival of fortunes after a period of
flagging growth. For, with the BJP’s victory came the leadership of Narendra
Modi, former chief minister of Gujurat, long-time advocate of low carbon energy
and credited with being the political architect of Gujurat’s transformation
into a 900MW Indian solar PV powerhouse.
Since 2009, when year-on-year growth in renewables peaked at 31%,
growth had waned to 13-14% in 2013-14 on the back of policy uncertainty and
subsidy delays. With a new government, and a new prime minister seemingly
personally committed to renewable energy, the industry hoped that renewables –
and solar in particular – would pick up once more.
Top of the list of industry players enthused by the BJP’s victory
was US solar firm SunEdison, which worked with Modi during his stint in
Gujurat, developing the 1 MW first canal-top Narmada solar project. Speaking
shortly after the election, Pashupathy Gopalan, SunEdison’s head of operations
for the region, said he expected the new prime minister to make a “dramatic change”
to the solar industry in India, based on his extensive knowledge of the
industry and the “pioneering” steps he took as chief minister. Vineet Mittal,
vice chairman of Indian power producer Welspun, echoed this sentiment, telling
local reporters that they could now expect Gujurat’s success to be replicated
nationally.
Indeed, it was under Modi’s stewardship that resource-starved
Gujurat was transformed into a thriving economic powerhouse underpinned by
technology, including exponential growth in solar PV. In addition to leading
India’s solar revolution, the state also became the country’s third largest
wind producer, with installed capacity of 3.6 GW in March 2015, up from 1.5 GW
three years ago.
Certainly, the new prime minister has not been short on rhetoric,
or new initiatives. Since coming to office, the BJP has dramatically increased
the country’s capacity targets for solar to 100 GW by 2022, up from 20 GW. Of
this, approximately 40 GW will come from rooftop installations, with an
additional 60GW from ground-mounted installations, the Ministry for New and
Renewable energy (MNRE), confirmed earlier this year. A National Wind Mission,
which will set the target for onshore wind at 100 GW by 2022, is reportedly on
the cards for later this year.
Proposed changes to the Tariff Policy could also see the
Renewables Purchase Obligation (RPS) for solar PV ramped up from 3% to 8% by
2022 for all utilities, as well as a new requirement for all new thermal plant
to have a 10% renewables mix either be generated on-site or bought as a credit
from another renewables project.
In addition, Modi’s administration has stepped up its campaign to
encourage foreign investment in solar in particular, targeting $100 billion
investment from abroad over the next seven years, ramping up a previous target
of $100 billion for all renewables over five years. The administration has
embarked on a comprehensive campaign of international diplomacy, with visits to
Japan, Canada, China and the US, with offers to help overseas companies enter
the notoriously difficult Indian market. In addition to a $1 billion deal with
the US Import-Export Bank to help companies looking to ship equipment from the
US, the government also has plans to set up solar bonds, as well as help
foreign firms set up rupee bonds.
Significantly, Modi has also steered India towards a more
conciliatory tone on climate change. As part of the Copenhagen agreement in
2009, India pledged to reduce its carbon emissions by at least 20% on 2005
levels, but the country’s official position has always been that the burden for
emissions reduction should fall on developed nations. However, in a recent
visit to the US ahead of this year’s climate talks in Paris, Modi indicated
that India may be prepared to commit to further emissions reductions, with
renewable energy – and solar energy in particular - at the centre of the
country’s strategy.
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Climate concerns
However, India’s quest for a renewables revolution should not be
mistaken for its prime minister’s personal crusade: there are a number of other
factors driving the political momentum. First and foremost the country has
grave concerns for energy security. With GDP growth consistently at 5-7%,
India’s primary energy demand grew 7% in 2014. The International Energy Agency
(IEA) believes that power demand, most of which is still met by coal, will
continue to rise by 5.2%/year to 2020. However, domestic coal production has
not kept up with the increase in demand in the power sector and some regions
have been plagued by blackouts, as utilities struggled to contend with erratic
supplies and poor quality coal.
Meanwhile, in order to maintain economic growth, India’s
government is keen to keep up its programme of electrification of the country’s
640,000 villages – of which off-grid renewables will play a major part. India’s
12th Five Year Plan (FYP) to 2017 envisages 3.4 GW of off-grid power, of which
the majority will be met by non-bagasse co-generation, and 1 GW by solar PV.
Last year, the BJP launched the “Smart Villages” initiative, which seeks to
deliver low-carbon electricity, sanitation and internet access to 2,500
villages by 2019.
However, Modi’s enthusiasm for all things solar certainly could
see it overtake wind as India’s go-to renewable technology. Over the past year,
total cumulative solar PV installations have grown from approximately 2.6 GW in
mid 2014 to around 4 GW in June 2015 – a considerable achievement given that
India produced no solar power of note until 2010. Installed wind capacity,
meanwhile, has grown at a slightly slower rate to 23 GW, from 20 GW. The
National Wind Mission, long proposed, is yet to materialise, as the second
phase of the Jawaharlal Nehru National Solar Mission (JNNSM), launched by the
previous administration to promote solar energy, gets already underway.
The IEA, in a report made before the BJP revised its wind and
solar targets upwards, projects that installed onshore wind power capacity will
grow by 21 GW to 2020, while solar PV will grow by 12.4 GW. Bioenergy, a
category that includes solid biomass power, bagasse co-generation and biogas,
will grow by 2GW.
However, despite the optimistic growth projections, REN21 notes that solar PV
market shrunk in 2014 compared to 2012 and 2013, due to policy uncertainty
caused by on-going subsidy delays, and difficulties securing financing.
Indeed, access to finance and the cost of capital is one of the
key hurdles facing the renewables industry going forward, despite recent
improvements. Interest rates in India are comparatively high, with nominal
interest on 10 year government bonds at around 8%. Moreover, the domestic
banking sector is still relatively inexperienced in renewables, and
subsequently more cautious.
Nevertheless, onshore wind and solar have both benefited from
falling unit costs, and as the scale of India’s abundant resources has become
increasingly apparent, there can be no doubt that renewable energy has become
more attractive as investment opportunity. In addition, the previous
administration’s decision to move away from a tax-based subsidy regime (the
Accelerated Depreciation regime which allowed large, usually state-owned,
companies to claim up to 80% depreciation on renewable energy assets) in favour
of a Generation-Based Incentive (GBI), has opened the market up to a larger
pool of independent power producers (IPPs).
And, as the levellised cost of energy (LCOE) has come down for
both wind and solar, some estimates suggest that the best locations are now
competitive with new coal and gas-fired plants without subsidies.
However, the industry in general is still very much dependent on
policy support to compete with fossil generation. As such, the abrupt halt to
the GBI in 2012 (and its subsequent reinstatement a few months later) caused
shockwaves in the marketplace, resulting uncertainty from which the market is
yet to recover.
“Generation based incentives play a crucial role in supporting the
development of renewables in India,” says Ankita Chauhan, analyst at IHS
Energy. “When the government temporarily removed the GBI for wind in 2012,
growth slowed considerably. The advance of new technology continues to close
the cost gap between renewables and conventional energy sources, but incentives
are still needed.”
Bob Smith, CEO of Mytrah Energy, a UK-based wind developer with
543 MW of onshore wind power currently operating in India, says that raising
debt in the local marketplace has been one of the most difficult aspects of the
company’s development programme.
“India is not an easy place to do business in any respect,” he
tells Renewable Energy Focus. “The people who have been successful have had to
go through a lot of different experiences in order to be able to build a
sustainable business. One of the biggest ones of those is raising money. You go
in with your equity cheque, but you have to raise debt in order to be able to
build those projects
“We’ve built relationships with 25 banks in India. That’s very
hard today. Our ability to keep building is largely down to our relationships
with those organisations.”
Grid problems, meanwhile, continue to act as a significant barrier
to India’s renewables sector. The country’s transmission network is in dire
need of upgrading and expansion, especially if it is to connect the areas of
best resource with demand centres. This, says Smith, puts a serious constraint
on where developers can site projects.
“Where the wind is, is not necessarily where there is grid,” he
says, adding that the company has planned its 200 MW pipeline around the
bottlenecks in the grid, as well as the government’s planned expansion
programme.
In addition, the grid is also in need of better management. Large
volumes of power are lost in the grid, either through theft, poor billing or
low loads, which means that state-owned distribution companies are usually left
out of pocket.
This in turn has a knock-on effect on the expansion and upgrade
projects for the grid, says Chauhan. “The weak financial condition of
state-owned distribution companies, who suffer from high rates of power loss,
is [a] major challenge to renewables investment,” she says.
Furthermore, land acquisition remains a significant problem for both project
siting and grid expansion. Indeed, the canal-top Narmada solar project was
conceived as a way round the lengthy and expensive negotiations that often
ensure with landowners over land rights.
“India is a democracy, which comes with constraints as well as
benefits,” says Smith. “You can’t just go to a farmer and say I’m going to buy
your land and build a cable across it. You have to negotiate with him, and
that’s why things take a little bit longer. But things do get done eventually.”
International
interest
Ultimately, the success of India’s renewables sector will hinge on
the country’s ability to attract international investment. With wind now
established, and as the new government steps up efforts to tempt foreign
capital into the sector, Smith notes that international finance giants are now
taking an renewed interest in India’s renewables space.
“We’ve seen a number of substantial players come into the
country,” he says. “Morgan Stanley and Goldmans Sachs are investing quite
heavily. There are a number of private investors coming into the IPP market.”
“And now India is moving to a much more aggressive pursuit of the
solar market as well as wind, which creates a huge demand for equity and for
debt, which the internal Indian market cannot support,” he adds. “We’ve seen a
lot of international players taking a more interested view than they have in
the past, both on the debt side and on the equity side. The recent publicity
around it over the past year or so has greatly accelerated the interest in
India.”
Chauhan, however, is more circumspect. “An emerging breed of
specialised renewable power plant developers and owners are now scaling up in
India, building-up experience, and are attracting capital from private
investors and power companies from across Asia, Europe and North America,” she
says “But considering the many challenges, most private investors are entering
cautiously.”
All eyes will be on India over the next few years as it reaches
for its ambitious wind and solar targets in 2022, however the jury is out as to
whether these targets will be met on time.
“It looks unlikely India will be able to fully reach its goals by
the 2022 target year,” says Chauhan. “[But] the country is nevertheless on
track to become one of the major centres of renewable power growth globally
over the next several years.”
The country will also need to overcome its “difficult for
business” image. However, Mytrah’s Smith is optimistic that the commercial
environment will continue to improve. “For us, I think that the environment
today is as good as it has ever been for energy development in India,” he says.
“India is a tremendously entrepreneurial marketplace and when there is a strong
demand for something, someone will find a way to meet it.”
ABOUT THE AUTHOR
Rachel Parkes is a freelance journalist and copywriter, with
expertise in the Energy and Environment fields. She is a long-time contributor
to Renewable Energy Focus magazine.
