LARGE FUNDING CRUCIAL For RENEWABLE ENERGY GROWTH

As part of the Nationally Determined Contributions, India had committed to achieving 40% of the installed capacity of power generation from non-fossil sources by 2030 at COP21 and MNRE has announced that India has already achieved the target by November 2021 itself with 150.05 GW of renewable energy and 6.78 GW of nuclear energy out of the total installed generation capacity of 390.80 GW and will install 500 GW of renewable energy capacity by 2030. This achievement underlines India's strong commitment to the transition from coal to renewable sources.

The rapidly falling tariffs for solar and wind power units have made the renewable generation cheaper than fossil fuels enabling the country to fulfil its developmental agenda of increasing the electricity access by rural electrification and reducing the power costs for the ailing discoms while reducing the carbon footprint with an increasing proportion of clean energy in its power mix. The recent announcement allowing discoms to discontinue procuring power from CGS where the PPAs have been in place for more than 25 years will also allow the discoms to procure more power from clean sources.  This year the Government has also announced a Rs.4500 crore PLI for solar PV module manufacturing and proposes to increase this to Rs 24000 crore. This is expected to increase the solar equipment manufacturing capability by around 10000MW. 

While India has made great strides in increasing its solar and wind generation capacity, increasing its generation to planned levels needs serious investments in the grid infrastructure to remote areas as also increased regional coordination to enable easy energy flow from surplus to deficit areas.

At the COP 26 summit in Glasgow, India has announced that it will meet 50% of its energy requirements from renewable energy; installed capacity of non-fossil-fuel energy in India will stand at 500 GW; emissions intensity of the country's GDP will drop by 46-48% from 2005 levels; and that its carbon emissions will be lower by one billion tons by 2030.

Reaching a capacity of 500 GW would however require an addition of around 350GW in the next 8 years meaning an average addition of 40 GW each year which is a substantial jump over the average of 8-10 GW added each year over the last decade. This addition of renewable energy generation has been largely driven by private sector investment. The increased pace of addition of capacity will need very large funding. While the government has recently taken proactive measures both by way of changes in procedures as well as funding support to the discoms to smoothen the roadblocks faced by the sector, attracting this level of funding for the sector would require several systemic changes for the sector. 

The primary roadblocks seem to be the deteriorating financials of the discoms and the grid infrastructure enabling the evacuation of power from the remote areas where the utility scale power plants need to be set up. While the Covid funding support to the discoms has provided a temporary lease of life both to the discoms which have seen reduced interest costs and the generators whose receivables have reached manageable levels,  the ACS-ARR gap for the discoms needs to addressed along with the T&D losses and the overall  operational efficiency of the system.  The transmission and the SDLC infrastructure need to be strengthened to source power from these locations. The intermittency of the green sources needs to be managed better. Systems for Planning and Forecasting of demand to manage the sourcing schedules better is required. Coordination of the disparate state regional transmission systems would be required

Several states including Gujarat, Uttar Pradesh, Karnataka, and Rajasthan have attempted to renegotiate the older PPAs with the renewable power companies. Andhra Pradesh went ahead and cancelled several PPAs since 2019. The Courts directed the State discoms to pay the generators the dues at a lower tariff of Rs 2.44 per unit hich was not sufficient to meet the debt liabilities which were taken by these companies to meet the large capital costs at the time.  The final verdict is yet to be announced. Punjab has now passed a legislation enabling the State to cancel PPAs which had higher tariffs of around 7 per unit vs the current tariffs of Rs 2 - 2.44 per unit.  These measures by the States will affect the future funding into the sector. These are the states that are the focus states for furthering the solar agenda of the country. The uncertainty introduced by the measures will slow down the private equity funding while the banks will be saddled with non-performing assets from the loans to the older units.

Managing the expectations of the various stakeholders and consumers while pursuing the committed agenda for reduction of its carbon footprint is a tough road ahead for the Central Government. We need to keep moving ahead in reducing reliance on fossil fuels while improving electricity access.

- Vipula Sharma

Director - Ratings and Head - Infrastructure Ratings Brickwork Ratings

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