RENEWABLE ENERGY: India Poised for a Green Revolution

Energy is inarguably the indispensable force that drives all the economic activities. Consumption of energy has been one of the key indicators of economic growth of any country, since the beginning of the industrial age.

Using different forms of energy has transformed standard of living for billions of people, enabling them to enjoy a level of comfort and mobility. India, which has the second largest population after China, took too long to understand the need to harness the latent potential of the natural resources of energy.

For long, India had not exploited the potential of non-conventional resources, due to various reasons , including higher cost of power and inadequate technical know-how, among others. However, with the advancements in technologies and the urgent need to address challenges of climate change, India took a major decision to increase its renewable energy generation capacity to as much as 450 GW by 2030, out of which, about 280 GW (over 60%) is expected from solar.

Overview

In the year 2014-15, the total installed renewable energy capacity was only 39.55 GW, according to the annual report of the Union Ministry for New and Renewable Energy.  However, due to the concerted initiatives taken by the government both at the state and Central levels, India managed to increase its installed capacity of renewable energy to 92.54 GW, excluding large hydro projects.

During the period from April 2014 to January 2021, the installed RE capacity of India has increased by two-and-half times, and in the same period, the installed solar energy capacity has increased 15 times. Globally, today India stands at the fourth position in the renewable energy, fourth in wind power, and fifth in solar power capacity.

As per Global Trends in Renewable Energy Investment 2020 report, during the period 2014-2019, renewable energy programmes and projects in India attracted an investment of USD 64.2 billion or Rs 4.7 lakh crore. During the period from April 2014 to January 2021, the installed RE capacity of India has increased by two-and-half times, and in the same period, the installed solar energy capacity has increased 15 times.

As of September 2021, India had 101.53 GW of renewable energy capacity and represents 38% of the overall installed power capacity. In September 2021,  installed capacity of hydro projects in India reached to 46.5 GW, while capacity of small hydro plants reached to 4.8 GW.

As India looks to meet its energy demand on its own, which is expected to reach 15,820 TWH by 2040, renewable energy is set to play an important role. By 2030, renewable sources are expected to help meet 40% of India's power needs.

“India is on the cusp of large changes in the renewable energy sector with an aspiration of 50% penetration by the end of the decade from the current 20%. India can achieve the ultimate milestone of cost-effective round-the-clock renewable power with right interventions related to technology, regulatory & policy ecosystem, business models and trained workforce across the entire RE value chain," said Dr. Ajay Mathur, Director General, International Solar Alliance said at a CII event.

Government Initiatives

Realising the urgency to address the challenges posed by climate change, India, under the leadership of Prime Minister Narendra Modi, became a part of the Paris Agreement that aims at reducing carbon emissions. Under the Paris agreement, India has committed to cut the intensity of greenhouse gas emissions of its gross domestic product 33% to 35% by 2030, increase non-fossil fuel power capacity to 40% from 28% in 2015 and substantially boost forest cover to reduce carbon.

Under the Paris Agreement, the government initiated the Nationally Determined Contributions (NDC) for the period 2021- 2030, which aims at reducing the emissions intensity of its GDP by 33-35 percent by 2030 from 2005 level and achieving about 40 percent cumulative electric power installed capacity from non-fossil fuel based energy resources by 2030 with the help of transfer of technology and low cost international finance.

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.

Some of the initiatives announced to boost renewable energy sector are:

• New rules for the purchase and consumption of green energy to encourage large-scale energy consumers to leverage renewable energy sources for regular operations.
• To encourage rooftop solar (RTS) throughout the country, the government has undertake Rooftop Solar Programme Phase II, which aims to install RTS capacity of 4,000 MW.
• Union Cabinet has approved a Memorandum of Understanding (MoU) between India and France in the field of renewable energy cooperation .
• Gram Ujala, an ambitious programme to include the world's cheapest LED bulbs in rural areas for Rs 10.
• In the Union Budget 2021-22, MNRE was allocated Rs 5,753 crore and Rs 300 crore for the 'Green Energy Corridor' scheme.
• The Budget 2021-22 has provided an additional capital infusion of Rs 1,000 crore to SECI and Rs 1,500 crore to Indian Renewable Energy Development Agency.
• To encourage domestic production, customs duty on solar inverters has been increased from 5% to 20%, and on solar lanterns from 5% to 15%.
• A USD 238 million National Mission has been announced for advanced ultra-supercritical technologies for cleaner coal utilisation.

Challenges

According to Tejus AV, Chief, Wind and Solar Farms, CleanMax, the biggest challenges the industry is currently facing is on policy uncertainty and the constant changes in the polices. “Since various states such as Karnataka, Gujarat, Maharashtra, Tamil Nadu, and Chhattisgarh are all forming new open access policies, but these open access policies will need to be designed for at least five years, that will give developers certainty to plan ahead. The policy uncertainty around energy banking & ISTS across India needs to end and the policy around it needs to be eased keeping the changing dynamics in mind to encourage private sector to significantly increase renewables in their overall energy mix,” he said.

Vipula Sharma, Director -Ratings and Head - Infrastructure Ratings Brickwork Ratings noted that 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.

Another challenge is that India is currently importing around 80%-85% of its solar modules which is the major cost in a solar project. “The issues in China over the last one year has led to increase in the module prices and hence increasing the tariffs in recent bids. India has around 7-8GW of module and around 2GW of cell manufacturing operational capacities  respectively,  though the domestic module prices are still not competitive internationally due to highly subsidized Chinese capacity. Also, the solar modules are ultimately manufactured from polysilicon where India has no refining capacity at all,” opined Nitin Bansal, Associate Director, India Ratings and Research.

With the announcement of PLI scheme of Rs 45 billion, the dependency on imports is likely to reduce, as the private sector is investing in module and cell manufacturing capacities to the tune of 13-14GW and 7GW respectively.

“India however would still remain dependent on import of basic raw materials including polysilicon and wafers until there are large investments to be done in poly silicon manufacturing to indigenize the entire value chain. One such 4GW Giga factory is planned  by Reliance Industries, however it is still much less than the required capacity,” Bansal added.

A recent report by technology group Wartsila & KPMG stated that managing India's power system is becoming increasingly complex as its resource mix includes more weather-dependent and decentralized energy sources. To deal with such complexity, the system operator needs greater operational flexibility in order to reliably serve the load, which means an increased need for ancillary services to keep the grid stable.

Funding Concerns

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, Sharma noted.

“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,” she added.

Though  it makes sense  economically  for increasing the renewable addition, however the capital  required  for  such  large  capacities  can become a road  block  both  from the  debt and equity  side, noted Bansal.

“A  back  of  the  envelop  calculation suggest that to reach 450GW target, it would require additional capital of USD 270 billion over the next 9-10 years requiring large equity and debt commitments. The domestic banking system has already seen large NPAs in private sector thermal projects in the last decade. Though, in renewables, the nuances of credit risk are different as due to low gestation period, the capex cost overrun are usually restricted or small as against a thermal project. With maturity of the solar and wind sector in India, investors including banks do have better understanding  on  the  renewable  financing models,” he said.

Also, the  weak  financial  health of state discoms along with states not adhering to PPAs have cautioned the investors for a calibrated growth. The turnaround of discoms in future bringing the required discipline for timely cashflows  can  help  in  bringing  more  confidence to both debt and equity investors and help in achieving the required growth, Bansal added.

Hybrid Model

The other major addition of around 130GW would need to come from wind sector where the capacity addition CAGR growth in the last 5  years  is  just 7%. The  wind  additions  were high before FY18, when the projects were on feed-in-tariff basis. Though the economic viability remained with the reduction in tariffs with introduction of competitive bidding in wind sector, the issues faced including land acquisitions has derailed the growth.

“The focus on the hybrid renewable will add up to the  wind  capacities  in  coming  years.  Though both  solar  and  wind  power  are  infirm  in  nature however given the complimentary nature of generation,  a  hybrid  plant  has  more  firm  supply than individual power to the off taker and hence the wind addition shall continue, though the issues need to be addressed to enable such large growth,” Bansal noted.

According to Tejus, hybrid power was a niche concept in 2012-14 in India. But today, India is amongst the very few countries that have demonstrate to the world it is possible to integrate wind and solar hybrid projects seamlessly into its grid. In future with battery storage combining with hybrid energy projects, it will make this more interesting proposition.

Steps Needed & Way Ahead

COP 26 commitments can be met if India consistently adds at least 35 GW of RE capacity annually, duly supported by at least 2500 MW of battery storage systems.

Sandeep Sarin, Head - Market Development and Policy, Wartsila India, said, “Given how our power market is structured today, we need to ensure that our grid is equipped to integrate 450 GW of renewables by 2030. We need more resources such as thermal balancing power plants, as well as battery storage to manage system imbalances caused by the intermittency of renewables, and to support the grid during periods of renewables drought. Apart from Solar and Wind, the Government should focus on changing the way our power market is structured to offer enough incentives for investments in flexible technologies. The joint study Electricity market design for efficient procurement of ancillary services in India to address changing system needs by Wartsila and KPMG makes a case for power market reforms in India using power system simulation models.”

Currently the contribution of renewable energy is less than 15% in the overall generation and it needs storage  systems  like  batteries  for  grid  balancing in case it goes above a certain threshold of 15-17%  due  to  its  infirm  nature. 

“Hence  these high annual installation targets if installed would come with an associated cost of storage in future.  Hence the  policy level  initiatives from government would continue to be required so that discoms continue to tie up the renewables  in case of increase  in  cost than  other sources,” Bansal added.

According to Mathur, solar PV modules, batteries and electrolysers as the key technologies that would bring about the transformation in RE sector in India. “There is a need for collaboration among various stakeholders,” he added.

Saurabh Gupta, Deputy Managing Director, Microtek International has opined that the local electrical equipment industry has a critical role to play in meeting India's renewable energy targets as well as the overall carbon reduction targets under the Paris agreement.

“India has set an ambitious target of having 175 GW renewable energy capacity by 2022, 450 GW by 2030. In order to meet RE capacity India will require new age equipment and local players will play a pivotal role in achieving the target. The industry needs encouragement in the form of incentives so that production is boosted and research and development work is carried out in the sector. If industry and the government are in sync, India can even surpass its energy efficiency and climate change targets,” he added.

According to MNRE, with installed renewable energy capacity including hydro has crossed 150 GW and about 63GW is under construction then it could mean installing another 290 GW of capacity addition split across wind, solar PV and hydro in 9 years.

“So to achieve this we will have to double our current installation rate to around 26 GW per year to meet this deadline, which is a very ambitious target. As effects of climate change have started impacting lives and livelihoods across the world including India, having this ambitious target is the need of the hour. As storage technologies start becoming commercially viable this target will be more attractive," Tejus added.

To achieve the targets, the Indian power industry needs to develop significant energy management capabilities. We will require to consider investments in grid modernization to ensure a sustainable energy transition. This will entail the adoption of smart digital grid solutions to manage the risk of grid instability, AI-enabled technologies, and systems to improve overall operational performance and enable integrated planning, and a higher degree of customer engagement.

“We will also require significant amount of energy storage technology to manage the increased influx of renewables, especially wind and solar which bring tremendous challenges to operate the grid, primarily due to the intermittency associated with them. Unfortunately, the pandemic has set us some steps back. We need to build capacity, flexibility, and resilience to integrate increasing amounts of intermittent renewables and distributed energy," Karthik Krishnamurthi, Country Head, Marketing and Sales, Hitachi Energy India concluded.

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