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India’s fresh headline renewable targets certain to fail

India has been responsible for some of the most eye-catching renewables plans in recent weeks, but with global developers likely to turn a blind eye, state-run companies will be needed if India wants to get even close to its highly ambitious targets.

Among the latest headlines, India is said to be looking to develop 55 GW of renewable capacity along the western border is shares with Pakistan, making use of the high intensity winds and solar energy in what is a desert region. Tenders have already been issued for 7.5 GW of solar power parks in Ladakh, with small domestic developers starting to show some interest, despite potential hostility in a formerly terror-inflicted state.

India enjoyed rapid growth in renewables between 2012 and 2017 with developers competing readily for large tenders with high tariffs, and this year set a target of 175 GW for installed renewable capacity by 2022.

Analysts have indicated however that developer interest is waning as tariff caps fall, and India could miss this target by as much as 42%.

Lowering these tariff caps has seen tight restrictions on project viability, with tenders renegotiated in several instances where parties disagree on pricing. The solar tariff cap fell from RS 2.93 to RS 2.65 in the first half of 2019, with a similar trend for wind power, leaving very little headroom for developers from prices which they actually bid, after dealing with issues associated with land acquisition and delayed transmission connections. However, distribution companies have now got a taste for low tariff bids and are reluctant to accept higher costs, meaning large-scale developers have started looking elsewhere for business.

Global analytics company, Crisil has reported a dramatic rise in the number of Indian projects receiving ‘zero or lukewarm bids’, with many others facing delays in allocation after being tendered. This has seen the ratio of auctioned or awarded projects to those tendered, plummeting to 34% in 2019, down from 77% between 2015 and 2017. So big headlines are no longer quite so mouth-watering.

Developers are also being deterred by an element of political uncertainty, with a level of incoherence between policy makers and implementation agencies.

Sitting at the center of this is the ongoing tariff renegotiation in the region of Andhra Pradesh, as governments push for a reduced cost of electricity against agreed contracts with renewable energy companies. Due to this dispute, payments have been delayed, with state-run distribution companies owing over $360 million dollars to renewable energy generators by the end of July this year. While these negotiations are ongoing, developers will lose trust in the Indian government and any associated auctions.

All this pressure has seen India beginning to lift bid caps, with a recent maximum tariff bid rising by 2.8% in its latest national-level tender.

This is a September Solar Energy Corporation of India (SECI) wind tender for 1.8 GW of capacity where the initial bid has fallen risen from 4.02 US¢ per kWh), to 4.13US¢/kWh. Initially at the lower price it only attracted bids for 550 MW.

Developers simply need tariffs caps to rise, and remain stable, and not get renegotiated later, before they are confident of chasing projects in the Indian market. Building this trust will now take time, and 175 GW targets by 2022 will almost certainly not be met.

India’s government has responded to Crisil’s report, claiming that shortfall predictions “lack credibility in all respect”, prompting Prime Minister Narendra Modi to state an increased target of 450 GW renewables capacity over an unspecified timeframe. Simply raising the amount up for grabs is not going to create a queue.

We are back to that western border as a key region for energy production, but where conditions are right for mega-scale projects to be developed, it also means that any energy created will need fresh transmission links to carry it to markets which are full of energy users.

So the land procurement issues go out of the window, but transmission waiting times take over. Not only will building the transmission infrastructure to support this capacity be expensive, but the current state of the country’s grid may struggle to accommodate such rapid growth in renewables anywhere in India.

Another development this week is the Indian government telling state-owned companies to increase investment in renewable energy, and encouraging them to sign power purchase agreements or develop their own renewable projects. This appears to be a move to stimulate growth in smaller but essentially more local renewables projects which don’t need transmission support. This may well attract a better caliber of developer, but at the same time discourage India from solving its transmission problems.

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