Interview with Amit Kumar, Partner, Energy & Utilities, PwC
India has significant expertise and manufacturing operations strengthening it as a potential hub for renewable energy, hopes Amit Kumar, Partner, Energy & Utilities, PwC while giving a glimpse of Indian Renewable Energy Sector during an e-mail interaction with Electrical India...
Following climate commitments made at the Paris Summit, the Indian government gears up to achieve 175 giga watts (GW) of clean energy by 2022. According to you, what kind of potential will it generate for Indian renewable energy sector?
India’s nationally determined contributions released at the COP21 Paris summit commit that 40% of India’s generation will be met by non-fossil fuel based sources by the year 2030, which as per our estimates will translate to an installed capacity of non-fossil sources exceeding 350 GW. This clubbed with India’s 2022 targets of 175 GW installed capacity of renewable energy and the increasing interest shown by sectoral players and investors promises that this sector is bound to grow at an immense pace.
India has already completed wind power installations of over 28.9 GW against the 2022 targets of 60 GW. SECI recently received bids of 2.6 GW against a capacity of 1 GW for the first reverse bidding auction for the wind energy sector. Likewise, India’s current solar capacity has exceeded 10 GW with an additional 13-14 GW projects currently in the pipeline and over 5 GW projects in the tendering phase. The auction for the Rewa project in MP concluded in February this year, that saw India’s lowest ever levelised tariffs for solar @ INR 3.29/kWh, had initially seen bids of 7.5 GW being made by 20 players as against the total project capacity of 0.75 GW and the reverse bidding process lasting over 30 hours.
This increased interest of players is essentially because they see a massive market size for renewable in India. Our total installed capacity of 50.7 GW is targeted to increase by almost 125 GW for the attainment of these targets. This translates to an investment potential of around USD 50 billion in the solar sector alone and an investment potential of over USD 70 billion in total by 2022. These figures are only for the development of projects. Enhancement of the grid and adoption of storage technologies can take these figures to well over USD 100 billion.
What are the initiatives taken by the government for generating the momentum in the sector?
The Government has put in place a mixture of initiatives in the form of subsidies, innovative project implementation mechanisms, enabling policies involving simpler clearances, access to cheaper finance and a mixture of tax concessions. Accelerated depreciation of 40% for solar projects, subsidies of 30% on the capital cost of several categories of solar rooftops, the establishment of a sugar development fund for financing cogeneration projects and excise and customs exemptions for various components of renewable energy projects have been some of the notable initiatives.
Considering India’s renewable energy sector has fairly advanced, amongst the most impactful initiatives at this stage has been the initiation of a real time reverse auction process for tendering both solar and wind projects. This process has resulted in substantial declines in the electricity tariffs and as a result all NTPC, SECI and state government solar bids are now conducted under this mechanism. Its success resulted in this mechanism being tried on wind projects as well, wherein a record low tariff of INR 3.46/kWh was witnessed in February 2017 in the first ever such bid, breaking the previous low of INR 3.82/kWh.
The concept of solar parks particularly has been very successful and witnessed India’s lowest levelised solar tariff of INR 3.29/kWh. Solar parks have led to significant declines in the tariffs of solar energy in the past two years, particularly, because investors perceive reduced risks in the implementation and operation of projects. Obtaining clearances and approvals is more streamlined and are usually in place for majority components. The first phase of the solar park policy saw MNRE finalizing all 20 GW solar parks within seven months from the release of the policy and the subsequent developments have resulted in MNRE recently announcing another phase of 20 GW through solar parks.
The nation has also progressed in terms of releasing a policy for offshore wind projects, 1000 MW Inter State Transmission System Guidelines and a repowering policy for turbines of sizes 1 MW and below. Another recent notable initiative taken was the release of the national tariff policy in 2016 that details 8% solar RPO by 2022 and a renewable generation obligation for new coal and thermal plants.
The main and planned outcome of the various initiatives taken by the Government has been to foster advancements and economies of scale in renewable energy technologies to bring about significant reductions in cost of generation from such sources, making these competitive and in cases cheaper than conventional sources.
Can India become a renewable energy hub with these initiatives? Please elaborate.
India has definitely witnessed significant growth in the renewable energy sector, which is further expected to multiply in the coming years. Attainment of the 2022 and NDC targets will imply that India will figure amongst the leaders, most probably one of the top three countries in terms of the installed renewable energy capacity. This would imply that India has significant expertise and manufacturing operations strengthening it as a potential hub for renewable energy.
However, attainment of these targets will require overcoming multiple barriers, some of which may not be foreseen at this stage. A mixture of additional initiatives tailored as per market requirements will hence be of great importance to propel the sector forward. Prominent challenges such as grid integration, energy storage and ensuring compliance of RPO targets will have to be addressed through these.
The International Solar Alliance (ISA) of over 120 prospective countries is a defining step that has the potential to make India a solar energy hub in the near future and probably increase its chances of becoming a renewable energy hub. All countries of the alliance do not have a highly developed RE market and require support in the form of expertise or equipment to foster growth of the sector. This provides a huge market potential for Indian players.
What are stumbling blocks in achievement of this target by 2022? According to you, what are the solutions for tackling these hurdles?
Despite huge growth in the renewable energy sector in the past few years, there are still some bottlenecks, particularly, related to implementation of policies. These are mainly because the roles of stakeholders are not properly defined or due to lack of infrastructure or resources to achieve what we plan out to do.
India lacks proper green energy infrastructure, as a result of which intermittent renewable energy may result in transmission, grid balancing and stability issues in the grid. The green energy corridor that was being planned is a viable solution to this problem but will require significant investment and time to take shape. Recently, solar tenders involving storage have been released by SECI, which is a commendable step in this direction.
Secondly, Discoms may have power purchase constraints in view of the significant increase in power generation capacity on the whole and implementation of energy efficiency measures. Delays in multiple tenders such as in the Cudappa solar park happen because Discoms currently have no substantial requirement for additional power. Further, with an increase in the supply of energy to the grid, appropriate measures will have to be taken to ensure that renewable energy projects are not asked to back down. There have been multiple cases where wind power developers have been asked to back down their generation, which in turn lends a bad name to the industry and will definitely hamper the addition of new capacities and the investments that are expected to be made in this sector.
Thirdly, a major issue is in the promotion of solar rooftops as rooftop owners face a significant number of issues in obtaining the requisite permissions and clearances from local departments such as obtaining grid connectivity and net metering permissions. Additionally, there are frequent delays in the disbursal of subsidies and an insignificant percentage of the installations currently have been implemented in the RESCO mode. Owing to these factors, only around 1 GW of solar rooftops against the target of 40 GW has been implemented till date.
Another stumbling block is the non-compliance of RPOs and of the REC mechanisms by obligated entities. As of March 2017, a total of 18.3 million RECs were lying unsold in the power exchanges across India.
Which is the best source of energy considering the economics and cost of electricity?
Since the past couple of years, solar energy has gained tremendous growth momentum as a result of significant attention from both Government and investors alike. This has resulted in a significant quantum of policy enablers and increased investments resulting in a 230% increase in India’s cumulative commissioned capacity from 3,062 MW to over 10,000 MW over in just a span of two years. This does not include the over 18,000 MW of projects that are currently in the tendering or implementation phase. Amazingly, the World’s largest project of 648 MW was also commissioned in Tamil Nadu covering an area of 10 square kilo meters.
The economies of scale, improvements in technology and increased access to finance have resulted in the project development costs for utility scale projects dropping to INR 5.3 crore/MW as per the latest CERC benchmarks. However, the actual costs as per our discussions with project developers, have further dropped since these benchmarks were released and are now much lower, somewhere around INR 4.5 crore/MW in some cases. These developments have resulted in the tariffs for solar project falling to as low as INR 3.29/kWh in the most recent Rewa bid in February 2017. The previous low was INR 4.34/kWh for project in Rajasthan achieved in January 2016. For majority of projects being established tariffs of below INR 4.5/kWh has now become common. Even in the case of solar rooftop bids received by SECI, developers have bid project development costs as low as INR 45,100/kW and tariffs under the ESCO mode as low as INR 3/kWh after subsidy for rooftop projects.
In terms of the current installed capacity, wind has the maximum capacity amounting to more than 57% of the total renewable energy capacity of the nation. Although solar has seen significant growth in the recent past, still wind energy is in todays date giving solar a run for its money. Project development costs of wind energy are higher than solar projects on a per MW basis, but this is more or less balanced by the generation of these projects.
Where does India stand on the global scale in terms of generation of renewable energy?
The global installed capacity for solar power has crossed 300 GW as per latest figure. China is the leader accounting for 77 GW of the total capacity and India figures around the 6th position with over 10 GW of installed capacity. In the wind energy sector as per figures released by GWEC, the total global installed capacity stands at 486.7 GW as of the end of 2016, of which China accounts for 168.7 GW and India comes in fourth at 28.7 GW after USA and Germany.
In other technologies, India featured as the third country in terms of installed capacity of CSP projects as per the latest statistics released by REN21. In the Biomass and Cogeneration sector, India has an installed capacity of 8.1 GW and in the Small Hydro Power sector a capacity of 4.3 GW.
Based on the current pipeline of projects, India is expected to figure amongst the top three countries in terms of both solar and wind installations in the coming 2-3 years.
How can India learn from the experience of other countries and rapidly scale up renewable without any wastage or curtailment?
Countries leading in particular technologies have considerable and varied experience of how to promote growth and resolve any issue that may accompany respective technologies. Their success stories along with examples of various innovative mechanisms that they have implemented have been guiding Indian stakeholders as is evident from the introduction and success of the solar park concept in India.
The main role of Indian stakeholders is to identify based on international experiences, which mechanisms are required in India and subsequently innovate on those mechanisms to tailor them to local requirements. It is not necessary that mechanisms that have been successful elsewhere may be successful in India, hence the above two steps are of significant importance.
Just as an example – in the year 2015, Indian Government was planning to introduce dollar denominated tariffs for solar bids in an attempt to increase the participation of foreign investors by reducing their risks. This mechanism has been successful in various countries and recently saw the lowest ever tariff for concentrated solar power projects of 6.3 US dollar cents being bid in Chile this month for round-the-clock solar power.
However, after much due-diligence this mechanism was rightly not implemented in India owing to the risks associated with currency fluctuations. Instead, other enablers such as reverse auction, solar parks and 100% FDI led to tremendous growth without the associated risks.
Countries such as Germany and Japan have excellent experience of solar rooftops; Demark and Scotland have excellent experience of grid balancing and can provide invaluable expertise to Indian players. It may be suitable to adopt a global approach and partner with these nations to formulate initiatives that propel our sector forward.
What is your outlook for the renewable energy sector for 2017-18 fiscal?
It has been almost two years since India’s scale up targets were put into place and the progress specifically in solar and wind energy segments has been commendable. We can be confident that the renewable energy sector has gained significant momentum and attention at a level from which it is very unlikely that its growth will slow down in the near future. Innovation in terms of storage technologies and advancements in grid integration will pave the way for increase in renewable energy deployment. Increased deployment and innovation will even further drive down costs and promote greater installations.
The current pipeline of 13-14 GW of solar projects and additional implementation of solar rooftops implies that India’s installed capacity by March 2018 will exceed 20 GW.
This will bring in significant equity infusion in the sector and in all likelihood an increasing number of foreign players participating in the sector. This will also create significant demand for manufacturing of solar components and hence the manufacturing capacities will definitely witness an increase.
The most interesting trends in this financial year will be observed in the energy storage sector. Owing to the increasing likelihood of evacuation, grid integration and balancing issues this sector will face and to ensure stable, round the clock supply from renewable energy sources this aspect is likely to get a lot of attention.
With the number of players that have entered the Indian RE market, the investments that are being made and are forecasted, one can safely infer that the sector is promising in both the medium and long term - subject only to appropriate measures and efforts being put in by both internal and external stakeholders.