India ranks second in EY renewables list

However, low tariffs raise questions over the risks being taken by project developers

India has been placed in the second spot in the renewable energy country attractiveness index by EY. 

The UK accountancy firm noted the fast pace of growth in Indian renewable energy in the past three years. Over 10 gigawatt (Gw) of solar power was added between 2015 and 2017 and wind energy capacity grew to 5.4 Gw in 2017-18.

“This growth is in the context of the government’s ambitious targets — 175 Gw of renewables by 2022, with 40 per cent installed capacity from renewables by 2030 — and the dramatic price falls in photovoltaic technology. In recent tenders, solar developers have offered to supply power at lower prices than newly built coal plants, effectively blocking new coal capacity,” EY said. 

It, however, noted that such low tariffs raised questions over the risks being taken by the project developers. EY said falling bids tracked lower technology costs and cheaper capital, allowing developers to maintain margins. But those margins were already squeezed by competition. 

In an auction for a 500 megawatt solar power park in Rajasthan, bids spiralled down to Rs 2.62 per unit. Also, in the first-ever auction of a wind power project, the tariff fell to Rs 3.46 per unit. 

“Many developers and their investors are assuming costs will continue to fall. Bids also appear to be predicated on developers achieving scale so as to generate operational efficiencies; it is doubtful that all developers will be able to reach the scale required. In addition, major adverse currency moves or rising interest rates will make equipment and finance more expensive, putting projects at risk,” EY noted.

The falling bids coincide with financial and operational restructuring of state-owned power distribution 

companies. This will be a challenge for offtake from such low-bid renewable energy projects. 

“The availability of capital remains a concern; the government could ease rules for tapping foreign debt,” it added. 

In the medium term, as renewable energy penetration increases, the government will also have to ensure the grid can manage intermittent renewable energy. EY said the cost and availability of energy storage technology could dictate how close India would get to its renewables targets.