Tough challenges ahead for renewable energy sector

In the concluding part of a two-part series, Business Standard looks at the bright spots of the green energy sector as well as the looming threats

Beyond the headlines that the renewable energy sector made since the National Democratic Alliance came to power, there are lofty targets to be met and several unfinished tasks to be accomplished. While India saw record capacity addition in both solar and wind power, almost all states have defaulted on their renewable purchase obligations (RPO) again, for the fourth year in a row. Currently, at an average of eight per cent of the total procured power, no state is even close to its mandated RPO. In FY16, even renewable energy-rich states like Gujarat, Rajasthan and Andhra Pradesh defaulted on their targets.

The ambitious green corridor project, an alternative transmission network for renewable energy, has been revised and re-revised since 2013. Lack of transmission could leave renewable projects at the same crossroads where conventional projects are - no takers and congested grid, say sector experts.

"Land and power evacuation continue to hog the headlines due to unavailability of proper guidelines and on ground local issues. Unfortunately, the evacuation infra did not grow in the same pace as generation infra in the past few years, leading to such bottlenecks," said Sunil Jain, managing director, Hero Future Energies.

There is no fresh equity flowing in the solar and wind market. Close to 10,000 megawatt (Mw) projects, both solar and wind, are on the block scouting for equity of $2-3 billion. These include independent wind power projects, solar projects bid under the Centre's flagship National Solar Mission and state programmes. Ambiguity in the tariff of solar projects across the country is also something that's baffling investors. Aggressive bidding has brought down the price of solar power, but investors are not lured.

"Falling bids don't mean that the cost of setting up solar power projects has also fallen. So, the actual players are getting frustrated with falling bids," said Raj Prabhu, CEO and co-founder, Mercom Capital Group.

Solar power made a definitive history for the country last year by receiving a bid of Rs 4.6 per unit. Policymakers cheered the massive drop - from Rs 17.91 a unit in 2010 to below Rs 5 per unit now. But, nervousness has gripped investors and the whole solar supply chain.

The tariffs are falling but the project size is sub-500 Mw. Industry experts say that leading project developers are putting aggressive bids for 50-200 Mw projects to be relevant in the market. The likes of ReNew Power, Hero Future Energies, Azure Power and ACME are putting close to Rs 5 a unit bid for small projects.

Solar power developers highlight the fact that some outlying bids are disturbing the market dynamics, especially when the Indian solar industry is not mature enough to handle the immense capacity being planned by Centre.

MOMENT IN THE SUN?

• States continue to default on their RPO targets. No major state was close to its target for fifth year in a row
   
• Legal tussles in solar: Anti-dumping against solar and WTO ire on domestic sourcing clause in National Solar Mission
   
• Lack of investment in wind energy due to flip-flop in incentives for the sector