Business Today

Into The Dark

India has made big strides in renewable energy in the last few years, but challenges are mounting as well.
BT Guest Columnist | Print Edition: December 30, 2018
Into The Dark

The conferring of the UN's highest environmental honour, 'Champions of the Earth', on Prime Minister Narendra Modi early in October, was global recognition of India's extensive effort to reduce greenhouse gas emissions. The citation specifically mentioned the International Solar Alliance (ISA) that India has set up jointly with France - French President Emmanuel Macron was co-winner - for sunshine rich countries to work together to harness the resource, but India's overall achievement in renewable energy has also been impressive.

India set itself a target in 2014 to reach 175,000 MW of renewable energy capacity by 2022 - 100,000 MW of solar, 60,000 MW of wind and the rest comprising mini hydel and biomass plants. It has already raised its solar capacity from near-zero in 2010, when the first phase of the Jawaharlal Nehru National Solar Mission began, to over 23,000 MW (end-July 2018), most of the capacity being added in the last three years. In wind energy, it began earlier in the late 1990s, reaching a capacity of 21,000 MW in 2013/14, which has since risen 1.6 times to over 34,000 MW. In just the last four years, India has doubled its renewable energy capacity to more than 70,000 MW out of a total power capacity of 346,000 MW, while another 10,000 MW of wind and solar projects have been auctioned and are in various stages of construction. The 2018/19 union budget allotted Rs 3,762 crore ($581.09 million) for grid-interactive renewable energy schemes and projects.

One of India's commitments at the landmark COP21 meeting in Paris in 2015 was that it would ensure 40 per cent of energy came from non-fossil fuels by 2030. For a country which until recently was heavily dependent on thermal energy from coal - and thereby had earned the reputation of being one of the world's biggest polluters, along with China - this target will be a major achievement, since energy demands in a developing country are constantly increasing. But A.K. Bhalla, Secretary, Ministry of Power, is confident of it being achieved. "By 2022 itself, 50 per cent of our installed capacity will produce power from non-fossil sources," he said at the 12th India Energy Summit in November.

Foreign direct investment (FDI) inflow into India's non-conventional energy segment between April 2000 and June 2018 was a substantial $6.84 billion, but is expected to rise to $80 billion in the next four years, according to an India Brand Equity Foundation (IBEF) report. The US think tank, Brookings Institution has noted that India's domestic private sector too has been investing heavily in augmenting renewable energy capacity.

Pluses and minuses

Reverse auctions for solar projects, combined with a global fall in the cost of solar panels and modules, has seen solar tariffs drop in India to a level where they are competing with thermal power tariffs. The lowest recorded tariff so far has been Rs 2.44 per unit, and while tariffs vary depending on the location of the project and the agency conducting the auctions - those like NTPC and the Solar Energy Corporation of India with their better financials, get lower bids than state owned power distributors - tariffs rarely rise beyond Rs 3 per unit anymore. (In 2010, when India's solar programme began, tariffs were around Rs 17 per unit.) The Centre and state governments are cooperating to set up 41 solar parks across 21 states, where all facilities for setting up solar projects are being made readily available. Separately, the last budget sanctioned nearly Rs 48,000 crore for the Kisan Urja Suraksha evam Utthaan Mahabhiyan (KUSUM) scheme, which seeks to replace irrigation pumps powered by grid electricity or diesel with solar pumps.

However, there are challenges, with the poor scale of solar manufacturing in India being a major one. Nearly 90 per cent of equipment used in solar projects is currently imported, mostly from China and Malaysia. The low capacity of domestic manufacturers means they are unable to compete on price. The finance ministry imposed a 'safeguard duty' of 25 per cent on solar panels and modules imported from these two countries earlier this year, to enable local manufacturers to compete better, but this is leading to higher tariffs. With the country having reached self sufficiency in power, overall power capacity addition is also diminishing, with current addition being 44 per cent less than it was at the same time last year. A report by solar consultancy, Bridge to India, feared the gap could increase further to 55 per cent by the end of the financial year.

Another major problem is that the solar rooftop programme has failed to take off so far. The government's solar target of 100,000 MW by 2022 had envisaged 40,000 MW coming from solar rooftop installations, but such capacity has reached only 2,500 MW so far. State governments have introduced net metering to enable such installations, but the response has been muted.

In wind energy too, the government has introduced reverse auctions and thereby brought about substantial tariff reduction, though the fall has not been as steep as in the case of solar. (Wind energy was not as expensive as solar in the first place.) Still, the lowest wind tariff too has been below Rs 2.50 per unit and is now in the same range as solar. Unlike in solar, wind equipment - towers, turbines and more - is made mostly indigenously, with local manufacturers like Suzlon and foreign ones like Siemens-Gamesa being major players. At the same time, rapid capacity increase has brought challenges in transmission, with transmission facilities failing to keep pace. Wind projects, unlike solar ones, can only be located in areas where wind speeds are high and transmission facilities in such areas are rapidly getting loaded to full capacity.

Mini-hydro projects of capacity less than 25 MW are part of the renewable energy segment, while larger ones are classified separately. Progress in both such projects and biomass ones has been less spectacular than in sun and wind, reaching around 4,500 MW and 10,000 MW respectively, with 682 MW of the former being added in the past year. Overall, the hydro sector, including large dams, accounts for 13.2 per cent of India's energy mix. However, they face financial challenges as well as socio-political disputes in some states. In contrast, solar and wind projects are controversy free, and with the technology established, getting financing is no longer an issue as it was even a few years ago. However, the progressively falling tariffs have begun worrying bankers about the viability of some of the projects.

Challenges remain

The main drawback of solar and wind energy no doubt is that their supply is erratic or 'infirm', varying from place to place, on different days and on different hours of the day. Solar energy, for instance, would obviously not be available at night. Discoms buying such power thus need to invariably have 'backup' energy from conventional sources. So far, using batteries to store the solar or wind power generated has not been a viable option for developers, since it more than doubles the cost of generation and hence the tariff. But battery prices have been falling and it is hoped storage will become feasible in the future. A better regulatory framework for storage systems and ancillary services also needs to be put in place.

Despite India having embarked on an ambitious project to build a green corridor for renewable power transmission, delivering power is another growing problem, with lack of enough substations and transmission lines. Absence of space in urban hubs for grids compounds the difficulties.

India is currently the fourth biggest renewable energy market in the world - after China, Germany and the US - having slipped from the second place - behind China alone - it occupied in 2017, according to EY's annual Renewable Energy Country Attractive Index. The slight slump is also seen in the fact that India added 9,500 MW in the last 12 months, according to IBEF, which was 20 per cent lower than it had done in the year before.

Anupama Airy is a freelance writer based in Delhi

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