Renewable energy future hinges on policy execution

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The year 2017 brought both despair and hope for the Indian renewable energy sector. The auctions in the wind energy sector triggered a wave of disruption. Capacity additions came to a halt as the success of auctions transformed the way states procure wind power—moving from feed-in tariffs to auction-based purchases.

The transformation inflicted much pain. States became wary of the power purchasing agreements (PPAs) already signed at higher rates. Hit by buyer’s remorse, some sought to renegotiate high tariff contracts while some resorted to purchase back-downs. Back-downs refer to the buyers stopping, deferring, or reducing power offtake.

 

Meanwhile challenges in the broader sector became more apparent. Execution delays, evacuation problems, payment delays, and arm-twisting by the procurers exploring the loopholes in PPAs came to the fore, denting investor confidence.

Just as India’s renewable energy mission was thought to be losing steam, the government stepped in to reassure the stakeholders.

It reiterated the focus on renewable energy, releasing the capacity additions road map.

Further, the central government sought to address industry concerns by issuing strictures against PPA renegotiations and incorporating safeguards for developers against purchase back-downs and payment delays in auction guidelines.

Still, skepticism remains. As Raj Prabhu, chief executive officer of Mercom Capital Group, a clean energy communications firm, points out, much depends on implementation. “If they can tender 17GW as promised by next March, development activity will get going again. But, as we have seen before, the government tends to be better at announcing big numbers than actually implementing it on the ground.” GW is short for gigawatt. It equals 1,000 megawatts (MW).

U.B. Reddy, managing director and chief executive officer of Enerfra Projects (India) Pvt. Ltd, says even as auction guidelines provide safeguards to the developers, it has to be seen how quickly a legal resolution can be found in the event of a default in payments by the buying party in a PPA (usually government utilities).

Further, Reddy adds that grid connectivity and lack of clarity on charges remains a major issue. According to Mercom’s Prabhu, hundreds of MW of solar capacities are complete but cannot be commissioned due to a lack of grid infrastructure and evacuation issues. “There is a huge communication gap between policies announced on paper by the central government and implementation challenges experienced by state agencies,” he adds.

 

Reddy of Enerfra points out that the bidders of the wind auction in February are yet to get clarity on interstate transmission charge. “The bidders assumed there will be no charge to them, but PGCIL (Power Grid Corp. of India Ltd) has correctly said they need to be compensated in some manner. This charge can be quite high, leading to a major gap in understanding between various parties,” Reddy adds.

Then there is uncertainty surrounding the anti-dumping duty on solar panels and equipment. With most of the equipment currently imported, industry participants are worried that the imposition of anti-dumping duty will trip their capacity addition plans, raising costs and questions about project viability.

Overall, much needs to be resolved. The government has shown its intent in ensuring that the sector continues to grow. It needs to show more action on that front in 2018 for investor confidence to recover.

 

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