There is much to celebrate when reviewing the developments witnessed in the renewable energy sector in India in 2016. In 2016 the renewable energy capacity commissioned was higher than thermal capacity addition for the first time.
Solar power expectedly dominated the Indian renewable energy space in 2016 - the highest ever annual solar capacity was added (4GW), recording unprecedented low tariffs, and commissioning the world’s largest solar PV power plant with a capacity to produce 648 MW in Kamuthi, Tamil Nadu.
The phenomenal growth recorded in the sector in 2016 was despite the disappointment among stakeholders in the renewable energy sector regarding the 2016 budget. Only a little over half of the Ministry of New and Renewable Energy’s (MNRE) budgetary ask for the renewables sector was actually allocated to the sector. Further, the reduction of the accelerated depreciation incentive to 40 percent from the previous 80 percent effective April 2017 created uncertainty in the sector.
Expectations from the 2017 Union Budget
Some of the key concerns plaguing the rapidly growing renewable energy sector include curtailment of renewable power (particularly wind power), constrained inter-regional transmission capacities, delay in payment to generators, regulatory uncertainties, and delays in signing or non-signing of Power Purchase Agreements (PPAs). While some of these could be resolved in the short-term through allocations under the 2017 budget, other hurdles such as constrained inter-regional transmission capacities will require long-term interventions.
There is an urgent need to develop and institutionalise innovative financial instruments to underwrite the risks plaguing the renewables sector in India at preferential rates. Instruments tailored specifically to suit the requirements of solar and wind developers, could mobilise the flow of both domestic and international debt and equity, keeping up the pace of deployment even as more fundamental sectoral interventions are put in motion.
While several such instruments are currently available in the private market, their cost makes them prohibitive for developers and investors. To address this challenge, the government should consider scaling up the previous budget allocation of Rs 9,200 crore in public enterprises (IREDA and SECI), which aid the growth of the renewables sector.
The additional public investment could be leveraged by way of providing low-cost finance, increased issuance of government-backed securities, and the deployment of financial instruments that underwrite risk through these enterprises. The Council on Energy, Environment and Water (CEEW) is currently engaging with several national and international stakeholders to determine instruments that enable public funds to create the maximum leverage, given market conditions.
Secondly, the government should prioritise the setting up of the first green bank in India in the 2017 budget to facilitate more foreign investment into the sector at concessionary rates. Allocation of the necessary funds for green bank activities in the 2017 budget, setting a precedent for future budgetary allocations, could be a game-changer for the sector.
Thirdly, tariffs in 2017 will depend on the implementation of the Goods and Services Tax (GST) regime. At present, India’s celebrated solar bids of Rs 4.34 are more than twice the lowest global solar tariffs bids, namely Chile (Rs 1.94/kWh). CEEW’s analysis estimates that solar tariffs could increase up to 10 percent if the existing tax exemptions are disregarded while determining the applicable GST slab for solar components.
However, if current exemptions were considered while deciding the applicable GST rates, the increase in solar tariffs would be insignificant. An instrument or mechanism to offset such predicted increase in tariffs could be announced under the 2017 budget. Alternatively, the government could also consider rebooting the accelerated depreciation benefit back to 80 percent.
Fourthly, the budget should show ambition in putting India on track to becoming a solar module manufacturing hub, similar to what India has already achieved for the wind sector. The government could push through the Pradhan Mantri Yojana for Augmenting Solar Manufacturing (PRAYAS) initiative, which had been promulgated under the Make in India campaign late last year, and provide much-required financial incentives to promote manufacturing.
Fifthly, the government should also emphasise and incentivise the development and deployment of productive use of renewable energy solutions, such as solar pumps and solar sprayers in rural areas by focussing on both the availability and affordability of funds for promoting rural applications of renewable energy, including decentralised renewable energy systems.
Sixthly, energy storage is steadily becoming an indispensable component of solar energy systems, primarily for rooftop and decentralised systems, owing to the intermittent nature of renewable power generation. MNRE had allocated a meagre amount of Rs 18 crore towards research and development and implementation of schemes pertaining to energy storage in the renewable energy sector in 2016. This allocation needs to be enhanced significantly under the 2017 budget to foster innovation in energy storage research.
A seventh requirement would be to enable both solar manufacturing and deployment growth at scale. India would need to ensure the availability of skilled manpower through targeted skill development programmes, under the 2017 budget. CEEW-NRDC’s analysis estimates as many as four direct full time equivalent jobs per MW of operational manufacturing capacity could be created in the solar module manufacturing sector.
Finally, land-related issues have always troubled the sector. Following up on the Digital India Land Records Modernization Programme announced earlier, the government in the upcoming budget could provide for setting up of nodal agencies, which could act as “land banks” for easy access for developers to obtain required land for renewable projects.
The year 2017 could be the tipping point for India’s renewable energy sector. The upcoming budget could provide an adrenaline boost as India races towards meeting its aggressive renewable energy goals by 2022.
(The writers are researchers at the Council on Energy, Environment and Water – an independent not-for-profit policy research organisation based in New Delhi. They can be reached at firstname.lastname@example.org and email@example.com)
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Updated Date: Jan 18, 2017 10:55 AM