How to reboot India’s renewable energy sector

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The SEC’s chargesheet on Adani and Azure indicate that renewable energy regulation is in trouble. To rebuild investors’ trust in the sector, here is what India can do

What is holding back the growth of solar power in India? Until November 20, 2024, answers to this question were relatively technocratic. Land acquisition was a key challenge, along with insufficient transmission lines, cash-strapped discoms, inadequate finance, weak support for rooftop solar, and rising solar tariffs as domestically manufactured modules became costlier. However, on November 20, those explanations shifted.

That day, the US’ Securities and Exchange Commission (SEC) claimed that Adani Green and Azure Power had bribed Indian officials for a project being set up with funds raised in America. While Adani Green has denied the charges, Azure Power has said it is cooperating with US agencies. The chargesheet also drew attention to broader concerns about renewable energy regulation in India.

According to the SEC, the Solar Energy Corporation of India (SECI) and the Union Ministry of Power (MoP) provided preferential treatment to the SECI tender, which clubbed manufacturing and generation. Notably, Andhra Pradesh, under the YSR Congress Party’s Jagan Mohan Reddy, signed a power purchase agreement (PPA) for 7 GW, even though the state had no immediate need for additional renewable power. Its state electricity regulator did not object to the purchase. These actions and revelations indicate that India’s solar energy market is not just poorly designed, as CarbonCopy has previously reported, but is increasingly dominated by a handful of powerful firms.

The costs of market distortion

India needs as much as ₹30 lakh crore to hit its renewable energy target of 500 GW by 2030.
However, the current investment level falls far short of that figure. As COP29 showed us, global climate finance is limited. The only entity with deep pockets in this arena are global and local investors — something policymakers recognise. As BJP leader Jayant Sinha, chair of the Parliamentary Panel of Finance in 2023, told Reuters at the time: “We almost have to double private sector capex in India to be on a net zero trajectory.”

These investors need healthy returns and a predictable regulatory regime. But when firms win Power Purchase Agreements (PPAs) despite being uncompetitive, others hesitate to enter the market. As Chandra, who tracks India’s energy sector, wrote in Scroll, “What hope can foreign companies and smaller companies, without access to the highest levels of politics and bureaucracy, have in navigating such processes?”

The anatomy of a breakdown

In the weeks after the chargesheet, SECI, MoP, YSRCP and APERC came under scrutiny. A deeper look reveals three even more fundamental issues plaguing India’s solar sector.

1) Solar tenders are disconnected from demand

In India’s electricity architecture, the Central Electricity Authority (CEA) studies power demand and projects supply scenarios. However, SECI, which floats solar tenders and sells them to discoms, does not base its actions on demand forecasts.

For instance, Andhra Pradesh’s 9 GW purchase raised serious questions. In 2021, TDP MLA Payyavula Keshav, now the state’s finance minister, asked SECI whether it had conducted “any load flow study or any demand study to check if the state needs the proposed 9 GW power?”. The lack of due diligence is not an isolated issue—over half of SECI’s tenders have found no takers, suggesting aggressive tendering—perhaps in a bid to chase the 500 GW by 2030 target—which is disconnected from actual demand.

2) Market concentration and capital control

India’s power sector is dominated by a few large firms. Time and again, these players are seen to influence policy—whether through alleged dilution of pollution norms or tenders structured to favor specific players. Maharashtra’s solar-cum-coal tender last year exemplifies this trend.

This concentration of capital is even more pronounced in India’s renewable energy sector. “The new energy system is worse than older systems like coal and oil,” said a now-retired IAS officer who has worked in the power sector. “It has fewer players – and almost all of them, despite power being a strategic sector, are private firms.”

Large firms derive efficiencies (and competitiveness) by building GW-scale solar parks. One fallout here is the acquiring of government lands for these parks. Another consequence is rising consolidation. As smaller players struggle to match the scale of large firms, capital gets further concentrated. Also, outdated subsidies from discoms, which had begun when solar power was fledgeling, have not been discontinued and are further distorting the market.

3) Political influence in power procurement

For decades, India’s political leadership has played a role in the country’s energy sector. Coal has long been a major source of influence. Over the past two decades, politically connected firms have secured hydropower MoUs. Now, solar is witnessing similar patterns.

YSRCP is not the first party to face charges of buying expensive power — or more power than the state’s renewable power obligation. After coming to power in 2019, Jagan Mohan Reddy, too, had said Chandrababu Naidu’s government had bought expensive power and, alleging corruption in these purchases, had cancelled PPAs. This recurring issue underscores the need for greater transparency and accountability in power procurement.

Some months ago, CarbonCopy met a former additional secretary in India’s Ministry of Power. “It’s a myth that India’s discoms are cash-strapped due to theft of power,” he told CarbonCopy. “That problem has been more or less fixed. India’s discoms are in trouble nowadays because of injudicious expenditure.”

Apart from these, there are older faultlines. Discoms, for instance, have been saddled with a pricing model where the biggest customers pay the highest bills. Consequently, large users switch to private generators, leaving discoms in a lurch. The country also needs to question whether manufacturing should be bundled with generation.

As all these processes seem to run unchecked, a larger drift in India’s solar sector is going unaddressed. India is one of the few nations that is bucking a global trend of solar power becoming the cheapest electricity in history. Effective solar tariffs (once overt and covert subsidies from discoms, etc, are added) are rising.

One reason is import substitution and protectionism. Another is transactions like the SEC case where states are being accused of wilfully buying expensive power.

A to-do list for repair

After speaking to power sector experts, CarbonCopy compiled a list of five policy changes that can restore India’s solar and power sector.

Those in the know said the country needs to move towards smaller and local generation. “In Europe, the biggest solar array will not be larger than 25 MW,” said the now-retired IAS officer. “They have set these up on landfills, etc, and created microgrids.” Experts believe this will rid the country of its land acquisition problems, leave farmland for the farmers, and move control from large private firms to local bodies and citizens who can set up their own micro-grids.

India also needs to look into redesigning its solar power tenders, said Rohit Chandra, assistant professor of public policy at IIT-Delhi. “SECI can do small experimental tenders to grow the market but, in the longer term, I think, developers will start contracting directly with state governments,” he added.

At this time, said Chandra, central and state government projections are unrealistic. States should come up with power demand projections that give a clear signal to the market,” he said. “What everyone wants are regular, predictable tenders backed by good projections.

They should say: ‘We will be coming out with seven tenders over the next three years, each of such and such sizes. Please bid’.”

For this to happen, he said, states will have to set up in-house cells for renewable energy planning.

The point about credible projections came up in CarbonCopy’s conversation with the now-retired IAS officer as well. “We need fresh techno-economic surveys on demand and supply,” he said. “Our major projects need to be reviewed. Once the 2003 Electricity Act liberalised generation, India saw many thermal and gas projects come up which were unviable. The same is now happening with renewable energy. And the same will happen with hydrogen and storage. We need a perspective plan. What is our power demand?”

Until now, solar and wind have been kept apart from fossil fuels. They are handled by the Ministry of New and Renewable Energy (MNRE), while the MoP oversees the rest of India’s power sector — including dams, thermal power projects and transmission grids. India should, said the now-retired IAS officer, subsume the MNRE within the Ministry of Power. “That will result in better planning.”

The country should also study whether unbundling the power sector — separating power generation, transmission and distribution has worked, he said.

As CarbonCopy has reported earlier, India’s power sector is rebundling again – with firms extending all the way from coal mines to generation to discoms; while also diversifying into renewable energy generation and backwards integrating into manufacturing — and becoming the preserve of a few firms.

The country needs to study whether this consolidation is serving national interest.

And then, there are the regulatory bodies. At this time, much like the Right To Information Act’s information commissioners, these bodies don’t get the support they need to be effective watchdogs. “Regulators are weakly staffed, dependent on consultants, and handicapped by low budgets,” said Prayas Energy Group’s Ashok Sreenivas. The selection of members needs to be reviewed too, he said. “If they are predominantly staffed by bureaucrats, government thinking will seep into their functioning.” The problems in the country’s electricity sector have to be fixed, said the now-retired IAS officer. “If we do not fix the major challenges, we will achieve nothing,” he said.