This past fortnight, while the Andhra Pradesh (AP) government proceeded with plans to review and cancel power-purchase agreements signed with RE generators by the previous government, the Central Electricity Authority (CEA) revealed that discoms around the country owe dues totalling ₹3,012 crore (US $420 million) to renewable energy projects aggregating 5,982 MW of capacity. It seems likelier with each passing week that the slowdown in India’s power sector that saw finance for thermal power fall by 90% last year will extend to renewables in the coming months.
While the steep increase in discom losses over the past year has earned closer scrutiny from the CEA, the situation seems just as bleak on the manufacturing front. According to The Energy and Resources Institute (TERI), India needs to set up a solar manufacturing capacity of at least 15GW to meet its 175GW-by-2022 target. Currently, India’s manufacturing capacity stands at 3GW, less than 15% of the annual demand with the rest being met by imports. Last year, the Centre imposed safeguard duties on imported solar cells and modules to kindle domestic manufacturing. A year later, despite little sign of success, the Centre has announced intentions to double down on the strategy and hike the safeguard duties over coming years.
But while the cost of cells and modules have increased, loss-making discoms have continued to slash rates offered to generators to well below ₹3 per unit- from up to ₹7 per unit a few years ago. The resulting double squeeze is now threatening to pop India’s renewables bubble. With wafer-thin operating margins that look to crumble further, investors are staying away from renewables. The latest evidence of the slowdown comes from Gujarat where bids for only 150MW could be finalised against a target of 950MW in the August round of bidding.
The situation on the wind energy front, on edge from happenings in AP, has been jolted further by falling profits and the bankruptcy of Pune-based Suzlon Energy Ltd., one of India’s largest wind energy turbine manufacturers.
The Centre has stuck to repeating ambitious targets to increase installed RE capacity, but achieving them would involve adding almost 35GW of installed RE capacity each year. Considering that even during the heights of investor confidence, between 2014 and 2017, India managed to add just 33.3GW, the current slowdown could soon sound the death knell for the sector if a turnaround isn’t in the offing. The government too will undoubtedly find itself in an uncomfortable position, especially at international negotiating forums, where it has time and again pitched its RE ambitions to posture itself as a leader of climate action. After all, tall claims breed fat expectations.