Factor

Renewable energy industry races to keep pace with New Delhi’s ambitious targets

18 October 2017 | Mitigation

Narendra Modi, India’s prime minister, has a habit of making audacious promises on behalf of his government, whether that be to electrify every house in India, create 10m jobs a year or build 8m toilets across the country.

In 2015, a year after Mr Modi’s Bharatiya Janata Party-led government came to power, finance minister Arun Jaitley made one of the boldest announcements yet.

He said that by 2022, India would build 100GW of solar power, part of a proposed 175GW of renewable power including wind, biomass and hydro that would quintuple the country’s renewable power capacity.

Two years on, India has seen a frenzy of bidding for new solar projects as prices drop to record lows. However, with the growth in wind power stalling and warnings of emerging problems in the solar market, experts are asking whether there is any chance of Mr Modi sticking to his ambitious timetable. “

The target is certainly achievable although I’m not sure it will be done by 2022,” says Arunabha Ghosh, chief executive of the New Delhi-based Council on Energy, Environment and Water. “It is more likely to happen a couple of years after that.” At the time of the announcement in 2015, India had installed just 34GW of renewable power.

To meet the 2022 deadline, it would have to add just over 20GW each year — equivalent to four of the world’s largest coal power plants. Doing so would require $160bn in funding, ministers calculated — four times that year’s defence budget and more than 10 times the country’s combined health and education spending for that year. Since 2015, the industry has lagged behind the required pace of installation.

As of the end of August, India had installed 60.8GW of total renewable capacity — about 70 per cent of the amount needed for the project to be on track. There are signs that implementation could be picking up speed, however. In 2017, India has set a string of records for low bids for new solar parks as companies take advantage of the fall in prices of Chinese-made solar panels.

In February, companies won a bid to build a solar park in the southern state of Andhra Pradesh after accepting a guaranteed payment for the electricity they will eventually produce of just Rs3.3 ($0.05) per unit of electricity. In April, another park in the same state came in at Rs3.15 per unit.

By May, the price had slumped to just Rs2.44 for a new project in Rajasthan. “The cost of equipment has fallen pretty rapidly,” says Mr Ghosh. “There is a lot of demand to develop solar parks as the land has already been allocated [for that purpose].” Some argue that low prices are storing up problems for the future.

Already, one risk is being realised. While companies had predicted the price of solar panels would fall from about 30 cents per watt to 25, they have instead risen this year to about 35 cents, in response to concerns that the panels could become subject to US anti-dumping tariffs.

Another consequence of the low bids is that states that have already agreed power purchase agreements with developers are trying to renegotiate them in the hope of a better deal. This, in turn, is slowing demand for future projects. There has been a drop in wind installation of at least 50 per cent.

The more significant hurdle for hitting the 2022 target, analysts warn, is the relative lack of growth in both the wind power and rooftop solar sectors. Of the 100GW of solar power planned by 2022, the government says it expects 40GW to come from panels installed on rooftops.

Currently, just 0.7GW comes from this source. “It is much more difficult to get scale with rooftop solar, and therefore to secure funding for it,” says Mr Ghosh. The expansion of wind power, meanwhile, has been slowed by the government’s decision to reduce subsidies in the sector.

“There has been a drop in wind installation of at least 50 per cent,” says Tim Buckley, director at the Institute for Energy Economics and Financial Analysis. “Wind power has hit an air pocket.”

Despite these hurdles, most analysts maintain that a long-term fall in solar panel prices combined with sustained demand to build solar parks, will enable India to eventually hit the 175GW target, if not necessarily in the way or at the pace originally envisaged. “We are probably a year off the 2022 target,” Mr Buckley says. “But India will get there.”

 

 

Source: FT