Challenges of solar IPPs in India

Solar Energy in India

A pertinent question that has been raging in the field of renewable sector is: Is India’s 2022 solar target of 100 GW for real? It may be an ambitious number but definitely not unattainable. Solar fundamentals are so compelling in India that the sector is bound to grow gigantically with India likely to become one of the largest solar markets globally in the next 3 years. India is already well on its track to enter the top five solar markets globally. By changing RPO (Renewable Purchase Obligation) targets (solar specific) for the year 2022 to 10.5% from 3% of all consumption of power in India which is yet to be ratified as per the Electricity Act of 2003 provisions,  India has plans to raise its solar capacity to 100 GW by 2021 from 20 GW in 2020. The 100 GW target has been divided in a 60-40 ratio between utility scale and rooftop and small projects respectively.

Both state and central governments have released several policies and schemes for accelerating the development of solar projects. The Centre has taken the lead with the National Solar Mission (15 GW worth of projects by the year 2019) and other initiatives like the policy related to solar parks and an interest rate subvention scheme. Many states, such as Andhra Pradesh (5 GW), Telangana (5 GW), Maharashtra (7.5 GW), Tamil Nadu (3 GW) and Karnataka (2 GW) have followed with massive targets. There will be several challenges in the way of accomplishing these plans, including land acquisition, project financing and transmission woes. However, the biggest hurdle will center on the enforcement of RPOs and the poor bankability of India’s DISCOMs or distribution companies. Since electricity is a recurring topic of discussion, i.e., the center and the states both legislate on it, the states have the option to not take into account the central government directives.

Growth of rooftop solar power generation majorly depends on its financial competitiveness vis-a-vis grid power. The government has of late announced encouraging financing initiatives to improving availability and cost of debt financing to go along with wide ranging net-metering policies. But experts are of the belief that these measures may not be anywhere near sufficient to reach the rooftop solar target of 40 GW. However, keeping this in mind, the overall outlook for solar energy in India is immensely positive and it is further complemented by powerful underlying fundamentals such as the increasing cost of conventional power, environment based concerns, lowered costs of solar power overall, huge irradiation, a high power deficit and the ability of solar to quickly bring power generation capacity online. These factors coupled with several state and central government initiatives should contribute towards making India one of the largest solar markets in the world. 

The viability of renewable energy projects

Renewable energy production involves natural phenomena such as sunlight, wind, tides, plant growth, and geothermal heat. According to the explanation given by the International Energy Agency: 

"Renewable energy is derived from natural processes that are replenished constantly. In its various forms, it derives directly from the sun, or from heat generated deep within the earth. Included in the definition is electricity and heat generated from solar, wind, ocean, hydropower, biomass, geothermal resources, and bio-fuels and hydrogen derived from renewable resources."

In recent times, there has been a renewable energy debate about the constraints and opportunities associated with the use of renewable energy. Renewable electricity production, from sources including wind power and solar power in India, is sometimes facing criticism for being variable or intermittent. There have been "not in my back yard" (NIMBY) concerns relating to the visual and other impacts of some wind farms. In the USA, the Massachusetts Cape Wind project was delayed for years partially due to aesthetic concerns. 

Renewable energy is also the most economically viable solution for new grid-connected capacity in areas without using cheap fossil fuels. With the cost of renewable power decreasing, the scope of economically viable applications will rise. Levelized Cost of Energy (LCOE) is a commonly used metric to compare the costs of various energy generation technologies. To put in simple terms, LCOE is the ratio of the total cost of the power source to the total energy output over its life, expressed in dollars per kWh. The total cost takes into account various factors including the initial capital investment, interest, operations & maintenance costs, and fuel expenses.  Levelized Avoided Cost of Energy (LACE) is a metric that quantifies the potential revenue that can be earned by adding renewable energy sources rather than buying power from other grid sources. The economic viability of an energy source is the difference between LACE and LCOE.

Renewable power technologies can have significant environmental benefits. As opposed to coal and natural gas, they can generate electricity and fuels without the emission of harmful quantities of CO2 and other greenhouse gases that lead to climate change. When it comes to an aesthetic viewpoint, both solar and wind have been criticized. Those that support renewable energy also raise the argument that current infrastructure is less aesthetically appealing than its alternatives. 

All being said and done, there’s no denying the benefits of a clean energy future, for the world has an incredible Renewable Energy Project potential which can create millions of jobs and save millions of lives from air pollution and other hazards of the current energy system. 

Can India set an example when it comes to renewable energy development?

The renewable energy sector in India has been witnessing a rapid growth in recent times, and consequently, it presents an opportunity for strong financial returns.There are quite a few factors behind this. India is short of power, and thus, new renewable capacity generates electricity for a market which is undersupplied. Secondly, renewable energy can be more swiftly taken to market in place of other alternatives like coal fired power. Besides, renewable electricity prices are similar to those of electricity from other sources. India benefits from truly market-led renewable energy demand, without any major subsidies. There has been consistent and vital support from the Indian Government and this has not only reinforced the market fundamentals but also created a dynamic market which seems firmly on the growth path. The country already possesses 35 GW in terms of overall renewable energy capacity and plans to grow this 500% over a period of six years from now. Indian renewable energy development has presently got a shot in the arm and is progressing at a rapid pace.

India presently has a golden chance to properly shape its entire policy. Social and economic growth are one of the priorities of the government’s agenda, and new energy sources to cater to this demand are increasingly being derived from renewable energy. A number of factors have contributed to this. Besides the government policy which has been supportive, a wider set of actions, which include incentives, infrastructure and investment promotions, were taken up. Technology development, larger-scale projects and the learning effect has facilitated the use of efficient designs and have brought down costs. This makes renewable energy alluring to power utilities that are contracting new long-term capacity, and in addition, this helps avoid burdens relating to the fuel risk and also take or pay contracts. Multiple renewable energy projects have also come into being.

Renewable energy companies are minimally dependent on fiscal support from the government in India. It signifies an investor with a given capital can fund more projects across regions or even various asset classes for diversification into risks which are resource based. Additionally, a lower cost structure also means that an investor gets early or better prepared gains from better returns. Public opinion is positive with the recognition of environmental, economic and social benefits. According to recent studies, wind potential of 40-65 times higher is possible with new technologies and more scale. Additionally, new initiatives have come up for exploration of offshore wind, provision of solar parks or construction of transmission corridors for green energy and these can support overall development of the market. The considerations to meet energy demands, lower costs, sustainability and energy security are fueling renewable energy growth in the country. This also holds true at a global level. The industry estimates that Europe will add 109 GW of renewables by 2020 while India aims at reaching a staggering 175 GW or even adding 140 GW by the year 2022. This makes for a lucrative opportunity for developers and suppliers and is also a significant transformational chance for the power market and electricity policy alike.