Expecting an overwhelming investment inflow, India has elevated its interim renewable energy target from 175 gigawatts (GW) to 227 GW by 2022. Though there are looming challenges such as potential grid connectivity and investor’s fear against falling tariff of solar and wind energy, the government is fully confident to overreach its previous set target.
The power and renewable energy minister RK Singh has announced the country will overachieve on its existing interim renewable energy of having 175 GW by 2022. “The country will overachieve its 175 GW renewable energy generation capacity target on the back of new schemes like floating solar, manufacturing-linked solar and offshore wind projects,” Singh said. He also said that India is increasing its 2022 target by 52 GW up to 227 GW, which would require an additional $50 billion worth of investments over the next few years.
Already the world’s fifth-largest country in terms of installed renewable energy capacity with 70 GW, and another 40 GW under tendering or construction, India has become one of the most potential destinations for solar energy in the world.
According to a latest report by the United States-based Institute for Energy Economics and Financial Analysis (IEEFA), five of the world’s largest under-construction solar parks are located in India. The report lists 14 of the largest under-construction utility solar projects in the world, of which five are located in India. Bhadla Industrial Solar Park (2,225 MW), Pavagada Solar Park (2 GW), Ananthapuramu – I Solar Park (1.5 GW), Kadapa Ultra Mega Solar Park (1 GW), and Rewa Solar Park (750 MW).
When it comes to operating solar plants, two of the world’s top ten are in India, the report stated. These two are the 1 GW ultra mega project in Kurnool, Andhra Pradesh and the Adani group’s 648 MW Kamuthi project in the state of Tamil Nadu.
The report also found that 2017 witnessed record-low utility solar tariffs in many countries like India, Chile, Mexico, and Saudi Arabia. India has started the construction of many industrial solar parks along with the world’s largest utility scale solar project (2,225 MW) at Bhadla solar industrial park in Rajasthan, which is nearly complete. The country has also commissioned the world’s largest rooftop solar unit in Punjab (19 MW), the report observes.
While India’s current installation numbers aren’t as dramatic as China’s, the report notes India is clearly embarking on a massive transformation of its electricity sector. The 2018 National Electricity Plan national plans to increase India’s renewable energy capacity to 275 GW by 2027, with solar representing two-thirds of this total.
However, the report also highlights the challenges of an increase in variable renewable energy generation, as it will require a plethora of technological advancements in system balancing and improved grid connectivity. Other changes such as better demand response management, grid stability, storage, system pricing etc. will be invaluable tools to support this unhindered growth in the renewable energy market.
India’s renewable energy sector attracted investments of over $42 billion over the past four years and green energy projects have created over 10 million man-days of employment per annum over the period.
“New opportunities have emerged. Altogether new business space has been created. Indian companies have begun to explore foreign stock exchanges as a source of funds. India is progressively becoming a most-favoured destination for investment in renewables. Foreign investors can enter into joint venture with an Indian partner for collaboration and setting up renewable energy-based power generation projects,” the Ministry of New and Renewable Energy (MNRE) said in a statement.
The ministry also said the country’s renewable power installed capacity has already reached over 70 Gigawatt (GW) and over 40 GW of renewable capacity is under construction or has been tendered. “Globally, India stands 4th in wind power, 5th in renewable power and 6th in solar power installed capacity. Solar energy capacity increased by over 8 times from 2.63 GW in 2014 to 22 GW. Wind energy capacity increased by 1.6 times from 21 GW in 2014 to 34 GW,” the statement said.
Reduction in incentives in China to benefit Indian solar projects
The revision in feed-in tariff rates and imposition of installation caps for solar power projects by the Chinese government is expected to negatively affect the demand for solar power modules in China. It has not only imposed a cap of 10 GW for new distributed generation solar power projects based on feed-in tariff in CY2018, against 19 GW installed in 2017 but further, has removed the capacity target for utility scale projects and stated that no new utility scale projects should be awarded on feed-in tariff basis.
According to Sabyasachi Majumdar, senior vice president & group head, ICRA Ratings: the policy changes in China are likely to impact the domestic demand for solar PV modules and consequently result in a softening of export prices for Chinese PV module manufacturers. This is likely to result in lower equipment costs for Indian developers.
“Out of the total 5.5 GW solar power capacity that has been bid out during FY2018, as much as 2.9 GW has been bid at tariffs equal to or lower than Rs. 3.0 per unit. The developers have based the bids based on expectations of fall in imported module prices and certain other advantages like availability of land and evacuation infrastructure for projects in solar parks,” said Majumdar.
Here onwards, any material reduction in module prices from the current levels would improve the viability of these projects. As per ICRA estimates, an 8 cent/watt decrease in the PV module price is estimated to lower the capital cost by about 13%, which in turn is estimated to result in an improvement in cumulative debt service coverage ratio (DSCR) by 0.15 times for a solar power project with tariff of Rs. 2.5 per unit. This is assuming a debt and equity ratio of 70:30, rupee dollar exchange rate of 67, cost of debt at 9.5% post commissioning with debt repayment tenure of 18 years and plant load factor (PLF) level of 24% (with DC-AC ratio of 1.3 times and degradation factor of 0.5% per year). The recent trend in INR depreciation against USD if continued will however partially offset the benefit of module price reduction for the solar IPPs in India.
Wind energy capacity addition estimated at about 3-3.5 GW in FY2019
The MNRE along with the distribution utilities in Gujarat, Maharashtra and Tamil Nadu have awarded wind-power capacity of 7.6 GW over the past 15 months and another 10 GW each are proposed to be awarded in FY2019 and FY2020. This is in line with the trajectory of project awards announced by the MNRE in November 2017 to achieve the cumulative wind capacity target of 60 GW by FY2022.
According to a report by ICRA, the project awards so far are expected to improve the capacity addition in the wind power segment to about 3-3.5 GW in FY2019 against 1.7 GW in FY2018.
“However, on a cautious note,” says Girishkumar Kadam, sector head & vice president, ICRA Ltd, “the winning bidders in these auctions face the twin challenges of project viability at the quoted tariffs and securing connectivity & long-term access to inter-state transmission network. While the regulations recently notified by the Central Electricity Regulatory Commission (CERC) on connectivity for renewable energy projects are positive for these developers, the adequacy of the existing inter-state transmission infrastructure in the states with high wind potential remains a challenge.”
The connectivity regulations recently notified by the CERC provide clarity on the procedure and timelines for securing connectivity from the central transmission utility and accord priority to projects holding a letter of award under the tariff-based competitive bidding. However, the uncertainty on availability of adequate evacuation infrastructure persists, given that the existing inter-state transmission infrastructure in the states with high wind potential may not be sufficient to provide connectivity to the projects bid out so far and proposed bids by the SECI. Moreover, the augmentation of transmission infrastructure would take about 24-36 months, whereas the winning developers must commission the wind power projects within 18 months from the date of award.
The significant decline in order volumes during the transition from feed-in tariff regime to competitive bidding regime, coupled with pricing pressures, had an adverse impact on the financial profile of the wind turbine manufacturers. “This remains a concern for the wind power IPPs using the services of such players as O&M contractors, given that the weakening of the financial profile would affect their ability to ensure machine availability for the wind farms,” says Vikram V, Associated head & assistant vice president, ICRA Ltd.
@EPC World
