Renewable Energy sector in India – how did 2018 go and what industry expects from the Govt. in 2019

December 31, 2018

The year 2018 saw the renewables sector responding positively to various Government initiatives resulting in a steady addition to capacity. We now have around 70 GW of installed capacity with another 15 GW currently under construction. This implies significant progress towards the ambitious target of 175 GW that the Govt. had set for this sector. However, the year was not without its share of challenges – with a depreciating rupee and rising interest rates impacting profitability of projects, especially with a cap on tariffs. With financial markets tightening, some players found project financing a tall order. As some companies bid aggressively, overall risk in the system has gone up. Our biggest takeaway from the year gone by is the need to bid factoring in all market dynamics. We have to create businesses that are sustainable in the long run, and a sector that is healthy and yet competitive. In 2019, the industry expects the following strategic interventions from the Government to maintain the growth trajectory:

  • Finely balance its objective of ensuring affordable power with the need to incentivize RE companies through healthy returns. Renewables being a capital intensive sector, there is a need for more broad based, diverse sources of capital. This will only happen when the Govt. can ensure reasonable returns that take into account all the risks including execution and financial risks. It would do good to relook at the cap on tariffs and allow pricing to be decided by a competitive auction

  • Strengthen the grid through better management; take steps to enhance the grid’s capability to absorb more RE than at present. This will require more transmission lines to be set up, use of state of the art software etc.

  • Develop robust evacuation infrastructure in high wind and radiation zones – this will enable more competitive tariffs

  • Prop up the demand side – move more consumption towards renewables, encourage shift from utility scale to distributed solar – promote use of solar pumps and other such innovations

  • Introduce more storage based bidding and incentivize the development of storage in the country for better grid management

  • Focus on restoring discom health – enforce discoms to meet RPO targets, this might somewhat increase their appetite for more sustainable tariffs