CRISIL, an India-based credit-rating agency owned by S&P Global, has forecast that the sector will install just 58% of the 175GW target, which does not include hydro, by 2022.
It cites policy changes, overly aggressive lowering of the tariff caps set in renewable energy auctions and foot-dragging by state power distribution companies (discoms) once developers have successfully bid into auctions.
For example, the shift in the wind sector from fixed feed-in tariffs to competitive auctions means that few bids are being received from developers. Equipment manufacturers have made representations to the Government, but it is unlikely to change its decision to move to competitive bidding.
In Andhra Pradesh, one of the leading states for renewables development, the state is attempting to renegotiate power purchase agreements (PPAs), resulting in disputes with developers and leading discoms to delay payments to operating projects. The Ministry of New and Renewable Energy is strongly opposed to any changes in signed PPAs, however, so it remains to be seen if such a step will be taken.
In solar, ground-mounted systems are expected to provide 60GW of the 100GW target. Here, developers are under pressure from squeezed margins from reverse auctions, tariffs on imported systems, and rising financing costs. As of the end of September, about 29GW of ground-mounted solar had been installed. Similarly, roof-top solar uptake has a long way to go; by the same date, only 2.2GW was operational.
However, the Government – which hit back at the CRISIL report, claiming it doesn’t take into account projects under development or in the bidding process – is acting to relieve some of these pressures. For example, land acquisition has been a challenge for developers, but the Government has stepped in to provide sites in recent tenders. It is also working to provide transmission capacity for sites that are distant to demand centers, which should ease pressure on potential bidders. In addition, it has encouraged discoms to begin giving letters of credit to power generators, easing payment delays.
On roof-top solar, the Government is responding by incentivising distribution companies, offering them subsidies for speeding up connections, while the Kerala State Electricity Board – the local discom – has launched a program to install 500MW of rooftop solar. In addition, the World Bank and the Asian Development Bank are offering discounted lending to installers of rooftop solar, to help reduce financing barriers.