Renewable energy goals may slip on funding gaps

New Delhi: Concerns are beginning to be raised over India’s ambitious targets to crank up solar and wind energy production, thanks to the perilous finances at the primary customers: the state government-owned distribution utilities.
The inability of these utilities to effect necessary but unpopular tariff hikes are expected to impact their ability to purchase costlier green power. In consequence, the entire renewable energy industry may add only 4,000-5,000 megawatts (MW) of capacity in the second year of the Narendra Modi government, the head of an industry panel on renewable energy said.
That compares with the official target to install 100 gigawatts (GW) solar power and 60,000MW wind power by 2022.
The country probably added 2,000MW of wind energy in 2014-15, said Sumant Sinha, chairman of the national renewable energy committee of the Confederation of Indian Industry (CII), calling it “very much consistent” with the capacity addition record of the previous three-four years. “So there is not going to be any fundamental change. Solar is going to be about a 1,000MW.”
ReNew Power Ventures Pvt. Ltd, of which Sinha is chairman and chief executive, plans to set up 11,500MW of renewable energy in the next five years.
In India, the world’s biggest greenhouse gas emitter after the US and China, renewable energy accounts for only 12.14%, or 31,692.14MW, of the total installed capacity of 261,006.46MW. The government recently raised the solar power target fivefold from the previous target of 20,000MW.
Sinha said he does not expect more than 2,000MW of wind capacity getting added in 2015-16. “Because, ultimately, it’s all the states that buy. And I see the state policies and I can see which states are likely to buy and which are not likely to buy,” Sinha said, pointing to “proclivities and inclinations” in states.
“In solar, it will be a little bit more, largely on account of state policies,” Sinha added. “So this year—which in some sense is year-two of the Modi government—I see a maximum 4,000-5,000MW of total renewable adds. And, if something doesn’t fundamentally change in wind, I don’t see any change in capacity beyond these numbers,” said Sinha.
State government-owned electricity distribution companies (discoms) are saddled with a cumulative debt of `3.04 trillion and losses of `2.52 trillion. According to the ministry of new and renewable energy (MNRE), as on 28 February, grid-connected green power added in the country in 2014-15 was 2,663.67MW against a target of 3,770MW. Of this, wind and solar contributed 1,512.80MW and 750.77MW, respectively.
“The renewable generation targets set out by the government are highly ambitious and possibly not attainable with the current set of constraints in the industry,” said Abhishek Poddar, a partner at consulting firm AT Kearney Ltd. “The biggest stumbling block to the same is the weak financial position of state discoms. It impacts generation capacity but hits renewable energy the most given its relatively higher cost of supplies vis-à-vis conventional energy and, hence, the reluctance of discoms to pick it up. Also, delayed payments from discoms affect the investment capabilities of RE (renewable energy) players, given many of them are still mid-sized players,” Poddar added.
States are expected to play a key role under an MNRE roadmap to add 175,000MW of green energy by 2022.
“Because, ultimately, the buyers are state discoms… But you see, the messaging is happening at the top level. The messaging is not being received at the states. It is going to take time. The central government is doing whatever is in its power.”
The poor financial health of state electricity boards is a major problem, says Ramesh Kymal, chairman and managing director, Gamesa India, a wind turbine manufacturing firm. “The way around is allowing open access, enforcement of renewable purchase obligations and long-term policies. If the policies don’t change, the position will remain the same,” Kymal said.
The central government is aware of the issue.
“The discoms are the big scare and hold the key to the whole plan. The losses have been adding up. All this capacity that is being added, someone has to pay for it,” said a government official, requesting anonymity. Another government official, who also didn’t want to be identified, agreed, saying, “We are aware of the problems and will be tackling them.”
Queries emailed to an MNRE spokesperson remained unanswered till press time.
Rating agency ICRA Ltd in a 13 report identified the higher costs of power and operation and maintenance, as well as “additional cost estimate arising from final true-up of cost incurred in the previous periods (FY12-14)” for the significant revenue gap at distribution utilities. The government is expecting an investment of $200 billion in green energy projects to help around 300 million Indians get access to electricity in a country where per-capita electricity consumption is one-fourth of the world’s average.
Source: Mint; 07 April 2015
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