By Khushboo Goyal, Associate Director, REGlobal
Being one of the world’s top emitters of greenhouse gas emissions (although its per capita emissions remain low), India’s role has always been critical at COP summits. With a growing population and energy demand, the country faces the challenge of meeting its power requirements while staying committed to its emission reduction goals. At the 2021 summit in Glasgow, India, on the one hand, advocated for a coal phase-down rather than a phase-out and, on the other, it announced its intention to become a net zero economy by 2070.
To its credit, the country has remained resolute in its commitment to the green energy transition, setting a more ambitious target to increase its non-fossil energy capacity to 500 GW and meet 50 per cent of its energy demand through renewables by 2030. The country remains a leading destination for renewable energy investments and is among the top countries in terms of renewable energy deployments. The successive Covid-19 pandemic waves and geopolitical concerns over supply chain issues have also not impacted the country’s renewable energy growth. Now, with renewables maturing as a sector, India is diversifying its renewable energy mix further, with a greater focus on energy storage, green hydrogen, renewable energy hybrids, and more innovative and inclusive business models. While certain barriers still exist, they are expected to be overcome over time, as in the case of any infrastructure sector.
As this year comes to a close, we reflect on and summarise the key trends of the year – some positive and some not…
Energy storage takes centre stage: Energy storage has become a crucial part of the entire power sector value chain with renewable energy penetration increasing in the electric grid. The key reason behind this is the infirm and seasonal nature of renewables – simply put, solar is only available during the day and wind can stop blowing unexpectedly. Therefore, energy storage systems play a key role in providing backup power when renewables generation decreases and also contribute to grid stability. Energy storage provides quick ramp-up and ramp-down, and peak load management capabilities and other ancillary features.
To promote the adoption of energy storage, the government has implemented various initiatives, including viability gap funding for battery storage, guidelines for pumped storage systems, and guidelines for energy storage bidding. The industry has embraced energy storage projects, both battery and pumped storage. Various large tenders have been issued and projects are under way to develop capacity.
Slowdown in capacity additions: With about 130 GW of installed non-hydro renewable energy (as of October 2023), India still has a long way to go to meet its targets for this decade. The Central Electricity Authority’s National Electricity Plan projects India’s installed renewable energy capacity to cross 500 GW by 2031-32 and contribute 56 per cent share to the total capacity mix. A simple calculation shows that the country requires at least 40 GW of annual renewable energy capacity addition to achieve this target by 2031-32.
However, only 15 GW of renewable energy capacity was added between April 2022 and March 2023, and just 7 GW in the seven months in the current financial year (between April 2023 and October 2023). Adding almost 33 GW of renewable capacity in the remaining five months will be a herculean task, particularly in light of the recent trend. In June 2023, 2.8 GW of renewable capacity was added, with capacity additions dropping to 1.2 GW in July 2023 and continuing to decline – only 629 MW, 269 MW and 349 MW of renewable energy capacity was added in August 2023, September 2023 and October 2023 respectively. These numbers highlight the urgent need for improvement in order to achieve the targets in a timely manner.
Continued growth in the C&I segment: The commercial and industrial (C&I) segment has emerged as a key contributor to India’s renewable energy growth. C&I consumers are increasingly switching to renewables, which have become highly cost-competitive compared to power obtained from discoms. Energy-intensive industries and corporates are opting for standalone solar, wind or small hydro, and are also exploring hybrids and round-the-clock (RTC) renewable power. Many responsible business houses have devised their own renewable energy and net zero strategies, greening their image for investors as well as consumers.
The sight of rooftop solar installations on factories and corporate buildings is now commonplace. Consumers are also leveraging attractive opex-based models, open access arrangements and group captive arrangements, power exchanges and even virtual power purchase agreements. Specialised developers cater to the unique needs of the C&I segment and even IPPs, traditionally focused on the utility-scale segment, have now forayed into this space. The C&I segment is poised for further expansion as there is a huge untapped potential in the corporate green energy transition.
Open access hurdles remain: Although the C&I segment has taken off, challenges still restrict growth in the open access space. The Green Energy Open Access Rules were introduced to alleviate some of the concerns. However, there is a disparity between the rules introduced at the central level and their actual implementation at the state level. While these rules were introduced in 2022, till date, very few states have formally adopted them, and only a handful are implementing them. This gap between streamlining of policies and regulations at the central level and their adoption by various states is a major challenge for open access projects at the moment.
Meanwhile, many lenders are hesitant to finance such projects and awareness remains an issue. Challenges persist in the form of land acquisition, grid connectivity and additional charges, which vary from state to state. Further, discoms that depend on high-tariff C&I consumers for a large part of their revenue are still hesitant to let go of these customers. What is needed at this point is the uniform adoption of the open access rules in every state across the country, with all discoms and utilities abiding by them. Further, permits for land and grid connectivity need to be fast-tracked to enable open access to truly take off.
Green hydrogen takes off: The year commenced with the approval of the National Green Hydrogen Mission, backed by a budget outlay of Rs 197,440 million, followed by the release of a framework document. Throughout the year, the government has implemented various interventions including incentive schemes for green hydrogen production and electrolyser manufacturing, waivers on ISTS charges, green hydrogen standards and an R&D roadmap for green hydrogen.
As a result of these enabling policy steps taken by the government, the green hydrogen space has witnessed significant activity this year by both public and private players. Several large projects have been announced in green hydrogen production as well as electrolyser manufacturing. Meanwhile, MoUs have been signed with state governments and investment decisions announced for GW-scale renewable energy parks and green hydrogen production. Interestingly, many of these projects are being developed specifically for exporting to other countries, mainly in Europe. Some projects are also being built to cater to industries in energy-intensive sectors such as steel and fertilisers. The green hydrogen mobility and natural gas blending segments have also witnessed some activity. With these positive developments, it will be interesting to see how the country’s green hydrogen ecosystem shapes up in the coming months.
Restricted bids in the wind segment: Earlier this year, the government decided to overhaul the existing mechanism of reverse auctions for wind power projects and move to a closed bidding system. Under this mechanism, bids for a cumulative capacity of about 8 GW were to be issued each year from January 1, 2023 up to 2030. These bids will be composite and consist of state-specific sub-bids. This mechanism was introduced to promote the growth of wind power in the country, which had stagnated since the introduction of reverse auctions. Closed bidding aims to restrict the practice of aggressive low bidding in reverse auctions, which previously allowed only a few large developers to secure capacities. It is also meant to limit the skewed development of wind power, which was leading to land and grid availability issues in the few states where the majority of projects were concentrated. While the intention was well founded, the results have not been as expected. This year, only four auctions have been conducted, with a total tendered capacity of 2.1 GW from January 2023 onwards, and only 1.6 GW of capacity added between April 2023 and October 2023. With more than half the year already gone, it seems likely that the capacity additions will be low, like in the past few years, and it will take time before the actual impact of closed bidding is felt.
Increased demand for RTC renewables: As utilities and the C&I segment focus on greening their energy mix, there has been an evident shift towards demand for firm and reliable RTC renewable power. Many consumers now do not want standalone solar or wind but a hybrid of these technologies with energy storage, which can guarantee them clean and green energy 24×7. Various attractive and innovative business models have come up in the market, with developers offering a range of solutions for peak load shifting or supply of renewable energy for a few hours. RTC renewables also have application in the green hydrogen space, where continuous supply of clean electricity is a prerequisite.
With battery storage costs still high, pumped storage has emerged as a saviour for many of these developers supplying RTC renewable power to clients. Going forward, the demand for RTC renewable energy is only going to grow, with the improving cost economics of batteries and growing demand for longer durations of clean electricity.
Policy flip-flops: Like any infrastructure sector, renewable energy assets are capital-intensive and designed to last for at least 20-25 years. Thus, clear visibility and a well-defined policy and regulatory framework are absolutely critical to instill confidence in developers and investors. While the country has been largely successful in this respect, some urgent concerns regarding policy uncertainty persist. For instance, the deadline for complying with the Approved List of Models and Manufacturers for solar power projects was revised to April 2024 after multiple extensions, leaving the industry in a flux. Further, the basic customs duty imposed on solar cell and module imports lacks a defined sunset period.
Similarly, in the case of net metering for rooftop solar projects, the eligible capacity was a cause of concern for consumers and developers. Meanwhile, in the case of group captive and open access projects, charges such as cross-subsidy surcharge and wheeling charges have long created significant confusion among industry stakeholders. The offshore wind development strategy too has been revised a couple of times. Thus, while many policy interventions are under way, it is important to ensure consistency in policies and regulations, allowing market dynamics to set the course for further development.
Strong financing environment: According to the 62nd edition of EY’s Renewable Energy Country Attractiveness Index, India ranks sixth among the world’s top 40 countries based on the attractiveness of the opportunities offered in renewable energy investment and deployment. The country’s growing renewable energy sector continues to be an investment hotspot for global investors with deep pockets. This year has witnessed noteworthy equity deals in the renewables space, primarily involving foreign investors. Meanwhile, the debt market showed promise with significant debt being raised from public banks.
The Indian renewable energy sector’s ability to consistently attract large investments from local as well as overseas financiers can be attributed to the presence of a very transparent and competitive bidding mechanism, clear policy guidelines and an enthusiastic private sector. This strong financing environment is likely to sustain in the coming years as India moves towards its renewable energy goals.
Floating solar finds takers: Land acquisition has historically posed a significant challenge in the deployment of solar power projects in India. Meanwhile, floating solar projects that are installed on water bodies such as lakes, ponds and reservoirs of thermal and hydro power plants are exempt from land-related challenges, leaving land free for agriculture, housing and other activities. Floating solar projects have shorter gestation periods as they do not require extensive civil works and they also have higher generation potential than their ground-mounted counterparts.
Further, when floating solar projects are co-located with hydro or thermal power projects, various synergies in transmission utilisation and other infrastructure can be realised. Floating solar technology has also advanced over the years, making it more commercially viable for large-scale projects. Thus, the past year has witnessed the announcement of several tenders and commissioning of many large projects. Several auctions have also been conducted, with competitive tariffs discovered. This space is expected to keep growing as thermal and hydro project operators opt for these solutions to complement and increase their renewable energy generation.
Outlook
In conclusion, this year has been an interesting mix of hits and misses for the renewable energy sector. While capacity additions have declined and very few wind auctions have been conducted, segments such as green hydrogen and energy storage have gained significant momentum. Meanwhile, the C&I and floating solar segments continue to grow, driven by market dynamics. Anticipated hurdles will persist as the market continues to develop and transform. However, the introduction of required policy and regulatory frameworks is expected to alleviate most of these concerns. Overall, the setbacks appear temporary, and India is poised for significant renewable energy growth in the coming years. Continuous innovation, steady investments and timely government interventions are crucial for realising this potential.
