Issues With 450 GW

Research note on potential issues, which may arise in lieu of
the renewed target of 450 GW for capacity addition in the

Indian renewable energy sector.
1) Vague and unambiguous statement:
The announcement by the PM regarding the increment of India’s renewable energy

capacity target to 450GW did not set a time limit for the achievement of the same.
Furthermore, while the National electricity plan of 2018 which set the target to 175
GW by 2022 gave an elaborate break-up of the same (100 GW from solar, 60 GW
from wind, 10 GW from biomass and 5 GW from small hydro power), the target of
450 GW was unaccompanied by any such sector-wise distribution.
2) Policy changes and Tariffs:
According to CRISIl ltd., India’s renewable energy capacity may increase by just 40
GW to 104 GW in 2022 from 64.4 GW in 2019, thanks to the lingering policy
uncertainty and tariff glitches. This is 42% short of the government’s target of
175GW.1
a) Slowdown:
Despite an increase in the amount of government tenders, there has been a slowdown
with respect to the allocation of renewable energy projects. According to the CRISIL
note, 26 percent of the 64 GW renewable energy projects auctioned by the central and
state governments have received no or lukewarm bids, while another 31 percent are
facing delays in allocation after being tendered.2
b) Ongoing tariff renegotiation:

The ongoing tariff dispute acts as a deterrent factor for most developers. As of July
2019, AP discoms alone owed Rs 2,600 crore to developers, part of which was due to
ongoing tariff dispute and the resultant delays in payments. Such disputes put at risk
existing and planned investments.3
c) Policy changes
Similarly, the Rajasthan government’s recent draft solar and hybrid policy proposes
an additional annual levy of Rs 2.5 lakh-Rs 5 lakh per MW on all projects that sell
power to entities outside the state. Should this be implemented, it could be highly
detrimental for the growth of RE capacities given that Rajasthan is one of the most
sought-after states for solar power plants4.
1
https://www.crisil.com/en/home/our-analysis/reports/2019/10/return-to-uncertainty.html page 2
2
3
4
1
Further, CRISIL Research data shows that central agencies have also acted in a
similar fashion, where they cancelled post renegotiation 4.4 GW of contracts as
against 0.1 GW by state distribution companies (discoms) in fiscal 2019. For instance,
SECI terminated its 2,400 MW ISTS Tranche II solar scheme as the bid tariff of Rs
2.64 was higher than expected. In addition, another 1.7 GW of contracts were
cancelled without renegotiation, citing high tariffs.5
d) Tariff caps
The reductions in tariff caps by state and central power discoms is constraining
project viability and resulting in renegotiation of tenders (Fall in solar tariff cap - Rs
2.65 per unit in June 2019 from Rs 2.93 per unit in December 2018; Fall in wind tariff
cap (Rs 2.83 per unit in May 2019 from Rs 2.93 per unit in April 2018)
The narrowing of the gap between tariff caps and actual bid tariffs has left developers
very little leeway.6
e) Shift in approach for wind energy

Wind energy projects, while, are facing even greater turbulence. Their mean viability
has reduced following the shift from fixed tariffs to competitive bids, and also
because of an increase in capital costs with bleeding original equipment
manufacturers no longer discounting equipment. The result is, there is hardly any
bidding for fresh wind energy projects today.7
3) Other factors
a) Market risks
Market risks, clubbed with other economic factors, have led to high interest rates in
Indian financial markets, around 10% - 14% per annum, almost three times higher
than in developed economies. These high rates impact RE more than other
conventional power or infrastructure.8
there is an acute shortage of willing and credit-worthy buyers of RE-based electricity.
Most of our financially distressed power distribution companies (Discoms), also the
bulk purchasers of power, have held back from buying expensive power (whether
conventional or renewable-based) thus confining power markets.9
f) Quality of power:
Due to these ambitious targets, most producers are chasing cheaper solar panels from
China to cover costs. While the annual degradation rate is assumed as 0.8% based on
5
6
7
8
Expert group report, NITI Aayog https://niti.gov.in/writereaddata/files/175-GW-Renewable-
Energy.pdf page 8
9
Expert group report, NITI Aayog https://niti.gov.in/writereaddata/files/175-GW-Renewable-
Energy.pdf page 8
2
industry data, experts observe degeneration rates as high as 2-3% within the fourth-
fifth year of operation of the plant.
Indian IPPs buy from second-tier or poor-quality Tier-I Chinese manufacturers who
sell modules at upwards of 30 cents to the US but at 22 cents to India. Hence, the
quality is variable. Government quality norms on modules imported into India are not
comprehensive. Nobody checks the purity of silicon being used in these modules. If
IPPs use the best quality of modules available in the market, it is not possible to
produce solar power at the cheap tariffs that we see now
g) Changes in Law / Implementation of new taxes

In all PPAs, it has been stated that if there is any change in law/policy due to which
there is an increase in costs of the purchaser, the same has to be compensated by
producer of the energy.
In the case of Azure Solar Private Ltd. Vs. NTPC Vidyut Nigam Ltd. The petitioners
have submitted that a ‘Change in Law’ clause ought to be construed widely, with a
view to further the intentions of the parties, which to compensate for any necessary
and reasonable extra expenditure incurred after the relevant cut-off date on account of
change in law. In the present case, it was held that GST is also covered under change
in law, However the expenses incurred by the party was not be compensated because
the SCOD( scheduled commercial operating date ) of the project was before the
introduction of GST.
Therefore, from the above case it has been made clear that changes in law (pertaining
to reasonable extra costs) are to be compensated by the producer, however, if the
change in law is after the SCOD, then no such compensation shall be given.
4) Funds:
In July, India said it needs $330 billion (€295 billion) in investments over the next
decade to power its renewable energy dream.
a) Private sector lenders:

While the renewable energy sector has been fuelled mostly by private equity (PE)
investments so far, the number of firms now able to attract investment has dwindled.
PE investment into renewables have stayed flat in 2018 ($1.93 billion) and 2019 ($1.8
billion, till date). And large banks like State Bank of India are no longer lending to
renewable energy projects that sell power at below 3 a unit.

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Research note on potential issues, which may arise in lieu of

the renewed target of 450 GW for capacity addition in the

1) Vague and unambiguous statement:

The announcement by the PM regarding the increment of India’s renewable energy

2) Policy changes and Tariffs:

b) Ongoing tariff renegotiation:

e) Shift in approach for wind energy

g) Changes in Law / Implementation of new taxes

a) Private sector lenders:

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