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India’s installed capacity in renewable energy (RE) could increase by just 40 GW to 104 GW by fiscal 2022 from 64.4 GW in fiscal 2019, because of enduring policy uncertainty and tariff glitches.

That would be a good 42% short of the government’s target of 175 GW.

The sector has witnessed a material waning of developer interest last fiscal. A sizeable 26% of the 64 GW of projects that were auctioned by the Centre and states received no or lukewarm bids, and another 31% faced delays in allocation after being tendered.

Thus, despite the increase in tendering volume, not only has allocation of projects slowed down, but both undersubscriptions and cancellations of awarded tenders have also increased.

As a result, the ratio of auctioned or awarded projects to tendered projects plunged to 34% in fiscal 2019 from 77% over fiscals 2015-16 and 2016- 2017 (cumulative).

Policy uncertainty short-circuits RE goals

CRISIL Research believes that the unstable policy environment poses a big risk for the country’s RE targets. This is evident in the growing incoherence between the policy thrust on RE, on the one hand, and the actual action by implementation agencies like the Solar Corporation of India (SECI) and state distribution companies, on the other.

A prime example is the ongoing issue of tariff renegotiation in Andhra Pradesh, a leading state for RE in the country. At the end of July 2019, the state’s discoms owed ~Rs 2,600 crore to RE generators, part of which was because the state government had been delaying payments over a tariff dispute. Such prolonged payment delays and disputes not only set a negative precedent, but also put at risk existing and planned investments. 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 plants.

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.

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