Home / Market / Mark-to-market /  Renewable energy: poor demand, weak utilities expose challenges

The gap between good intentions and execution is starkly evident in one area of the renewable energy sector. Capacity additions are gathering pace but 25 states (including Union territories) are lagging on their solar renewable purchase obligation (RPO) targets for the current fiscal year, according to research firm Mercom Capital Group. States have to procure a certain portion of their power requirement from renewable sources.

Despite states not fulfilling their obligations, the central government’s push has ensured that cumulative solar installations topped 10,000 megawatts (MW). If states had adhered to their RPO targets, installations would have reached 17,700MW by end of FY17, points out the Mercom report. “Most states have defaulted on their RPOs, and this is the fifth year in a row. In the current financial year even Gujarat and Rajasthan have not been able to comply with state RPO," says the report, citing an unnamed official of the Central Electricity Regulatory Commission.

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The slow capacity additions (compared to targets) and flouting of RPO obligations by states reflect fissures in the Indian power sector. Even as renewable capacities are increasing, demand is not seeing a noticeable improvement. Compared to about 5% a year ago, overall power generation (excluding solar, wind) grew by 4.6% in the first 11 months of the current fiscal year.

Of course, there is huge untapped demand waiting to be connected with reliable grid networks. An improvement in the financial position of state utilities could also raise demand. Even then, it is unclear if it can make up for the loss of large customers (commercial, industrial and railways) who are increasingly resorting to captive energy.

Another challenge is the transition to using renewable energy. As pointed out earlier in this column, the infirm nature of renewable power poses challenges to state utilities, not only in terms of grid management but also on costs. A ramp-up and scale-down of conventional power capacities to accommodate renewable energy and cater to the evening peak power demand are estimated to raise production costs. Energy storage is a solution. But it is not yet clear how cost-effective it can be on a grid-connected scale.

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That does not mean the situation should be left unaddressed. Bridge to India, a consulting firm, warns that rapid renewable capacity additions without concurrent reforms in demand and supply management can prove detrimental for both conventional and green energy sectors.

Utilization levels of the thermal sector can fall below critical levels, warns Bridge to India. “Current regulatory approach to tackling this risk is predicated almost entirely on providing ‘must run’ status—priority access to the grid—to renewables. This simplistic approach has been very helpful to the renewable sector but is becoming untenable as it ignores the interests of conventional power generators, transmission companies and discoms," Bridge to India said in a blog post. “In an era of cheaper renewables, we now need compensatory mechanisms for backing down and ramping up conventional power."

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