Is the stage set for a rebound in the Indian renewable energy sector? Heading into 2019 that is the question stakeholders will try to get a grip on. After a record addition of 9,780 megawatt (MW) in 2017, Mercom India Research projects solar capacity additions to slow to 8,000MW this year. The wind sector is expected to do worse, with capacity additions estimated to remain at multi-year lows for the second consecutive year, as the accompanying chart shows.

The sharp slowdown in the sector upset the calculations of many companies, forcing many intermediaries to downsize. The situation is expected to improve in 2019, but not significantly. While the government has announced some relief on the GST front, there are other challenges that remain for the sector.

Successive auctions by central government agencies have built up the project pipeline. As these projects take-off the ground, installations will rise in 2019. But most see this as only an incremental recovery; not the rapid expansion that is needed to alleviate the stress in the industry.

One reason is the delay in the commissioning of projects. Even projects auctioned by the central government agencies are facing delays due to execution challenges and other reasons. “The reality is that the wind industry is executing far less than its targets. For example, SECI I achieved only 50% commissioning as of its October deadline. The second (auction) in Tamil Nadu has achieved none so far and is likely to experience delay," says U.B. Reddy, managing director, Enerfra Projects, a wind projects developer. SECI is Solar Energy Corporation of India. The second reason pertains to the investor sentiment. Here, the appetite for investment is stifled by poor policy implementation and untoward regulations.

The cap on tariffs, imposition of duties on solar panels, infrastructure constraints, execution and operating challenges have made investors worried about the viability of projects. So much so that some of auctions were withdrawn due to lack of enough participants.

“The solar demand forecast for 2019 may be slightly better than 2018, but we don’t expect a complete recovery until maybe 2020," says Raj Prabhu, chief executive officer, Mercom Capital Group. “Overall activity in the industry has slowed down significantly post safeguard duty imposition. For the industry to recover and install in excess of 10 gigawatt (GW) a year, solar module prices need to come down where the effect of the safeguard duty is completely erased. The government will need to eliminate tariff caps where the tariff can only move in a downward direction no matter the risk levels," he addsOne gigawatt equals 1,000MW.

The situation is more acute in the wind sector. The cap on tariffs and lack of visibility on the business or the order inflows (which are contingent on auctions) plunged the industry into crisis, impacting the whole supply chain, says Reddy of Enerfra Projects. The need of the hour, adds Reddy, is predictability and stability.

If the government can allow capacity additions at the pre-set tariff of up to 3 per kilowatt for a fixed tenure, then it could rekindle investor sentiments and accelerate capacity additions, says Reddy. But will the government agree? After all, this will be in variance with the feed-in tariff mechanism which it abandoned for the auctions.