BackIndia is set to miss renewables goal for 2022
With the pandemic halting work and projects hitting logistics snags, India is on track to miss its goal of increasing renewable energy capacity to 175 gigawatts by the end of 2022.
PremiumFrom curbing emissions to increasing forest cover, India has often boasted about making progress toward its pledges under the 2015 Paris climate change accord. But officials have kept quiet about one target lately: boosting renewable energy.
That may be intentional. With the pandemic halting work and projects hitting logistics snags, India is on track to miss its goal of increasing renewable energy capacity to 175 gigawatts by the end of 2022. Solar and wind alone account for 160 gigawatts and the country could fall 36% short of that figure, Bloomberg NEF estimates.
The potentially disappointing numbers offer insight into structural problems facing India on its journey to decarbonization. Domestic power suppliers, which control nearly 90% of electricity transactions, are struggling to stem losses and shrink a pile of debt. That crimps their ability to buy enough power to service customers, resulting in delayed payments to power producers and stifling growth across the industry.
Financial distress in state retailers is a major reason why this year’s target seems out of reach. Many projects auctioned by the federal government have struggled to find buyers, people familiar with the matter said. About a quarter of wind projects awarded in auctions so far have failed to take off due to problems related to distribution utilities, according to BloombergNEF.
“We need to stop depending on state power distribution companies to expand green capacity," said Debasish Mishra, a Mumbai-based partner at Deloitte Touche Tohmatsu. “As long as we keep depending on these utilities, our climate targets will be at risk."
The country’s renewable energy ministry didn’t respond to emailed questions.
India is seeking to revamp its fossil fuels-driven economy by expanding renewable energy and embracing new technologies like green hydrogen and green ammonia. Some parts of the country have been driven to extremes in the quest to provide affordable energy to citizens.
In 2019, the southern state of Andhra Pradesh decided that it was paying too high a price for clean energy. After years of litigation, the local high court recently ruled in favor of power developers. The state’s decision was a setback for investors, though it has helped restore faith that they’re shielded from retroactive tariff changes, said Shantanu Jaiswal, the head of BNEF in India.
“The main reason that we have fallen behind the target is that there have been too many policy changes," said Pinaki Bhattacharyya, the chief executive officer of Amp Energy India, a solar power developer. “This is a business where you have to make most of the investment upfront. If there’s a policy change that impacts the cost, that is something that will slow down the sector."
Confusion over taxes is common. A recent increase in India’s national sales rates, as well as the imposition of import tariffs, have created uncertainty about costs. Last September, the country raised the goods and services tax on renewable energy equipment from 5% to 12%, causing an unexpected headache for developers.
In 2019, India started imposing tariff barriers to protect domestic makers of cells and modules, levying a safeguard tax on imports. The renewable energy ministry said a new customs tax would take effect as soon as the safeguard duty expired in July 2020. But companies including the Adani Group sought an extension of the duty.
For weeks, developers remained in doubt about new import tax rates. Earlier this year, Scatec ASA said it had put on hold 900 megawatts of solar projects in India due to low domestic module supplies and a 40% customs duty which will be imposed starting in April. The Norwegian power company had partnered with India’s Acme Solar Holdings to build the projects.
To finesse its renewables numbers, India’s government has started counting hydropower projects bigger than 25 megawatts, though the original target only accounted for solar, wind, smaller hydropower projects and biomass.
The country had 152.9 gigawatts of renewable power capacity at the end of February, including 46.5 gigawatts from large hydroelectric plants, the power minister, R.K. Singh, told lawmakers in March. He said another 72.6 gigawatts were at different phases of implementation.
Still, that doesn’t change the distance India needs to cover, especially if it wants to meet another goal of 500 gigawatts of non-fossil power generation by the end of the decade. Prime Minister Narendra Modi set that stretch target at the COP26 climate summit in Glasgow, UK, in November.
“India’s ambitious target helped the country grab the attention of global investors, but it now needs to fix some fundamental problems," BloombergNEF’s Jaiswal said. “Without that, the country may not be able to meet its targets for 2030."
Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!
