Against its renewable energy target of 175 GW, India is lagging at around 93 GW. The main reason for the shortfall is solar power, where capacity addition and production is beset by issues pivoting around declining tariffs
In April 2015, the Narendra Modi government proposed a plan to boost India’s renewable power capacity to 175 gigawatts (GW) by 2022. That would be more than a four-fold increase from the 40 GW or so that India had at the time. But with just a year left, India looks set to miss the goal: just about 53% of the target has been met, and states that were to be key contributors are lagging.
When it was announced, the plan seemed to be in step with changing dynamics of the energy industry globally. Yet, India’s capacity addition since then has averaged just about 12 GW per year, far short of the approximate 20 GW that was targeted. Last year, India added just about 7 GW amid the pandemic.
Solar power was envisaged as the key driver of the renewable energy basket. It was assigned 100 GW of the 175 GW capacity target, against a mere 3 GW at the time. India’s solar capacity has climbed to about 48 GW as of January 2021—healthy growth, but slower than desired. The plan also envisaged states driving new capacity addition. But only a handful of them are on course to meet their targets as the solar power sector continues to be roiled by falling tariffs, legal uncertainties, and, most recently, a business landscape hit by the pandemic.
Amid the capacity addition, India’s renewable energy portfolio has been evolving. Wind and solar together account for about 80% of the power generated through renewable sources. But the share of wind energy has reduced to 44% from 52% in 2017-18, while that of solar has increased from 25% to 39%.
However, in the context of the stated target, the speed of these changes needs to be better. According to Bridge To India, a Gurugram-based renewable energy consultancy, the total solar project pipeline as of 31 December 2020 was about 46 GW. The firm projected an addition of 2.04 GW in the March quarter and 2.34 GW in the June quarter.
One roadblock is falling tariffs. States award contracts based on the price that producers quote to supply solar power to state electricity distribution companies, or discoms. In the December quarter, solar tariffs in auctions in Gujarat and Rajasthan dipped to a new low of ₹1.99 to ₹2.01 per unit (kWh). Over the last five years, solar tariffs in auctions have dipped about 50%.
At a time of falling tariffs, state discoms are holding out for better deals. “The low tariffs distort future tariff expectations of discoms and raise risk of project cancellation or contract renegotiation on other projects," Bridge To India said in its latest quarterly research document. Discoms are wavering in signing power purchase agreements with solar producers for 19 GW capacity, the report added.
At present, only a handful of states and Union territories are on target to meet their targets for 2022. Three have exceeded their target, namely Telangana, Andaman and Nicobar Islands, and Karnataka. However, barring Karnataka, the other two are not among the drivers of renewable energy capacity.
Of the eight states whose 2022 target exceeded 10 GW, only two—Karnataka and Gujarat— have exceeded 70% of their target, the approximate point where they need to be now to meet the goal. Tamil Nadu and Rajasthan are close behind, at 69%. The other four states are all below 50%: Andhra Pradesh and Maharashtra (47% each), Madhya Pradesh (43%) and Uttar Pradesh (27%).
The challenge after adding capacity is to make renewables actually contribute to electricity production. While such sources account for about 25% of total power capacity in India, their share of production is much lower, at around 9%. However, this is somewhat in line with the global average of 10%. China’s renewable share is also around that level, even though it produces around four times the electricity that India produces.
Among the top 15 producers of electricity, India was ranked 11th in share of renewable energy in its mix. The International Energy Agency’s landmark India Energy Outlook report for 2021 sees the country leading the growth in energy demand till 2040 even after the covid crisis and other economic and policy implications.
But India faces challenges in scaling up. Besides its own natural traits (sunshine and wind are not readily available), renewable energy in India faces challenges in distribution. Chronic revenue shortfalls in discoms have led to a large backlog in payments to energy producers. And amid this churn, India needs to pace up to meet its 2022 renewable energy target.