India on RECAI

By Darshit Paun

While there has been a continuous upsurge in the global demand for energy, the conventional energy resources have become limited. To cater to the needs of growing demands of energy, dependency on renewables has to be increased, which also takes care of the tremendous amount of pollution that is created by the use of conventional energy sources. While there is a need to promote the renewables, India slipped from 4^th position in February 2012 to 8^th position in August 2013, on Renewable Energy Country Attractive Index, a survey conducted by global consultancy giant EY. The statistics released by BNEF (Bloomberg New Energy Finance) do support the above drawn conclusion as the investment in the 1^st and 2^nd quarter of 2013 were approx. $1407 million and $1375 million respectively. It was lower by 29% and 27% as compared to the same in 1^st and 2^nd quarter of 2012.

The investment patterns again revived in the 3^rd and 4^th quarter of FY13 due to the reinstatement of the generation based incentives for wind power, a good response for the 2^nd phase auctions of National Solar mission and plans to open up similar missions in other renewable sector as well. Overall, the investment renewable energy sector in India grew around 2.6% in 2013, with $7.8 billion invested in 2013 as compared to $7.6 billion in 2012.

The following are the factors that affected India’s rankings on the Renewable Energy Country Attractive Index.

• Financing

India is a developing country where higher inflationary trends coupled with higher interest rates to control them, set the benchmark interest rates much higher than a developed country. Adding the uncertainty prevailing around the currency rate makes the cost of debt much higher. Another problem in financing the renewable energy projects is increasing debts of Power sector particularly the distribution companies. The amount of loans that has been already lent out to these companies is so high that the banks are unable to lend out any more money into this sector. High cost of capital coupled with higher risks, weak bond markets and unavailability of funds sums up the financing hurdles against the growth in renewables.

• Improper implementation of REC Market (Renewable Energy Certificates).

On one hand, 22 out of 29 state DISCOMS were unable to achieve their RPO (Renewable Power Obligations) while on the other hand the renewable energy producers prefer FiT (Feed in Tariff) mechanism over RECs creating an unfavourable scenario for renewable energy markets. Moreover, the laws for RPO enforcements are yet not in place to enforce a penalty on the power companies in the event of not being able to achieve RPO obligations. When it comes to setting up long term targets to fulfil RPO requirements only 10 out of 26 states have defined long term goals showing that the policy execution by states is not in line with the long term target of achieving 20% electricity production through renewable energy set by CERC.

• Generation based Incentive Scheme for wind power

In September 2013, Indian government gave a nod to ministry of new and renewable energy to extend the generation based incentives mechanism to the wind power producers. Under this scheme, the wind power producers will get 50 paise per unit of electricity that they feed into the grid for a period of 4 to 10 years with a maximum disbursement of 25 lakh per MW in the first 4 years. The scheme is applicable for the entire 12^th five year plan where the government aims to achieve a humongous 15,000 MW capacity from wind power. Since the cost per unit of wind power produced is higher than the same produced in a coal based power plant, the generation based incentives must make investments in wind power attractive.

• Phase 2 of JNNSM

The phase 2 of JNNSM (Jawaharlal Nehru National Solar Mission) was auctioned for 750 MW photovoltaic licenses in the last quarter of FY13. The bidding received an overwhelming response from the local as well as foreign investors. The bidding conducted in 2 parts, 375 MW under the domestic category wherein the investors would have to use indigenous manufactured equipment. While the other part for 375 MW was under open category wherein there was no such restriction. With around 68 bids for 122 projects, and the government set to provide as much as 1800 crore in form of various incentives, the renewable energy sector particularly solar energy has gained pace in attracting investments.

References

• http://about.bnef.com/press-releases/clean-energy-investment-falls-for-second-year/
• http://articles.economictimes.indiatimes.com/2013-04-22/news/38736207_1_rpo-renewables-hill-states
• http://mnre.gov.in/file-manager/UserFiles/Solar%20RPO/analysis-of-state-RPO-regulations.pdf
• http://www.projectstoday.com/WeekAtGlance/JNNSM-Phase-II-solar-auction-gets-strong-response-from-promoters
• http://www.thehindubusinessline.com/companies/phaseii-of-national-solar-mission-gets-good-response/article5713993.ece
• http://articles.economictimes.indiatimes.com/2013-09-05/news/41802395_1_wind-power-generation-based-incentive-merchant-power-plants
• http://www.ey.com/Publication/vwLUAssets/RECAI_40_-_February_2014/$FILE/EY_RECAI%2040_Feb%202014.pdf