Solar PV can account for 75% of this growth, onshore wind 15% and biomass and hydropower aiding the rest
India’s renewable power capacity is expected to double over 2022-2027. Utility-scale solar plants set up through competitive auctions are critical for the country’s additional renewable energy capacity. Rising demand by consumers for distributed energy, supported by favourable government policies, can further strengthen this growth.
Photovoltaic (PV) capacity is expected to grow by approximately 10 per cent this year. Domestic PV manufacturing has been boosted by the government’s production-linked incentives (PIL) scheme. This boost and market-friendly auction rules for wind farms are backing this growth.
These steps could drive the achievement of India’s targets of 500 gigawatts (GW) of non-fossil installed capacity by 2030 and achieve Net Zero emissions by 2070.
A quarter of capacity awarded since 2021 has been led by innovative approaches such as hybrid auctions. It required several renewable technologies to provide power at specified minimum annual capacity utilisation factors.
The requirement would facilitate the creation of much higher capacities than what has been contracted. Further, new energy storage technologies would ensure improved power availability and grid balance.
On the demand side, higher renewable purchase obligations (RPO), should further encourage distribution companies (DISCOMs) to procure renewable energy. The RPOs were announced in July 2022, specifying targets for wind, hydro and other renewable energy sources — mainly solar and bioenergy.
Increasing participation in auctions, an expanding project pipeline and higher renewable energy demand from DISCOMs are all expected to accelerate utility-scale capacity growth in India till 2027, according to the intergovernmental organisation International Energy Agency.
The greatest challenge in achieving faster renewable energy deployment is the poor financial health of India’s DISCOMs. The number of overdue payments to renewable power producers continues to grow, worth $3 billion or Rs 24,781.13 crore in June 2022 – an increase of nearly 60 per cent since January 2021.
The share of the lowest-rated DISCOMs has nearly doubled from 2019-2020 to 2020- 2021. Though the RPOs require the DISCOMs to increase renewable energy procurement, they lack the financial capacity to sign new PPAs, resulting in delays in project commissioning.
In 2022, the average tariff awarded in PV-only auctions increased by 10 per cent in Indian rupee terms and is now back at the 2019 level to compensate for higher PV equipment prices since 2021.
Moreover, in April 2022, the duty on imports increased from 15 per cent to 40 per cent for PV modules and 25 per cent for solar cells. Developers prepared for this change by stocking up on PV equipment, leading to record imports of renewable energy equipment of roughly 10 GW in the first quarter of 2022.
This import rush is expected to result in an unprecedented 16 GW of PV capacity additions in 2022, 60 per cent more than in 2021.
However, future projects benefitting from any policy support will have to source their supplies from government-approved manufacturers. As of August 2022, the list of authorised manufacturers encompasses about 18 GW of PV module manufacturing capacity, all domestic.
However, size, quality and efficiency issues of panels manufactured in India would lead to higher investment costs and tariffs in the short term.
At the beginning of 2022, the government funded an additional Rs 19,500 crore to support the PLI scheme, up from the earlier aid of Rs 4,500 crore.
The first 9 GW of integrated PV manufacturing capacity and the second batch of projects is in the allocation process.
This programme aims to expand India’s solar PV cell and module manufacturing capacity to over 70 GW within this decade, including 29 GW of manufacturing capacity, fully integrated across the whole supply chain.
Supply-demand synergy in the Indian PV market is also expected to stimulate capacity growth in the medium term.
Onshore wind deployment in India has been slow in recent years due to land procurement and grid connection challenges, as well as COVID-19-related supply chain disruptions. In addition, an unexpected increase in material and equipment costs since 2021 has rendered many projects economically unviable.
In consequence, a large portion of capacity awarded in auctions has been delayed or cancelled. As of September 2022, only 45 per cent of the 14 GW of wind projects awarded during 2017-2020 had been commissioned.
The government has initiated several measures to raise wind energy tariffs, making projects more feasible.
Although DISCOMs may be reluctant to accept higher energy prices, the new RPOs for wind should encourage them to sign PPAs. A higher share of wind power has the potential to mitigate some of the grid integration issues faced by DISCOMs that have high stakes of solar PV in their systems.
Annual distributed PV additions doubled in 2021, with the commissioning of many projects delayed by COVID-19-related disruptions. Greater public awareness and the economic attractiveness of investing in distributed PV may lead to favourable uptake.
This will be especially applicable to commercial and industrial consumers that face higher energy costs.
While DISCOMs are hesitant to support rooftop PV growth because they fear revenue loss from reduced energy sales and higher grid costs, financing options for small commercial and residential consumers remain limited.
The creation of the National Solar Portal and schemes announced by several banks and financial institutions aim to bridge this gap.
Over one-third of rooftop PV systems added in 2022 were installed in Gujarat, home to just 5 per cent of India’s population, as of November 2022, according to the National Solar Rooftop Portal under the Union Ministry of New and Renewable Energy.
High deployment in this state was achieved through net billing and subsidies, which exist in most Indian states. This indicates that effective on-the-ground implementation of policies is crucial to attaining faster distributed PV growth in India.
Improving the financial performance of DISCOMs and increasing penalties for non-compliance with RPOs should limit delays in signing PPAs with auction winners, making developers and investors more willing to undertake new utility-scale projects.
In addition, offering DISCOMs financial and regulatory incentives to increase rooftop PV deployment in their grids should encourage them to attract tens of millions of potential prosumers by facilitating investment, thereby tripling distributed PV deployment for 2022-2027.
Achieving faster solar PV growth will also require the timely deployment of manufacturing projects included in the PLI scheme and the expansion of competitive auctions.
For wind, the rapid implementation of simplified auction rules, more government support in site identification and land procurement and greater policy support for repowering could accelerate capacity growth.
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