Will mandates change fate of distributed renewables post COVID-19? 

Even as distributed renewable energy sector faces downfall, expert consensus is that situation will be short-lived

By Pratha Jhawar
Published: Monday 13 April 2020

India’s renewable energy (RE) sector relies mostly on large-scale solar and wind installations. Distributed renewable energy (DRE), a part of the sector which includes solar rooftop, open-access solar and solar water pumps, is an already struggling sector. The sector's position has been aggravated by the novel coronavirus disease (COVID-19) pandemic. 

“The segment was already facing headwinds this financial year. Policy and regulatory challenges along with financial issues have always hampered the sector’s growth. Now, it has lost momentum due to COVID-19,” said Vinay Rustagi, managing director, Bridge to India, a consulting company. 

The combined installation under the segment is less than 10 gigawatt (GW).

Capacity addition for DRE. Source: Bridge to India Research

Different states have different policies on DRE as electricity is a concurrent subject. Developers of DRE work on a small scale, which does not give them enough advantage to negotiate with state governments.

The distribution companies (discoms) have mostly resisted DRE for it takes away their lucrative customer base — the commercial and industrial segment. The net-metering policy, for instance, is still a hanging issue.

Among the measures taken by the Ministry of New and Renewable Energy (MNRE) to minimise the impact of COVID-19 on DRE include:

  • Improving consistency of policy and regulations: The Centre will issue an advisory to all states on solar rooftop (SRT) project targets. It will also propagate ideas of good business models to different states. Further, 'must-run' status is extended to SRTs and open-access projects.
  • Providing financial stimulus: MNRE will talk to states about open-access banking facilities and take suggestions of industry leaders. A six-month moratorium to the stressed RE sector on principal and interest will be granted to ensure working capital availability.

IREDA is considering facilitating working capital to the sector. MNRE is contemplating to develop a loan facility for SRT adoption in India through the World Bank and State Bank of India.

  • Increasing demand through RPOs: Ministry will come up with an ordinance to mandate Renewable Purchase Obligations (RPOs) for discoms and project a trajectory till 2030, which will be subject to penalties. This will create demand and will force states to come with suitable policies.
  • Mandates for government buildings: Cabinet note for directions to central government buildings to install SRT (estimated potential is about 5,600 megawatt; as of now installations are only 400-500 MW). States will also be requested to issue similar guidelines.
  • Exchange oriented market (EOM): Centre is planning to open EOMs to facilitate open-access.
  • Manufacturing policy: Basic Custom Duty will be imposed on all raw materials used in the RE industry (including inverter, back-sheet, EVA, etc). DRE developers will be encouraged to manufacture some of these raw materials.
  • The SRT segment is faltering at about 5 GW of capacity, despite a target of 40 GW installation by 2022.

Achieving the aforementioned target in three years will be a humungous task. Previously, the mandates had been ineffective to boost installations of SRTs. The discoms have shown a predilection to meet RPO requirements through large-scale RE plants.    

Even as DRE is facing unexpected downfall due to COVID-19 outbreak, the consensus is that the unprecedented situation will be short-lived.

“We believe in India’s growth story. The epidemic is a shock to the system. But the fundamentals of the market still stay the same and there will not be a very long-term impact of it,” said Ravinder Singh, chief (business development), Tata Power Solar Co.

 He added, “Q1 of 2020-21 will be severely affected. In the worst-case scenario, it might take two-three quarters to rebound.”

The industry needs to a quick and clear strategy. “We will need to find some innovative financial solutions for SMEs and residential sectors”, added Singh. 

“To increase the economic viability of SRTs, the World Bank has developed a product with SBI. The interest rates will be slashed to 8-9% from 16 per cent (7-10 years) on the debts for SRT,” said Amit Jain, senior energy specialist, World Bank.

Adoption in the residential sector is the most difficult. “MNRE along with World Bank is working on a new financing facility and business models for the residential sector,” Jain added.  

“In near and medium-term, how the financing will develop and how risk will be perceived will certainly affect the growth of DRE,” Saif Dhorajiwala, executive director, Fourth Partner.

He added, “I hope people adopt more SRTs as their personal green goals post-COVID-19.”

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