Shadow over renewables

The renewable energy sector missed its capacity addition targets for the second consecutive year in 2017-18; but this actually does not come as a surprise. Renewables capacity added was 11,754 MW in 2017-18, against a target of 14,450 MW. The laggard was wind power, which added 1,766 MW in 2017-18, against a target of 4,000 MW. The share of renewables in total capacity addition has, however, risen despite this subdued trend. Analysts have shown that renewables account for 20 per cent of total power capacity today, against 17.5 per cent a year ago. Of this 20 per cent, wind accounts for about 10 per cent (34 GW) and solar 6.6 per cent (22 GW), the total installed capacity being 345 GW. Coal accounts for 57 per cent of the total, but additions to installed capacity in 2017-18 were down 28 per cent over the previous year, or from 7,000 MW to 5,000 MW. Solar power additions were short of targets, but the addition in 2017-18 marks the steepest increase (89 per cent over 2016-17) across all sources of power, an indication that the share of solar is set to increase. Analysts point out that investor interest in wind power has reduced due to the shift from feed-in tariffs to reverse auctions. The sector has been hit by payment delays by power distribution companies (Discoms).

The outlook on solar has dampened over the last year due to the imposition of a 70-per-cent safeguard duty on imported solar modules. According to Crisil, the safeguard duty will push tariffs to ₹3.75 a unit, against the prevailing rate of about ₹3 a unit. The sector went through uncertainty owing to post-GST tariff anomalies which were sorted out later by the GST Council. Solar producers are allowed to ‘pass through’ higher costs, but courts can strike this down as a violation of the power purchase agreement with the discoms. Discoms need to accept that a tariff of below ₹3 a unit is no longer viable for solar power producers.

However, the elephant in the room is that of overcapacity. Rampant capacity addition between 2002 and 2012 has led to a situation of off-peak power surplus. It is another matter that this has not led to ample, affordable and reliable supplies. It costs ₹7.50 a unit to supply power, while discoms realise far less through tariffs. This acts as a disincentive for them to supply power to inadequately served regions. Decentralised solar and micro-grids, besides wind, can bridge this gap. However, unless industrial demand picks up, underutilisation of capacity is likely to continue. Banks may stay away from power projects. Reforms in pricing that lift demand at the bottom of the pyramid, without hurting discom finances, could start a virtuous business cycle.

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