India is facing barriers such as higher goods and services tax (GST) and issues with land acquisition that are hindering deployment of additional capacities in the world’s fourth largest country in the renewable energy (RE) market in terms of installed capacity, the International Solar Alliance (ISA) said in a report.
“Indian government raised the GST on essential solar project components like cells and modules from 5 per cent to 12 per cent starting October 1, 2021, elevating overall project taxes from 8-9 per cent to 12-13 per cent, with an impending surge to around 30 per cent due to a 40 per cent customs duty on imported solar modules effective April 1, 2022,” the ISA report, launched on Tuesday, revealed.
Another key barrier to expanding solar power capacities is land. “Land acquisition is difficult, considering that average land holding in India is small, at 1.16 hectares (NABARD 2014); To acquire large tracts of land in an individual location, many stakeholders need to be involved, which slows down the project execution pace,” it added.
Regulatory issues
Regulatory uncertainties such as inconsistent net metering policies across States, and insufficient backing from local power distributors have led major developers to shift away from or completely abandon the rooftop solar market, the ISA report world solar market 2024 said.
“Besides regulatory issues, financing remains a significant obstacle for rooftop solar, with lenders viewing these installations as higher-risk compared to utility-scale and free access solar projects. Rooftop solar loans often come with steeper interest rates and extended approval processes, undermining the financial advantages of rooftop solar’s superior returns and shorter payback periods,” it added.
However, the report praised India for effecting a significant reduction in award rates for solar energy during H1 2024 calendar year (CY).
Over the past decade, average auction prices for utility-scale solar PV projects have consistently decreased across all regions. In the first half of 2024, the global utility-scale solar PV costs averaged at $40 per megawatt hour (MWh), primarily due to India’s significant influence, it pointed out. “India topped the global charts in solar PV capacity granted through auctions, securing a notable auction price of $34 per MWh, reflecting a 23 per cent decrease. Meanwhile, Europe saw a more modest decline of 11 per cent, with an average auction price of $67 per MWh for projects in 2024,” the report noted.
The report also noted that the global renewable energy sector has witnessed a significant surge in the first half of 2024, with a record 82 GW of capacity being allocated through competitive auctions.
This figure not only doubles the average capacity awarded in similar six-month periods of previous years but also nearly matches the peak capacity tendered throughout the entirety of 2023. If the current trajectory holds, the total auctioned capacity for renewable energy could surpass 200 GW by the end of 2024, effectively doubling the total from 2023, the report pointed out.
“The distribution of this capacity is notably concentrated, with India and Germany accounting for over half of the awarded capacity. This concentration highlights the leading role these two nations play in the renewable energy landscape,” it added.
The key determinants such as auction design, macroeconomic factors, the speed of permitting processes, and grid infrastructure availability continue to shape the level of interest and engagement from developers.
The rate at which auction capacity is awarded has seen fluctuations, with 2022 experiencing the lowest award rate due to a combination of high commodity prices, rising investment costs, inflation, and capped auction prices, resulting in only 75 per cent of the capacity being awarded.