The renewables industry, specifically solar power, has seen explosive growth in the last couple of years. Tariffs have consistently headed south setting newer records even as the sector has attracted tremendous interest from established players as well as fresh entrants. There has been a lot of mutual backslapping among government, bidders and analysts at what they see as the success of the country’s renewable energy programme which aims at a total capacity of 175 giga watt by 2022. There’s little doubt that the programme appears successful now. For instance, solar power tariff at the latest bid of ₹2.44 a unit is cheaper than coal power in absolute terms. In wind energy, buoyed by the success of the first round of auctions in February for 1,050 MW, the Ministry of New and Renewable Energy (MNRE) has initiated a second round of 1,000 MW to be auctioned soon.
Clearly, these are heady times for renewables. Yet, it would pay to step back a bit and look at the prevailing scenario dispassionately. Solar tariffs are being driven down by a sustained fall in prices of modules (they were off 26 per cent in 2016), favourable exchange rates and easy availability of finance. The general expectation is that module prices will continue to fall given the competition among manufacturers. But finance costs at around 10 per cent appear stiff and even that is available only to the most creditworthy of borrowers. To be profitable at a tariff of ₹2.44 a unit, solar plants need a plant load factor (PLF) of about 35 per cent, which is not impossible, but the point is that these levels have to be sustained over 25 years. In the case of wind-power, the lowest discovered price was ₹3.46 a unit in the first round of auctions but PLFs of 35 per cent appear unrealistic. Adding to these are the pitiable financial conditions of state electricity utilities which will buy the power. In the case of the MNRE auctions for wind power, PTC India will be the buyer offering some stability to developers, but in the case of other projects, the developers will be at the mercy of the State utilities. A recent report in this newspaper pointed out that these utilities were sitting on ₹2,000 crore of dues to wind energy producers, with payments consistently being delayed by up to six months.
We have seen aggressive bidding in infrastructure sectors earlier, specifically in telecom and road projects. There’s the experience in coal, of Tata Power and Adani with their ultra mega power projects that are now in trouble. The Centre would do well to step back and take a considered view of the renewable sector to ensure that the exuberance now does not lead to despair later.