Stuck in the middle

If the new Power Minister, Raj Kumar Singh, had wanted to do something that would make the industry sit bolt upright and listen, he could not have done better than to say what he said at a recent power sector conference, organised by a TV channel.

He said that the government would come out with auctions of 20,000 MW each for wind and solar capacities by December. The industry gasped with incredulity. 40,000 MW of capacity to be laid on the table for grabs in three months? Why, in all the 70 years of Independence, India has put up 58,300 MW of renewable energy capacity! He might just as well have said that an Indian will set foot on Mars next year.

“Power Minister announces auction of 20,000 MW of wind and solar projects by December. Cheer up RE industry,” tweeted Sunil Jain, Executive Director and CEO of Hero Future Energies, a leading renewable energy company.

Nobody in the industry believes that 40 GW of capacity auctions is possible in such a short span of time. But a tiny fallout of the Minister’s bombast is that the industry is sensing a zephyr of action from the Government — even if just a sip of water to their parched throats.

At least, many industry insiders have told BusinessLine , this Minister would at least listen to them.

The renewable energy industry, which seemed to be chugging along nicely, is now stuck. The travails of the wind sector are well known. Ever since the Centre brought in tariff-based competitive bidding for award of wind projects, which led to wind energy companies agreeing to sell power at record low tariff of ₹3.46 a kWhr, every buyer of wind power (mostly, State government-owned power utilities) has stopped signing purchase agreements at the fixed tariffs. Because they are also not yet ready for coming out with bids, it is a neither-here-nor-there situation for the industry and it is quite stuck in the middle.

Solar isn’t doing great either. The country ended 2016-17 with a solar power capacity of 12,289 MW, short of target by 4,711 MW. In the first four months of the current financial year only 1,363 MW of capacity was created, taking the total to 13,652 MW. Some in the industry calculate that another 2,000 MW of solar could come up in the rest of the financial year.

There are many reasons cited for this mess, but it all distils to one: the State governments are not on-board the renewable energy bandwagon. The big question is, why this is so when the BJP governs 11 States and other partners of the BJP-led NDA coalition in seven more. At least in these States, the Centre should get co-operation.

Nobody in the industry gives a direct, clear-cut response to this question, but in general blame the former power minister, Piyush Goyal, reputed to be one of the “achievers”. Goyal, a first-time minister does not have the sway over State chief ministers. He could have escalated the matter to the Prime Minister, but apparently that was not done either.

If the Centre and the States collaborated, things could be handled easier. For instance, the wind industry has been suggesting that while competitive bidding is fine for large-scale projects, the States could sign power purchase agreements with MSMEs that might want to put up small capacities each. There could be a broad consensus that up to, say, 20 MW of capacity by individual companies, State-owned electricity distribution companies could sign power purchase agreements.

Besides, there are so many State-government-related issues. For instance, one solar company said that it had completed a project, but could not start selling power because of a technicality — the State government (Karnataka) had not yet given approval for use of the land for non-agricultural use.

State governments are not signing PPAs even after completion of bidding process, because a lower tariff was discovered in some other bid elsewhere. This is despite the federal government’s view that tariffs cannot be the same everywhere. In response to a question in the Parliament, the Ministry of New and Renewable Energy says, “Solar prices cannot be the same in different projects because of various factors such as solar irradiance, counter party risks, discoms involved, cost of capital, infrastructural development, logistics, prevailing prices of solar cells and modules at that particular time, etc.” With so many variables, State governments still benchmark tariffs against the lowest.

On top of all this is the perennial problem of the State-owned discoms not paying their dues to energy companies on time. Here again, industry sources note that the problem is severe in all BJP-ruled States except Gujarat, and Tamil Nadu.

The industry also finds fault with the administration under Piyush Goyal for not drafting the bid rules properly. Bidders may quote a fancy-low tariff in order to win a bid. The penalty for not completing the project – losing the bid deposit – is not heavy enough. There ought to be the threat of blacklisting from participating from future bids, say industry insiders such as Thyagarajan Shivaraman, Vice Chairman of Orient Green Power, a renewable energy company. This suggestion comes in the context of reports that green energy companies such as ACME and Inox, who won solar and wind projects respectively quoting very low tariffs, may not proceed with the projects even at the risk of losing the bid deposit.

On top of all this, for the solar sector, is the Damocles’ Sword of anti-dumping duty on modules and cells imported from China, which according to an industry insider, “could come any time now”. The industry conjectures that the Government was waiting to see what the United States deals with the ‘Suniva petition’, which demands protection of domestic manufacturers from imports. And now, the US International Trade Commission has ruled that the local module manufacturers have indeed been injured by imports. The quantum of protection is yet to be determined, but the move could be a cue for the Indian Government to act similarly.

The Ministry of New and Renewable Energy has a new minister and a new secretary (Anand Kumar, who assumed office in mid-July). Their task therefore is to get all the States (or at least the BJP-ruled and BJP-friendly ones) as well as various arms of the federal government on the same page — so that at least 2017-18 could be good.