Centre Banks on India Inc. for Clean Energy Goals

WHILE INAUGURATING India’s largest floating solar project at Ramagundam in Telangana (100 MW) and a 92 MW floating solar project in Kerala’s Kayamkulam in July last year, Prime Minister Narendra Modi announced a new green energy target — 175 gigawatt (GW) non-fossil fuel energy capacity before the end of 2022, the 75th year of India’s Independence.

Just a month later, the target was raised to 500 GW as Union Cabinet approved ‘Panchamrit’ or five commitments proposed by the PM. The new stretch target was to meet 50% energy requirements from renewable sources and reduce carbon emissions by one billion tonnes, all by 2030. The other two commitments were 45% reduction in economy’s carbon intensity by 2030 and ‘Net Zero’ carbon output by 2070.

The 175 GW challenge was easily achievable. Total renewable capacity, excluding small hydro and biomass, had reached 96,223 MW or 96.2 GW by end of FY22. The country had added 13.5 GW capacity in FY22, 128% higher than in FY21. Many projects that were delayed due to Covid-19 stalemate were nearing completion. About 60.66 GW were under construction by June-end, when the PM proposed the 175 GW target for 2022.

And India did achieve it. As of December 21, 2022, India’s non-fossil fuel power generation capacity increased to 173,142 megawatt or 173.1 GW, accounting for 42.3% of total power generation capacity of 409 GW.

But the second target — 500 GW by 2030, in less than eight years — is far more challenging. Of this, solar, with cumulative installed capacity of 61.9 GW, is going to be the mainstay. The country will have to add about 280 GW solar capacity, or about 28 GW a year, to achieve the target. Capacity addition in 2021 was just 10 GW. As against an expected 19 GW in CY2022, India could add only 12.7 GW of solar energy in FY22. In this scenario, can the country reach the 500 GW target by 2030?

“To achieve 500 GW by 2030, we will need to add nearly 40 GW renewable energy installations every year. This is a big ask, especially due to the impact of global commodity prices and ongoing geo-political conflicts”, Tulsi Tanti, former chairman of Suzlon Energy, and one of India’s leading wind energy industry creators told Fortune India two days before his demise a few months ago.

Government, though, says its efforts are on track. “India met its commitment to meet 40% energy needs from non-fossil fuel sources made in COP26 nine years before target. Today, generation from non-fossil fuels is 42%,” R.K. Singh, Union minister for power and MNRE, recently told a meeting of the Parliamentary Consultative Committee. It is also drawing hope from keen interest that India’s top companies are showing in expanding their renewable energy businesses.

Solar Challenge

Capacity creation fails to justify the hype around solar power. Coal dominates India’s energy basket with 50% share. Solar follows with 61.9 GW but accounts for only 15.1% capacity. Hydro power, with 46.8 GW, is at 11.5%. Wind, which has taken a back seat since 2017, is at 41.8 GW (10.2% capacity). Despite liberal incentives and schemes, capacity addition in solar has been 9 GW per year over last five years, way below the planned 19-20 GW a year.

Experts fear capacity addition may slow down further over next one-two years following recent government decisions aimed at encouraging local manufacturing of solar equipment, instead of meeting demand through imports. On April 1, 2022, it imposed a 25% basic customs duty (BCD) on imported solar cells and 40% on imported modules. It also ordered procurement of modules and other equipment only from original equipment manufacturers that are part of the Approved List Of Models and Manufacturers. The list only has Indian companies. The steps will reduce supply of cheaper Chinese parts. China meets 80% demand for solar power plant equipment. This even as large module and photovoltaic (PV) capacities being planned in response to government incentives take one-two years to be ready. India’s annual manufacturing capacity is 4.5 GW of solar cells and 24 GW of modules. Local manufacturers also do not have assured supply of raw materials such as polysilicon, wafers and ingots. To make things worse, prices of raw materials are rising globally due to supply chain issues. Local manufacturers are already increasing solar equipment prices in anticipation of higher domestic demand and reduced supply. “Approximately 320 GW module demand may arise over next eight years. Assuming 70-75% plant utilisation, this would mean requirement of 460 GW module manufacturing capacity,” says Gyanesh Chaudhary, vice chairman & managing director of Vikram Solar, India’s leading solar equipment maker.

Fall in equipment prices after 2014 was the reason behind solar power becoming cheaper than power from coal projects. The trend of rising prices is not reversing anytime soon. Globally, prices of solar PV modules have risen over 40% to $0.27–0.28 per watt in past 18-20 months, mainly due to disruptions in China and spiralling cost of polysilicon, a key input. Girishkumar Kadam, senior vice president & co-group head, Corporate Ratings, ICRA, says increase in solar PV cell and module prices along with BCD on imported cells and modules have been adding cost pressures on solar projects awarded over last 12-18 months. “The risk of moderation in returns is significant for 4.4 GW projects awarded over past 18 months where tariffs are less than ₹2.2 per unit,” he says.

The rise in prices of modules and commodities such as steel will pull down return on equity of nearly one-fifth of 25 GW private solar capacity, says Manish Gupta, senior director, CRISIL. Most of this 5 GW was bid out between October 2020 and December 2021 at relatively lower tariffs of less than ₹2.35 per kilowatt hour at a time when module prices were softening and commodity prices were stable. “The remaining 80% projects under implementation will also be hit but their comparatively higher tariffs will limit the impact,” he says.

Around 60 GW projects are under development while 37 GW are pending auction. Many have been halted as companies wait for equipment prices to cool off. Norway’s Scatec, which has 50% stake in Acme’s 900 MW solar project in Rajasthan, said in February last year that it was temporarily suspending the project due to equipment unavailability.

Leading CEOs at a recent industry event said the challenges could derail government’s plans. “Technology changes every two-three years and it is difficult to keep pace,” says Avinash Hiranandani, global CEO & MD of RenewSys. “Our products are now more expensive than China’s and we need time to set up the entire supply chain and scale up,” he says. It will take India five-seven years to create the ecosystem that China has created in last one decade, says Ivan Saha, CEO, Vikram Solar. Next two-three years will be difficult for manufacturers and project developers, says Gaurav Sood, CEO of Sprng Energy.

Booster for Domestic Equipment

In order to tackle these challenges, India is hoping to quickly ramp up manufacturing. Government has earmarked ₹24,000 crore for the sector under the Production Linked Incentive Scheme to create 30-35 GW solar module capacity and 25-30 GW cell capacity by 2024. Private companies are also looking at the opportunity. Adani Group plans to make polysilicon, ingots/wafers at Mundra in Gujarat, apart from a copper smelter and a 3 GW wind turbine factory, all before FY25. “We are investing $4 billion in this. We are not going to depend on external suppliers for our capacity addition,” Gautam Adani, chairman, Adani Group, said in a recent exclusive interview with Fortune India.

Mukesh Ambani’s Reliance Industries, which is planning to invest ₹75,000 crore by 2024 to build end-to-end solar power generation facilities, is setting up four ‘Giga’ factories in Jamnagar to make solar PV cells, green hydrogen batteries and fuel cells. “Our new energy business is forging partnerships with technology leaders in solar, energy storage solutions and hydrogen ecosystem. These will help us realise the vision of clean, green and affordable energy solutions for all Indians,” Mukesh Ambani said while announcing the company’s Q3 FY22 results. Another big player, Tata Power, plans to build a 4 GW solar cell and 4 GW solar module plant in Tirunelveli district of Tamil Nadu within 16 months at a cost of ₹3,400 crore. “Tata Power is planning to invest ₹75,000 crore in renewables over next five years,” N. Chandrasekaran, chairman of Tata Power and Tata Sons, said at the recent Tata Power AGM.

Slowing Wind

Another challenge for India’s renewable energy plans is slow addition of wind power capacity. It added just 1.45 GW in 2021 to take total wind power capacity to 40 GW, 20 GW less than the target. As of November 22, 2022, it was 41.8 GW. India is targeting 150 GW by 2030. This means addition of 18-20 GW a year. The highest India has ever added is 5.5 GW, in FY17. India’s wind power potential is 302 GW, according to government estimates, but since FY17, demand has declined due to introduction of e-reverse auctions where, once the lowest bid is found, there is a further auction for even lower bids. “Tariffs discovered in some recent Solar Energy Corporation of India bids for wind power generation were ₹2.69-2.70 per unit, less than the average tariff of ₹2.8-3.3 for wind energy projects in the country. Under current circumstances, a project will be viable only if tariffs are ₹3.3-3.5 per unit, and that will require policy and regulatory changes,” says P.K.C. Bose, VC and managing director, Enercon India, the Indian arm of German wind turbine major Enercon GMBH, which is now concentrating only on exporting turbines. “Unprecedented escalation in logistics and input costs due to global geopolitical crisis is also a challenge,” said Tulsi Tanti.

Hydro/Nuclear Take Backseat

Locals in Uttarakhand blame construction of Tapovan-Vishnugad hydro power project and Helang bypass for sinking of Joshimath town. Local protests due to land acquisition are one of the biggest reasons India’s hydro power plans move at a snail’s pace. India added just 22 GW hydro power capacity between 2000 and 2021, a growth rate of 3% per year, says ICRA. It plans to add 18 GW to existing 46.8 GW by 2030.

The target is ambitious. According to a Central Electricity Authority’s report released on November 22 last year, over 1.2 GW hydro power projects (above 25 MW) have been stalled. A total of 12.9 GW are expected to be commissioned before FY26.

Nuclear power projects have also been on a slow track. India’s nuclear capacity is only 6.7 GW, 1.7% of installed capacity. One reason is governments going slow on capacity addition plans such as 15-20 GW mega nuclear parks in coastal regions during past decade after solar took centre stage and concerns were raised about health and safety of people living near the plants. However, government is now going big in the segment by planning 20 nuclear power plants with nearly 15 GW capacity by 2031. At Kakrapar in Gujarat, where three plants are already operational, a 700 MW plant will be commissioned this year. A 500 MW prototype fast breeder reactor at Kalpakkam is scheduled to be operational in 2024. Two more 1,000 MW units are expected to come up in Kudankulam by 2025.

In reply to a question in Lok Sabha, Jitendra Singh, minister of state in PMO, said two 700 MW units being added at Rawatbhata in Rajasthan will be commissioned by 2026. Another two 1,000 MW units will be added in Kudankulam by 2027. Two 700 MW units at Gorakhpur in Haryana will come up by 2029. Ten more nuclear plants of 700 MW each will be set up at Gorakhpur, Haryana (units 3&4), Kaiga, Karnataka (units 5&6), apart from two at Chutka in Madhya Pradesh and four at Mahi Banswara in Rajasthan.

Work Is Progressing

The challenges do not mean government has no back-up plan to meet its goals. Experts say the recently announced National Green Hydrogen Mission, with initial outlay of ₹19,744 crore by 2030, can bridge any shortfall in renewable energy capacity addition. It is possible to achieve the 500 GW target with right policies and financing support, say experts, adding that the recent renewable purchase obligation is a step in the right direction.

Creation of 500 GW capacity will require an investment of $173 billion a year. “Average credit to renewable energy sector in last three years was $19.3 billion. The $150 billion-plus funding gap can be filled by increasing priority sector lending limit and earmarking at least 5% of the 9% overall credit growth every year for the sector,” Raghav Handa, director, Strategic Business Development, Government Affairs And Sustainability, HSBC India, said at a recent seminar at ISB, Hyderabad.

For past few years, India has been increasing solar power capacity at one of the lowest costs in the world and that can ensure energy security during the period of transition to hydrogen economy, Kapil Maheswari, president, Renewables & Green Hydrogen Development, Reliance Industries, said at the seminar. Removal of reverse bidding, concessional open access charges and continuation of inter-state transmission system charge waiver will go a long way in meeting the targets, say experts. Enercon’s Bose says India needs to have a repowering policy for replacing low yield turbines with high efficiency 4 MW and above turbines.

Experts are also pinning hopes on ESG goals of big corporations and their interest in renewables. For example, India’s largest public sector company, Oil And Natural Gas Corporation (ONGC), is targeting 2 GW by 2025 and at least 10 GW by 2040. “We recently signed an MoU with Greenko ZeroC to make renewable energy and green hydrogen. We are implementing India’s first pilot on geothermal energy at Ladakh and have a plan with NTPC to develop offshore wind power plants,” says Alka Mittal, former chairman and managing director of ONGC.

India’s largest energy producer, National Thermal Power Corporation (NTPC), has also forayed into renewables with NTPC Green, which has 2.8 GW renewable assets. India’s three leading public sector oil marketing companies, Indian Oil, BPCL and Hindustan Petroleum, are planning about 10 GW renewable capacity each to reduce their carbon footprint.

Among corporates, apart from Adani, Ambani, Tata and JSW Energy that are already big in renewable energy, Aditya Birla, Hinduja Renewables, Hero Future Energie and Vedanta’s Sterlite Power are among the new entrants drawing up big plans for the segment. This augurs well for India’s 2030 dream.