The 2021 Roadmap For Solar

With Budget 2021 finally behind us, India’s renewable energy sector, particularly solar has to reckon with a new reality finally. The renewable energy sector, especially solar, will have the government’s ear, but don’t expect any major moves anytime soon, as the government grapples with broader issues across the economy. Solar at least has the comfort of knowing this, because when it comes to wind energy, one wouldn’t like to be in the shoes of any wind energy developer right now. Not a mention in the budget, and certainly no indication from the MNRE or any other source on what to expect.

Irrespective, in a year when solar will definitely overtake wind energy capacity, just what does the year ahead hold for solar? We look at the three key issues that will determine success, namely, policy, politics and infrastructure and technology. What looks like a manageable challenge is financing, especially for larger projects and developers. Thanks to a global liquidity tap that stays ‘on’, and the irresistible attraction of the world’s third-largest energy market. Yes, it might take some extra resolve to stay the course with the vagaries of policy and challenges in India, but enough firms have made a decision to stay the course in the market here. Ditto for sourcing, with the government going with the status quo on the basic customs duty issue, and a token duty hike on solar inverters, from 5 to 20 percent. At a project share of around 5-6 percent, the net impact on costs is well within limits, we are told. Though manufacturers have already expressed their disappointment at the move, while hoping for a fresh take sooner than April 2022, the date everyone assumes will mark the next phase of the duty hikes on modules and cells.

Policy: Supportive, But Tiring

Nothing explains the approach of the solar sector to government policy better than the fact that the sector is still to get out of ‘incubation’ mode. By that, we are talking about a sector that looks to the government for support at every step, and leaves it to the government to decide almost every key move. Thus, be it the shift of focus to utility projects while ignoring rooftop solar, the massive plans for solar pumps and their uncertain benefits, or the increasingly mixed results of the reverse auction approach, the industry has chosen to accept quietly, more often than not whatever the government has deemed fit. That is probably because of the efforts they see the government make to ensure payments on priority from Discoms for renewable generators, the ‘must run’ status for RE, or the renewable purchase obligations (RPO’s), which might just provide the next big push for the sector, should the Electricity Amendment Bill (2020) be passed anytime soon. However, there is clearly a shortage of ideas at the government too now, when it comes to scaling up annual capacity creation from a barely achievable 10 GW per annum to the 25 GW per annum that the 2030 targets imply for solar. Power Minister R.K. Singh, who also doubles up as the MNRE minister is clearly at the end of squeezing out ‘synergies’ from having both portfolios, as the contradictions of pushing for renewables over a strong, well entrenched and still critical thermal base come home. He in fact has been brave to champion renewable energy, ignoring the strong interests of the massive coal ‘lobby’ and the world’s largest coal miner, Coal India Limited. That India will need its thermal power for well into 2050 and beyond by every estimate only means that he can focus at most on retiring old plants that are farthest from coal pitheads, as these are the ones where renewables offer a cost advantage today. For now, the best hope on the thermal front is the retirement of old coal-based units totaling 25,252 MW that been estimated for the period 2022-30.

Room for Growth: Per Capita Power Consumption (Kw/h)

Source: CIA World Factbook, India from CEA

At a broader level, policy moves like the move to reform discoms with a Rs 3.6 lakh crore infusion over 5 years, or even the mandate to ensure 24X7 power for all have a strong influence on renewable growth, simply by creating space for them with the extra electricity demand and consumption that will result if India was to truly achieve 24X7 power. Post Budget, Sanjay Banga, President Transmission & Distribution, Tata Power, said that “Tata Power welcomes the step announced today for the distribution sector reforms as most of the Discoms are reeling under huge losses and finding it difficult to provide the uninterrupted power supply. We also welcome the scheduled discussion on the Electricity Amendment Act 2021 during the ongoing budget session as when implemented in its true letter and spirit, the Act will provide the much-needed independence to the regulatory mechanism for effective and timely decision making. It will also pave the way for speedier implementation of the National Tariff Policy, a must for the tariff rationalisation across all segments of consumers. This is very crucial for overall industrial development for realization of Atmanirbhar Bharat. Besides the above, for the revival of the power sector, the Government should use announced funds to provide transitional support to state governments who want to initiate distribution reforms by involving private sector players”

Asked to venture a best case scenario for peak consumption by 2023, experts we spoke to arrived at a figure of 225-230 GW, from the current 190 GW (approx.) of peak demand that was seen on Jan 28, 2020. That is a not so ambitious 10 percent growth for the coming two years. Importantly, these experts stressed that should these numbers happen, then it would also signal a momentum shift to maintain that growth path to 2025 and beyond. It’s a view that finds support from the Central Electricity Authority’s (CEA) own long term projections of consumption and capacities, as seen in the charts below from their latest Electric Power Survey (EPS).

The One That Cannot Be Missed: STORAGE To understand the gap between intent and ability when it comes to policies and action on the ground, look no further than energy storage. Yes, energy storage, which, in our view, will be one of the most influential factors that decide the trajectory of solar growth. For not only will storage support the intermittency of solar energy production by balancing out supply with demand, other services linked to large batteries, from grid regulation to frequency management, don’t even exist due to a lack of legal framework on using these by discoms. Earlier, speaking at the REINVEST 2020 event in December 2020, Mahesh Kolli, Joint Managing Director, Greenko Group, which won the largest chunk of SECI’s storage plus Renewable project had also highlighted his issues with battery storage. In explaining why Greenko was going for pumped storage at this stage. “In Karnataka RE penetration has gone from 6 percent in 2015 to 50 percent in 2020. The average cost of energy increased from Rs 3 to Rs 4, forcing the discom there to virtually halt any fresh RE additions since 2018-19. On the storage front, pumped storage comes at around USD 70 per MWh, versus battery which is much higher at a minimum of USD 130 /MWh currently”. He suggested considering a move like a Storage Portfolio Obligation for discoms, much like the RPO’s driving renewable growth for now, as a possible starting point to ensure a start with battery storage in India. On the other hand, Rupam Raja, Market Director, India & SE Asia, Fluence had highlighted the 10 MW one-hour battery storage plant in Delhi, active for about 10 months now. “Its giving a lot of info to help make policy. The challenge is while we have given discoms the option to contract renewables for RTC (Round the clock power), what we have not done is create a viable option where they can get away from signing a fixed contract for a firm capacity. So they need to get out of the fixed costs for fossil fuel alternatives. Just focus on peaking need, such that discom does not have to sign a firm capacity contract with gas or coal-based supplier, then you will see the true value of a battery storage solution”. Overall, the policy support is well captured by this post budget quote of Prabhajit Kumar Sarkar, MD & CEO – Power Exchange India Limited (PXIL) who says “The Union Budget for 2021-22 presented by the Finance Minister Nirmala Sitharaman today, has given a big push to the power sector by announcing close to Rs 3.06 lakh crore power distribution sector scheme. We welcome this move as it is expected to assist discoms for infrastructure creation tied to financial improvements, including prepaid smart metering, feeder separation and upgradation of systems. Additionally, the government’s proposed framework to give consumers more than one discom choice was a much-needed move. It will help to enhance efficiency in the power distribution sector, induce fair competition and address the monopoly business of discoms. Besides, we foresee that reforms such as Rs 1,500 crore allocation for the renewable energy sector, 100 percent railway electrification & expansion of metro rail networks and hydrogen energy mission for generating hydrogen out of green-powered sources will contribute significantly in enhancing the country’s power demand. PXIL, as a national power market infrastructure institution, welcomes the budget announcement and is ready to provide an efficient platform for an enhanced volume of trading and efficient electricity price discovery in the country.”

Source: CEA

Politics: All But Convinced

The Politics of pushing for more renewables is surprisingly an issue that is much more manageable than people imagine, in this current ‘polarised’ environment. With solar costs dropping to almost grid level or even lower for some states, hitherto laggard states like Punjab have changed their views on renewable energy already. Punjab, which pays a premium for its thermal power due to distance from the source coal mines, is just one example. Other states like Rajasthan, Madhya Pradesh have already made huge plans. Outliers remain states on the Eastern coal belt, notably Bengal, Bihar, Jharkhand and Odisha. These states, with a combination of high population density, lack of ‘wasteland’ at the scale utility-scale projects demand, and low thermal power costs, have resisted the charms of renewable energy so far. But with a low industrial base and consumption, they simply have to shift future consumption growth to renewable energy to improve their own numbers and provide a market for renewables. For that, they need to improve their state discom finances too. Even Andhra Pradesh, the state that sent shockwaves through the sector when a new state government sought to cancel/renegotiate signed contracts, has not gone off renewables. Instead, the new government has actually mapped out its ‘own’ new and bigger 10 GW plan, which, which is progressing, albeit slowly. Other states like Karnataka in the south have gone a little slow simply because they added on renewables much earlier, mush faster, leaving them saddled with higher costs. As those projects mature and fresh demand is created, expect these states to adapt much faster. Especially in areas like repowering old wind energy installations, for instance.

Infrastructure And technology

When talking about infrastructure and technology, probably two areas come to mind for the former. Land availability and speed of upgrade and build-up of transmission infrastructure. Both have emerged as serious challenges, especially land, with ever-increasing demands for large solar parks. While that might be one reason for the relative absence of renewable energy in the densely populated and fertile Eastern states of India, the land issue is now becoming a cause for concern in larger states too. Both Rajasthan and Gujarat, states with massive solar plans have seen issues escalate around land acquisition in recent months, which need a better long term approach. Chances are high that the massive solar parks planned, from 30 GW in Gujarat or the 7 GW plus in Ladakh, might be the earliest, and last of their kind. The future of renewables might lie in smaller 50-100 MW parks, where land acquisition is far easier. This looks even more promising if one looks at the government’s resolve to monetize land banks owned by its own ministries and arms more effectively. Ministries like Railways are already focused on achieving ambitious solar targets like 3 GW on the back of its own and banks and buildings infrastructure. Technology will play its role, by allowing for consumption locally through regional grids, saving on transmission losses. Similarly, technology will be critical for something like the National Hydrogen Mission that has been declared in this years budget. The announcement couldn’t have come sooner, as further delays would have risked India meeting the same fate as its solar manufacturing industry in Hydrogen too. Keep in mind that till 2011, India was actually a quality destination for solar exports to the world, before the Chinese wave of manufacturing and R&D buried overtook us. To be globally competitive, the country will need to grow homegrown technology and manufacturing innovations, otherwise no amount of duty protection will help. Hydrogen, or green hydrogen production in that sense, provides that opportunity again.

Dr. Paolo Frankl, Head of Renewable Energy Division, International Energy Agency in his presentation at REINVEST 2020 had stated that the future of RE in the long term this decade is very important and this depended on the right policies. He predicted in 2025 renewable will surpass coal and will become a first-generation technology in the world. Besides storage, he stressed on the need for a wider technology portfolio for energy needs, be it optimized hydropower, offshore renewable and geothermal energy. Enhanced market and regulatory frameworks are critical to attract timely investment in grids and remunerate flexibility from dispatchable supply, storage and demandside response. Deeper commitments to emissions cuts would mean faster clean technology deployment and cost reductions, innovation for hydrogen and other low carbon fuels, battery storage and CCUS. He also emphasised the role of governments to attract affordable financing, accelerate the transition in building, industry and transport. Thus, technology and building at scale in Storage, and the whole solar cycle, will be much needed, with the proviso to innovate and build our own standards that deliver the same output through an India way.

Summary

The decade to 2030 has started with a nudge to the Renewable Energy sector to find its own feet. Be it financing, costs, or solving integration challenges, the industry will increasingly be expected to be proactive, rather than look to the government for solutions. Demand growth, and a slowdown or complete stop on thermal expansion, along with the retirement of old plants, offers renewable energy its best chance to expand its space. New areas like Hydrogen generation offer a technology-led opportunity to invest in and look for scale. A similar but tougher test awaits the sector in storage, where a strong case for battery storage especially is still not being made on cost considerations. The obsession with cost in fact is the best way to fall behind in the global race, and this is perhaps the one area where the government has to play a final hand, by creating an enabling environment for discoms and consumers alike, to allow a market to develop.