India can push up renewable energy the most after COVID-19: IEA

Renewable energy has been one sector that has been resilient amid economic shock generated due to the novel coronavirus disease (COVID-19) pandemic; and India is expected to gain handsomely.

The country may contribute the most towards pushing the sector up in 2021, according to the International Energy Agency’s (IEA) new report, Renewables 2020 — Analysis and forecast to 2025.

The agency expects India to double its green energy capacity addition next year from 2020 levels.

Many auctioned wind and solar photovoltaic (PV) projects are expected to become operational following delays due to COVID-19 and challenges in negotiating contracts and acquiring land.

In a generally optimistic outlook (with some caveats), renewables’ resilience would be reinforced by the electricity sector; although global energy demand is set to decline 5 per cent, renewable electricity generation will grow 7 per cent (due to long-term contracts, priority access to the grid and continuous installation of new plants).

Renewable capacity additions are on track for a record expansion of nearly 10 per cent in 2021, in part due to commissioning of delayed projects where construction and supply chains were disrupted.

Key markets comprising the United States, India and some European countries have permitted deadlines to be extended for auctions and policies and robust pre-COVID-19 project pipeline ensure continued momentum.

The report predicted a decline in global renewable capacity addition in 2022 due to the expiry of incentives and ensuing policy uncertainties. The expiry of production tax credits in the US and capital subsidies in China in the coming years may create uncertainty over the pace of future development.

The report also highlighted the ongoing financial struggles of distribution utilities in India as an unresolved crisis.

India’s wind and solar market

Wind capacity additions are expected to drop 60 per cent in 2020 as compared to 2019 (to 1 gigawatt). Nearly 0.3 GW wind capacity was added in the first half of 2020, with only one wind auction in the first eight months. This resulted in allocation of 40 per cent of the announced 2.5 GW capacity with average contract prices six per cent higher than in 2019.

India’s solar PV capacity additions are forecast to be a third lower in 2020 than in 2019. Most annual construction activity in India takes place in the first half of the year before the monsoons.

In the first half of 2020, new PV capacity installations were 70 per cent below average first-half growth of the previous three years due to COVID-19-related supply chain disruptions and construction slowdowns, as well as increased macro-economic risks.

A rebound in PV deployment is expected for 2021 and 2022, with capacity additions exceeding the 2019 level as delayed and new projects become operational.

Distribution utility woes

The report highlighted the difficulties to India’s distribution utilities as COVID-19 deteriorated their financial viability. This financial instability leads to delayed payments to generators, lowering the profitability of existing projects and raising the level of risk perceived by potential developers and financial institutions.

New renewable energy plants managed by utilities with low credit rating would likely face greater obstacles than those overseen by healthier utilities.

Although policies to improve utilities’ financial health through Union government’s Ujjwal DISCOM Assurance Yojana were introduced in 2015, it has only been partially successful, and overdue payments to generators began increasing again in 2018.

From January to June 2020, total overdue payments owed by utilities rose 28 per cent for all electricity generators and 10 per cent for renewable electricity plants. In May 2020, India announced an extensive loan programme to reduce overdue amounts owed to generators.

Innovations and way forward

The report highlighted India’s innovations to pre-empt slowdown in the renewable energy sector — the switch from state-level to central reverse-bid auction is a move that provides more payment security and attracts more competition.

Despite COVID-19 disruptions, India auctioned 8.2 GW of new PV capacity by the end of September 2020, exceeding that of the previous year and with consistent fall in tariffs. The Union government was also awarded a record 12 GW of PV capacity linked with three GW of PV module manufacturing.

Other innovations such as wind-solar-storage hybrid auctions also make renewables more competitive. Removal of low-bid ceilings allows developers to fully reflect changes in the economic environment in their bids and secure sustainable revenues.

The issues of transmission grid bottlenecks and land acquisition are being addressed through interventions of Green Energy Corridor and solar parks.

India also urgently needs to help distribution utilities find a sustainable solution to their financial challenges to reduce off-taker risks. It needs to introduce comprehensive, transparent and investor-friendly rules for signing private power purchase agreements and open grid access that could spur higher investment independent from the auction system.