Power is the critical infrastructure to which India’s economic growth is closely linked. Lack of reliable and affordable power comes in the way of the country’s industrial output and overall economic competitiveness. Despite the achievements of recent years, per-capita, electricity consumption in the country continues to significantly lag that of other major economies. The economic fortunes of the country are closely tied to the availability of reliable, affordable and sustainable energy, more so in the post- pandemic era. Renewable energy sources have come to be a cheap source of electricity given their declining generation costs over the years and holds the potential to be a viable source of electricity for the country.
The Government of India has been focusing on harnessing renewable energy sources and has aspirations to become the global leader in clean energy generation. The country’s power supply mix has seen a steady addition of renewable energy, backed by the higher investment from the public and private sector, including foreign investments. Renewable energy has come to account for 24% of the installed generation capacity and 11% of electricity generation which is an improvement from the 15% share in generation capacity and 7% contribution in electricity generation, in four years. India’s renewable energy generation capacity has grown to be the fourth largest in the world.
The government’s target for renewable energy generation capacity has been set at an ambitious 175 GW by 2022, nearly double the current installed capacity. Achieving this target is an uphill task, which has been made even more challenging by the pandemic. Investments in the renewable energy segment have taken a hit. Capacity addition has slowed in the current financial year to the lowest in five years. The demand destruction caused by the drastic slowing down of economic activity coupled with a rise in input costs on account of the supply side fallouts consequent to the pandemic has constrained the finances of the various stakeholders in the value chain. This has in turn curbed investments in the segment, impacting the expansion of clean energy.
Private sector investments are being relied upon for renewable energy development in the country. Mobilizing private investment would require a supportive and enforceable policy and regulatory framework. Towards this end, the government could in the upcoming budget provide incentives and subsidies that can promote technology and innovation that could make the sector competitive. To reduced dependence on the import of inputs from China (whose manufactures are subsidized) and to realize its mission of making the country self-reliant (Atmanirbhar Bharat Abhiyan), the government should in the budget also have provisions to make available long term funding for the domestic solar manufacturer as well as provide clarity on tariffs viz. basic customs duty on solar cells and modules. Measures to build the necessary infrastructure for the transmission and storage of renewable energy also need to be undertaken. Government support and policy thrust are required to make this sector cost-effective.
The severe financial stress in the state’s distribution utilities (DISCOMs) needs effective addressing in the budget as this has been impacting power availability. Although in the special economic package announced in May 2020, the government provided liquidity supports of Rs 0.90 lakh crores to state DISCOMs by way of loans through PFC and REC, it is not sufficient to address the overhang of outstanding dues of DISCOMs that amounted to Rs.1.31 lakh crores as of November 2020.
Kavita Chacko is a Senior Economist, CARE Ratings Ltd.
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