Renewable Energy: Delays in signing PPAs and the future challenges for procurement
The phenomenal growth in renewable energy generation capacity has been one of the undisputed success stories for India. A combination of favourable policy initiatives, abundant solar and wind resources, the “green shift” in the availability of global finance, emergence of sophisticated domestic developers and a steep fall in module prices worldwide has resulted in the sector growing in leaps and bounds.
At the end of Q-3, 2020, the large-scale solar project pipeline stands at 44.7 Gigawatt (GW) with another 34.6 GW pending auction (according to Mercom India Research’s Q3 2020 India Solar Market Update). To give some context, India had committed under the Paris Agreement of 2016 that 40% of its energy generation would be from renewable sources by 2030- in the end of 2020, this number already stands at 37% (including hydroelectric power).
Yet the sector has run into unexpected headwinds. Concern has been growing about a significant backlog of projects facing delays. There are a number of reasons for this: the impact of the COVID-19 pandemic; including on module supplies from China; fluctuations of global module prices; significant issues with respect to land acquisition and allotment to power plants; and environmental issues (including habitat protection for endangered bird species and protection of ancient forest groves) have all contributed.
One of the most critical challenges, ironically, has emerged from one of the greatest successes-falling tariff prices. Solar tariffs have fallen by 50% in the last few years. An industry-stunning Rs 2.00 per unit bid held the lowest tariff record for less than a month, to be replaced by a Re 1.99 per unit bid. But this Icarus seems to have flown too close to the sun.
