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BW Businessworld

A Bright Future For India?

Some of the risks to develop solar power in India were palpably playing out in open for all of us to see for years but had been marginalised or totally ignored by the management of numerous exuberant domestic/international investors and lenders.

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Sun Edison, Sky Power, or Welspun and their ilk are reportedly looking forward to exit, within months of winning the reverse bids, from many of their commitments to develop, build and operate solar power projects in Madhya Pradesh, Telangana, Andhra Pradesh, and other states. Of course, in the process these companies hope to take out not only their investments made so far, but earn a tidy premium as well. Several Indian and foreign companies cornered hundreds of mega watt capacity solar power projects in the states by quoting tariffs as low as Rs 5.05/Kwhr to Rs 4.63 /Kwhr. While many of us really wondered if these tariffs were at all sustainable, the proponents, including the states that hosted the reverse bidding selection process, were stunned but delighted over jaw-dropping solar photovoltaic (PV) tariffs.

Some of the risks to develop solar power in India were palpably playing out in open for all of us to see for years but had been marginalised or totally ignored by the management of numerous exuberant domestic/international investors and lenders.

These risks include: (i) Solar projects having relatively high levels of volatility in electricity generation due to solar radiation variations affecting volatility in revenues. Discarding this fact of science many companies bid with razor thin margins during reverse bidding. (ii) All the solar PV projects will be subjected to Load Dispatch Center regulations. This risk cannot be controlled by the state or the Discoms having Power Purchase Agreement with developers, and therefore, off take from solar power unit is not guaranteed into the grid under unscheduled interconnect regime. (iii) The sale of certified emissions reductions products such as renewable energy certificates and their prices may be quite volatile. (iv) Renewable purchase obligations are not legally enforceable and even if they are escalated to 10 per cent or above by 2022, it will still not be a game changer. (v) Solar projects are Capex intensive and generally require ‘third party’ financing, a device that requires developer(s) to put their equity upfront and several of developers/investors might be under liquidity crunch or themselves under distress sale for having huge NPAs with respect to Indian/foreign banks, and may not receive any loans for the projects. (vi) The global economic downturn has impaired the project value of solar PV assets. (vii) Management of the companies may be losing focus as the solar projects may not be their core business and their own finances could be under strain. (viii) Regulatory risk and risk from delays from the government to pronounce and stick to clear policies, rules and regulations are endemic in nature. (ix) India, like many other countries, is a highly bureaucratic nation, and international companies looking for quick exits when desired, achieve fast project approvals, obtain permits, facilitation of power evacuation, solar park development in strict time and cost schedule, etc. will be strongly tested for their patience.

The reverse bidding tariffs submitted in their enthusiasm to win the solar power projects and under cut-throat competitive pressures, many bidders have discovered to their utter discomfiture that they are literally hoisted on their own petard. But, having said all this, grid connected solar electricity generation business can still be sustained by the government, provided the government continues to play proactive and a pivotal role for securing long-term success of the large capacity solar plants in India. The idea that solar power generation will soon be on auto-pilot mode (i.e., attain grid parity) is far from true. The community of long haul and committed renewable project developers need another 5-10 years of hand holding by the government.

An expert panel appointed by member of Parliament has recently released its report and put certain facts on the table. If the objective of reaching to 175 GW by 2022 is to be realised, the government must invest some serious sums of money from its own Union Budget over next 5-10 years in addressing several key issues such as generation reserves, transmission corridors, smart grids, obligations of forecasting for renewable energy power plants, scheduling, battery storage, deviation settlement mechanisms, etc. This is the way to integrate renewable energy with conventionally generated electricity carried by central and state grids, without hurting the viability of base load power plant owners viz., Independent Power Producers and the public sector utilities of state and centre.

On the other hand, roof top solar units have a bright future in India, with or without the government intervention.

Shakespeare had said in Hamlet, Act 3, Scene 4, “Hoist on its own petard”.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

Rajendra Shrivastav

Rajendra Srivastav is a guest author with BW Businessworld

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