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India’s solar power ambitions: Why 2019 disappointed

Workers clean photovoltaic panels inside a solar power plant in Gujarat.

Rising carbon levels threatening our planet has led to a major renewable energy push worldwide.

And the good news is India along with China, Germany, Japan, the US and UK has emerged as one of the top producers of renewable energy. Together, these countries account for around 70 percent of the installed capacity globally.

The bad news – India has not been able to sustain the pace of solar capacity addition in the past two years after growing by almost eight-fold at a breakneck speed.

2019, which is almost drawing to a close, has been particularly disappointing on this front: India has failed to achieve its target of adding 9 gigawatts of capacity (it has managed to add 7 gigawatts so far) and in the first half, installations declined by almost 35 percent from the same period last year. Compare this with the 15.5 percent decline in 2018. Further, for the first time, rooftop installations fell quarter-over-quarter in 2019.

The dismal figures are mainly a result of unsustainably low tariffs (it is the price the government pays to solar power generators and aggregators for each unit of electricity). With those being one of the lowest in the world, solar energy producers and sellers in India are finding it tough to rake in the desired profits.

The tariffs have been in a free fall because of a combination of factors. Foremost among them is the cutthroat competition in the sector. Owing to the government’s solar push and crashing prices of solar photovoltaic modules, numerous local and foreign players entered the fray. This naturally led to competitive pricing and pushed down profit margins of companies battling it out for market share.

Reverse bidding, an auction process in which sellers offer to generate electricity at the competitive prices and buyers close the deal based on the lowest bid, has also pushed down tariffs to record lows.

The state governments’ push to drive them down further and cancellation of auctions and tenders to achieve that purpose is serving no good either.

Add to that large amounts owed by state DISCOMS, which are in financial doldrums, to the renewable energy companies. The Central Electricity Authority has calculated that amount to be ₹9,735.62 crore. A major chunk of it – ₹6500 crore – is due from just three states, namely Andhra Pradesh, Tamil Nadu and Telangana. Of the three, Andhra Pradesh DISCOMS have been the worst offenders as they haven’t paid their dues in over 13 months.

Tariffs and unpaid dues aside, safeguard duty on solar cells and modules imported from China and Malaysia has also proved to be a major roadblock too. Meant to offer protection to domestic manufacturers on the verge of getting decimated in the face of cheap imports flowing freely into the markets, it has further driven up costs for solar developers. The additional expense, which the government promised to bear for those projects auctioned before the implementation of the duty, is yet to be done. This, coupled with domestic manufacturers’ inability to meet the demand for solar equipment, has left developers in the lurch.

A slowing economy, the confusion caused by the hurried rollout of GST, slow development of solar parks and land acquisition problems have also fueled uncertainties.

Against the backdrop of such developments, banks and investors have become weary of pumping money into solar projects. In fact, large banks such as the State Bank of India are no longer lending to renewable energy projects selling power below ₹3 a unit. This has forced developers to pull out of projects or simply discouraged them from entering the market.

Now that 2019 has turned out to be a damp squib for the solar sector, it goes without saying the downtrend has to be stemmed going forward. The government has to work on framing effective measures and implementing those as efficiently as possible. Only then can it achieve its target of generating 100 gigawatt of solar power by 2022-end. As of today, the installed capacity stands at 32 gigawatts.