A drop in demand means that India is now staring at a two to three GW loss of capacity addition
The pandemic’s impact will remain etched in our collective memory for ages as virtually all aspects of human life and development have been affected by it, including the renewable energy sector. The COVID-19 lockdowns have ensured that renewable energy projects have either stopped or are behind schedule. For a sector that was already fighting for viability in a fossil fuel-driven economy, the contagion is proving to be a death knell.
According to a recent report by consulting firm Bridge to India (BTI), a sharp drop in demand, accompanied by construction delays, made worse by the poor financial condition of distribution companies (DISCOMS), has ensured that India is now staring at a two to three Gigawatt (GW) loss of capacity addition this year. These conditions have been exacerbated by constraints in debt financing.
The import of this has not been lost on the Government, which announced a Rs 90,000 crore liquidity package in May for the power sector. But unfortunately, the implications for the renewable energy sector are now driven by waning power demand in the face of these difficult circumstances. The stimulus package may prove to be too little and too late to secure the sector and safeguard the progress made till date.
Riding on these bleak conditions, the BTI has revised the base capacity addition estimates from 43 GW to 35 GW for solar power and from 15 GW to 12 GW for wind power. The BTI has also highlighted the problems that are rife in the sector, which is now plagued by shortage of funds and capital, especially debt capital.
Moreover, the financial crisis looming in the distribution business, too, needs urgent addressing if further deterioration is to be avoided. The cash-strapped DISCOMS are at the centre of the storm as they are unable to pay renewable power producers. Analysts suggest that the losses of DISCOMS may double to $15 billion, further deepening the cash crunch.
This will increase the stress on the entire system, which is already facing unequal competition from fossil fuel-driven power that is economical and in surplus. As it is entrepreneurs are wary of choosing renewable power production as a sustainable business and the current conditions are not helping in making the sector lucrative for securing future investments.
According to the estimates of the International Energy Agency (IEA), this year was expected to be a record one for renewable energy, not just for India but globally, too. Riding on a rather strong performance in 2019, the IEA was expecting a similar run this year.
In the US for instance, the on-shore wind power generation was expected to peak this year, while China was poised to witness a rush in completion of solar and wind power projects as the feed-in-tariffs (FITs) were scheduled to be phased out this year.
India, on the other hand, was positioned to make critical progress in the process of achieving 175 GW growth in wind and power energy by 2022. But none of this happened. In fact, the IEA estimated that 2020 would witness a three per cent growth of biofuel production, which, too, did not materialise.
Many of India’s ambitious renewable energy targets have a social welfare theme to them. These renewable energy projects not only mean well for the environment but also have the potential to be the harbingers of good news for marginalised communities while providing a sustainable alternative to fossil fuels. But all this now seems to be in jeopardy unless urgent structural changes are envisaged in the renewable energy sector. These changes must account for the recession in the economy and the fact that people are not spending money the way they used to before the pandemic hit an already sluggish economy.
These factors will help in designing what could be the toughest and most complicated chapter in India’s transition from fossil fuels to renewable energy. Consumer response to electric vehicles in Delhi, post the latest Electric Vehicle Policy, would prove to be a big learning curve for the sector.
One of the major aspects that the Government must attend to immediately is the availability of labour. This has been impacted severely due to the migration of labourers to their hometowns and villages. This has not only stopped various projects in their tracks but has also adversely impacted the Government’s ‘Make in India’ initiative.
The conditions in the renewable power sector are still evolving and the impacts are still being identified and evaluated. Therefore, it is the right time for the Government to undertake necessary diagnostics on the sector and carry out urgent remedial measures that can help it back on its feet.
Many experts feel that the renewable energy sector needs more than just subsidies and other promotional measures. The requirement now is for deep-rooted structural changes in the Indian renewable energy guidelines and strategies. The success of these changes will be evident in future when India is able to not only put back on track its renewable energy targets but is able to provide people with dependable, viable and sustainable alternative to fossil fuels, too.
(The writer is an environmental journalist)
