Green Energy: India’s shift to Renewable Energy

As solar and wind power segments driving India’s renewable energy growth in the country, battery storage and hybrid technologies are providing a fresh impetus in the market. 

I ndia’s cumulative installed renewable energy (RE) capacity has crossed the milestone of 100 GW, as per the recent MNRE announcement. While 100 GW has been installed, 50 GW is under installation and 27 GW is under tendering. The achievement of 100 GW installed RE capacity is an important milestone in India’s journey towards its target of 450 GW by 2030. Another industry report by Global Wind Energy Council and MEC Intelligence indicates that India is expected to add nearly 20.2 GW of new wind power capacity between 2021-2025. This would increase the country’s 39.2 GW wind market by nearly 50 percent and is a clear signal that the market is beginning to bounce back after a slowdown in recent years. While these numbers open up new avenues of growth for renewable energy in India, the journey ahead is expected to be promising but challenging.

On a renewed growth push 

With strong project pipeline of about 35 GW as on July 2021 led by the awards of the projects in utility auction route both by central intermediaries and state nodal agencies, the visibility over the incremental RE capacity addition over the medium term thus remains strong, according to Girishkumar Kadam, Senior Vice President & Co-Group Head – Corporate Ratings, ICRA. “About 11 GW of annual RE capacity addition is expected in the current FY 2022, given the execution challenges also seen in Q1 of the current fiscal amid second wave. The share of renewables in the installed capacity is thus estimated to increase gradually from 25 percent as on March 2021 to about 35 percent by March 2025, with the incremental capacity addition of about 60-65 GW and the investment of about ₹3-3.5 trillion over this period. Within the RE segment, solar segment will continue to occupy a dominant share, given the relatively more execution challenges persisting in wind energy segment and concentration of wind energy resource only in few states,” he adds.

However, even though the capacity installations are growing, the generation is not in line with the trend. According to Ajay Devaraj, Secretary-General of the Indian Wind Power Association (IWPA),although RE stands at 26 percent of India’s installed energy generation capacity, the actual generation is less than 10 percent.Speaking on the wind energy capacity additions, he adds, “Out of the 7.6 GW under construction projects, 4.8 GW are expected to be completed in FY 2021-22.Installed capacity will thus rise to 44.4 GW.” According to him, the current installed capacity of wind power is 39,600 MW, under construction (SECI Tranche I-IX) is 7,631.800 MW, allotted under SECI Tranche X is 1,200 MW and tendered under SECI Tranche XI is 1,200 MW. Also, 3,600 MW capacity is likely to be tendered in FY 2021-22, while 1,500 MW of wind power in likely hybrid wind-solar bid(50 percent of 3,000 MW).

Ganesh Srinivasan, CEO, Tata Power-DDL, says,“The pandemic-induced construction delays and grid connection challenges have led to a 50 percent decrease in India’s capacity additions, from 2019 to 2020. However, driven by the commissioning of delayed projects, India may set new records for renewable energy capacity expansion in 2021 and 2022, which is expected to rise three-fold to 17 GW in 2021 and to about 20 GW in 2022, according to reports.” 

According to Sabyasachi Majumdar, Senior Vice President and Group Head Corporate Sector ratings, ICRAthe solar power segment remained the key driver of capacity addition in the RE sector, with significant capacity addition over the past five years, which in turn increased its share in the overall RE mix to 44.4 percent and has surpassed the wind power capacity for the first time in FY2021. “The RE capacity is expected to improve to ~11 GW in FY2022, mainly driven by the solar power segment,” he adds.

Growth drivers 

According to Girishkumar,strong policy push by Government of India as well as significantly improved tariff competitiveness for solar and wind energy, remain fundamental demand drivers for growth of RE capacity in the country. In addition, regulatory framework remains highly supportive for RE sector, as evident from must run status as well as applicability of renewable purchase obligation (RPO) norms for the obligated entities as laid out by the SERCs in majority of the states.

Ganesh is of the view thatIndia has taken bold steps to scale up the share of RE in its power mix and the political leadership at the Centre is fully seized of the opportunity to both reduce CO2 emissions as well as reduce the cost of the energy – particularly through solar with this transition. In addition, many companies have announced their Net Zero plans. All this is driving the market growth in RE today. The level of interest is also visible with the market valuations and investments by Private Equity and focused funds in this sector. 

Development trends 

Key development trends observed both in wind and solar energy pertain to an evolving technology and efficiency improvements, besides the scale of the projects being installed, which have too led to improvement in tariff competitiveness through bidding route. Girishkumar says, “For wind energy, PLF expectation has improved significantly to about 37-40 percent for assets deployed in windy zones due to advanced technology with wind turbines having higher hub height upto 120/130 m. In case of solar PV segment, usage of higher module peak watt capacity as well as shift/preference towards relatively more efficient technology, coupled with economies of scale with respect to large-sized projects being set up at one location, has certainly enabled to improve cost competitiveness of solar energy too.” 

Ganesh says,“In line with its ambitious targets, India has become one of the largest renewable markets in the world.” According to him,today, solar photovoltaic (PV) and wind are the major renewable power sources in India. With the latest technologies, solar and wind tariffs have reduced drastically over the past few years. 

Discom trends 

The financial position of state discoms remains weak in a majority of the states on account of higher level of technical and commercial (AT&C) losses compared to regulatory norms, inadequate tariffs in relation to their cost of supply and inadequate subsidy support from the respective state governments. According to Girishkumar, this remains a matter of concern for the entire power sector value chain. This is also evident from the mixed payment pattern from state distribution utilities towards the RE assets (more prominently with respect to costlier feed-in-tariff based PPAs in wind energy segment) in key states as well as buildup of overdues by state discoms towards conventional and RE Gencos/IPPs. 

Ganesh adds, “Green energy is one of the ways which will have a positive impact on the discom finances provided it is managed well. While the power purchase cost for newer RE power can be lower than that of traditional conventional sources, RE power requires proactive management on a dayto-day basis.”

Energy storage: evolving 

Battery energy storage technology is slowly picking up in the country.Kashish Shah, Energy Finance Analyst and Research Associate, Institute for Energy Economics and Financial Analysis (IEEFA) elaborates on the trend, “We are at about 10 percent of renewable penetration in India’s grid as per the aggregate annual numbers for FY2021. So, when we integrate 450 GW of renewable energy, it will form around 32 percent of the total energy generation mix by 2030. It is going to challenge the grid variability fluctuation in the frequency and also there will be capacity constrains as India’s electricity demand continues to grow at around 4-6 percent.” 

Right now, if you compare our market with the US, Australia, China and Germany, we are very small in terms of battery storage, but India’s battery storage market can boom any time as there are right policies in place.

Outlook bright 

According to Ganesh,in line with India’s ambitious green aspiration of 175 GW RE by 2022 and 450 GW by 2030, the Ministry of Power is gearing up to launch Green Day Ahead Market (GDAM) — a marketplace for trading of renewable power on a day-ahead basis. This will further help to increase renewable capacity addition and provide additional sale avenues to existing renewable power plants that are either facing a payment risk with the discom under the existing PPA or have surplus energy. 

Sabyasachi adds,“Within the estimated capacity as of March 2025, ICRA estimates the share of renewables to increase to 34 percent against 25 percent as of March 2021 and stand at over 160 GW. Therefore, the incremental capacity addition between March 2021 and March 2025 is estimated to be 65 GW comprising 51 GW from solar, 12 GW from wind and 2 GW from other RE sources. The capacity addition would entail an investment of ₹3.5 trillion for the period till March 2025.

Regarding the wind power capacity expansions, Ajay adds, “On the issue of fresh projects, potential exists for around 54 GW of wind parks and Wind-solar parks across several states. MNRE has assured us that a policy on the same will be released soon.Considerable headway has been made with regard to off-shore wind. Talks are at an advanced stage for projects off the coast of Tamil Nadu. The idea is to start with a 1 GW Pilot Project and then scale up, while theoff-shore target is 30 GW. Currently,wind projects are all above 50 MW capacity and we are working on a business model for the sub-50 MW category for consideration of the Ministry. Repowering has the potential to increase wind energy capacity by a further 1.6 GW.”

The renewable energy market is gaining pace after the pandemic impacting the sector last year. While solar projects are on fast track, wind power projects are gaining pace with clear policy initiatives. Though battery storage technology will take time to evolve, there are signs of rapid growth of the segment in the coming years. All in all, the renewable energy will drive the growth of Indian energy market in future, of course, with the policy support from the government.