India’s corporate sector accounts for close to 50 percent of the country’s electricity consumption, but despite a strong business case for renewable procurement, numerous barriers and opportunities for improvement prevail.
Policy and regulatory challenges remain the primary restricting factor for corporates venturing into renewables in India, a new report by WWF India shows.
Titled 'Renewable energy demand in India: Corporate Buyer’s Perspective', the report was based on the results of a survey of 40 corporates, and listed policy and regulatory issues as the top deterrent, followed by infrastructure and technical and financial issues.
Around 50 percent of the surveyed companies cited policy and regulatory uncertainty, policy inadequacy, inconsistencies in implementation among others, as the top concern. While 30 percent felt infrastructure and technical problems such as grid access issues, storage and balancing, infrastructure updates, and awareness was the major problem.
The other 15 percent felt the renegotiation of power purchase agreements (PPA) and payment delays were an important issue, while the remaining 5 percent cited other issues.
Broken spoke in the wheel
The government has set a target of 175 GW installed renewable energy capacity by 2022. In fact, 69 percent of companies are already procuring renewables in various forms. The software and service sectors leapfrogged ahead of others, with 83 percent of the companies having set renewable energy targets, the report noted.
Meanwhile, the banking, diversified financials, pharmaceuticals, and household and personal products sectors lagged on both greenhouse gas (GHG) reduction targets and the procurement of renewable energy.
India’s corporate sector accounts for close to 50 percent of the country’s electricity consumption and companies are looking at long-term strategies to fulfil mandated renewable power obligations (RPO) among other things. However, despite a strong business case for renewable uptake, numerous barriers and opportunities for improvement prevail.
Policies vary from state-to-state while regulations are frequently amended, often multiple times within one project’s lifespan. Shifting goalposts, coupled with varied governmental requirements puts undue pressure on the financial viability of projects and negatively impacts long-term strategies.
"Cross-subsidy surcharge (CSS), additional surcharge, transmission and wheeling charges, point of connection (PoC) charges, etc., are some of the regulatory levies determined on a yearly basis. This leaves investors uncertain about cash flow projections required to assess project viability," Dalmia Cement (Bharat), one of the respondents pointed out..
ITC, which was one of the respondents, has a total renewable energy consumption mix as high as 43 percent at present, with a target to achieve 50 percent. "However, the road to renewable procurement has been challenging, due to significant barriers related to open access, together with changing levies, duties and concessions," the company stated in the report.
The fluctuating base norms also result in financial institutions being wary, and either completely opting out of covering risks for such projects or reducing exposure by only dipping their feet into the venture.
A comedy of errors
Implementation inconsistencies are the other bone investors have to pick with policy and regulation.
"There are many instances where policies developed by legislators and regulators were not implemented either in letter or in spirit. For instance, while policies for rooftop solar exist in almost all the states, investors face issues, such as the non-functioning of single window clearance mechanisms," the report pointed out.
Another factor overlooked, especially in the solar sector, is the imbalance between domestic manufacturing capacity on-ground and the mandated level of domestic procurement. The next consideration is that Chinese imports are less expansive compared to their Made in India counterparts.
This means that two policies — Make in India and the 100 GW solar energy target by 2022 — inherently lead to a mismatch of expectations, with both competing to meet their individual goals.Thus, India pushing ahead with safeguard duties against Chinese and Malaysian imports and confusion surrounding GST levied at different rates for different components is bound to push renewable power prices upwards and reduce momentum in the sector, which is counterintuitive to the endgame.Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.