2017 does augur in a lot of hope for the sunrise industry as it starts with an order pipeline of around 14 GW of utility scale projects, out of which 7.7 GW is expected to be commissioned in this year, a growth of around 90 percent over 2016. Market research firm ‘Bridge to India’ says that combined with 1.1 GW of expected rooftop solar capacity, India should add a total of 8.8 GW in 2017, ranking it amongst the top three global markets after China and the USA. The price is all set to fall below last year’s record driven by plummeting panel prices, falling interest rates and competition among developers seeking a slice of the country’s renewables market according to Bloomberg market researchers
But this continued solar growth could lead to significant decreases in wholesale electricity prices they will also hurt other renewable energy sources, particularly wind energy. Especially India’s wind energy sector is facing severe challenge especially from the increased focus on solar power leading to a negative impact on wind power as the latter struggles for funding and policy support. The increased focus on solar energy and recent policy changes, such as withdrawal of certain tax benefits in wind energy, has impacted new investments in the latter and hamper India’s chances of achieving the target of 60 gigawatts (GW) of wind energy capacity by 2022.
The government has proposed to end generation-based incentives (GBI) for independent power producers (IPPs) and reduce the accelerated depreciation (AD) benefits to 40% from the current 80% and propose to move to a new system of reverse bidding for certain wind energy projects versus the current feed-in-tariff mechanism. In a reverse auction, the role of buyer and seller is reversed and a business bid is won by an entity quoting the lowest price. Another problem comes by way of goods and services tax (GST) which pushes up costs for both wind and solar project developers as some tax exemptions are likely to go away.
It’s just that in terms of size of the market, solar energy is growing much faster year-on-year. Even though lot of wind capacity has already been installed, wind power is at the mercy of wind movement. The underwhelming performance of the wind sector in recent time calls for caution as the assets on an average are operating below their potential, impacting the projects’ internal rate of return.
Against a potential of 18-22%, the sector registered a plant load factor, or PLF, of 15-17% over the past three years, according to India Ratings recent study. One megawatt of wind energy is estimated to cost around Rs.6 crore. Three-fourths of the current 24,000MW would have cost upwards of Rs.1 trillion. Though the projects may have brought tax breaks, a substantial portion of the (corporate) investments are generating below par returns.
Worryingly, the PLF has been on a downward trajectory since 2013 and projects in states that are best suited to generate wind energy such as Tamil Nadu, Maharashtra and Rajasthan are operating below their potential by a wide margin.
A solar power system has intrinsic advantage over wind system as it has a quicker installation period, requires less space in most cases as the panels can be installed on a roof and a 25 year warranty, requires less monitoring, does not require expensive maintenance, provides more predictable energy output based on BOM and NASA data. Solar commands better value for money in sites with average wind speeds less than 5 meters per second.
It will certainly be interesting to see what kind of market dynamic develops as solar approaches the tipping point where it becomes more economical than all forms of electricity generation. The global conditions being favorable from all indications, will continue to drive down costs. Increased penetration of renewables will increase the demand for a wide range of ancillary services including load regulation, voltage support and ramping reserves. Solar may indeed overcome its value cannibalization problem in the market in the future its increased solar penetration.
To mitigate the RE industry problems I would advocate further positive measures such as dedicated transmission lines for the renewable energy sector , a stricter implementation of purchase obligations and a better co-ordination among the Centre, States and Regulators.
Sanjith S. Shetty