As 2020 comes to an end, we take stock of what the year meant for the renewable power sector. It has been a phenomenal whirlwind of a year throwing off-course plans of all stakeholders. COVID has caused unimaginable disruption by further weakening power demand, diminishing DISCOM finances and slowing down project execution.

We list below ten major sector developments during the year. Most of these themes are likely to play out for a long time shaping the sector in innumerable ways.

DISCOMs sink further
DISCOMs have taken a financial battering with reduction in C&I demand and poor billing and collection performance. Annual losses and payment dues to suppliers are expected to reach all-time highs. Average payment period for power purchase is near the inconceivable 6-month mark. The government’s INR 1.2 trillion (USD 16 billion) liquidity package has proven too small and inadequate in stopping haemorrhaging of DISCOM finances.

Reform hopes remain hopes
There has been almost no progress on long pending power sector reforms. The central government has sought commitments from states on their support for measures such as payment of tariff subsidies directly to consumers, reduction of AT&C losses, regulatory independence, tariff rationalisation and simplification. But many states remain firmly opposed to reforms and the central government has little political will to enforce a solution.

Power purchasers disappear
Despite sharp slowdown in power demand, tender issuance and auctions remained relatively robust at 33,087 and 8,014 MW (down 16% and 72% over 2019) respectively. While MNRE and SECI have pushed through auctions, the DISCOMs have been reluctant to sign PPAs with almost 18,000 MW of unsigned PPAs causing a huge overhang on the sector.

Hybrid renewables becoming mainstream
In a bid to tackle intermittent generation profile of renewable power, MNRE is pushing through complex new schemes combining solar, storage, wind and conventional power. There is a growing sense that we will see fewer vanilla tenders in future. New schemes pose new technical and operational challenges for developers but also provide an exciting differentiation opportunity to them.

Manufacturing plans take off (or do they?)
Pursuant to indicating strong support for domestic manufacturing, the government has claimed that up to 20 GW of integrated module manufacturing capacity is being established. However, concrete progress on basic customs duty and financial incentives is still awaited. We believe that fickle government support cannot provide foundation for a robust manufacturing capability.

All change in module technology and supply
New module technologies finally hit home in 2020 with mono-PERC modules becoming default choice of developers. Bifacial modules are expected to become mainstream by next year end. Pace of technology change is accelerating as leading Chinese players innovate furiously and break further away from tier-2 and tier-3 suppliers. New enhancements promise to bring down costs and improve LCOE, but also present a difficult choice to IPPs due to limited proven track record.

Wall of money a mitigated blessing
Migration of capital away from fossil fuels and all-time low interest rates have led to flooding of capital into the sector. While this means better support for secondary deals, intense bidding competition is forcing developers to bid aggressively resulting in unviable bids as seen in the recent SECI Rajasthan solar auction.

End of new coal in sight
Even as central government sits on the fence, states and investors are migrating en masse away from coal. New coal capacity is now funded entirely by PSUs as both international and domestic investors focus exclusively on green energy and sustainability. We believe that new coal will become a rarity after 2024.

Government doubles down on mega renewable parks
The government mistakenly continues to focus on mega concentrated parks. Prime Minister Modi just inaugurated a 30 GW renewable park in Gujarat. But project development should get more dispersed as inter-state transmission waiver runs out in June 2023. Unless government reorients its plans accordingly, land and transmission are expected to remain key pain points for the sector.

Distributed renewables caged up
Renewable power demand from C&I consumers is soaring but DISCOMs are suppressing demand with policy reversals and execution hurdles. Installation numbers have been coming down for both rooftop solar and open access renewables for the last two years. An incredible growth opportunity is going abegging.

To end on a good note, energy transition is well and truly under process in India. Several pitfalls remain but things can only get better in the new year.

We wish you all a merry Christmas and a very happy new year. Hope you have a restful break and we look forward to seeing you in 2021!