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India Renewable Power Tenders Update – December 2020

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This video presents a summary of major developments for renewable tenders during the month. It includes details of tender issuance, bid submission, completed auctions and related market trend.

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India Renewable Power Policy Update – December 2020

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This video presents a monthly snapshot of key policy and regulatory developments in India’s renewable power sector.

Read more »

2020 – an eventful and memorable year, for mostly the wrong reasons

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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 furtherDISCOMs 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 hopesThere 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 disappearDespite 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 mainstreamIn 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 supplyNew 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 blessingMigration 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 sightEven 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 parksThe 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 upRenewable 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!

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Webinar – India rooftop solar policy round up

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BRIDGE TO INDIA hosted a webinar on Thursday, 3 December 2020 to discuss rooftop solar policy status at national and state levels. Participants included Mr. Chintan Shah (Director Technical, IREDA), Mr. Arijit Mitra (Head of Distributed Generation, LONGi Solar), Mr. Pramod Kalyanshetti (CCO, Mahindra Susten), Dr. Anuvrat Joshi (Head BD India, Cleantech Solar) and Mr. Damian Miller (CEO, Orb Energy).

Most of the discussion revolved around regressive changes in net-metering policy across many states. States have been gradually withdrawing net-metering from C&I consumers and/ or scaling back banking benefits. For example, Uttar Pradesh disallowed net-metering for C&I consumers and Karnataka revoked net-metering for OPEX model recently. As a result, rooftop solar market has been stagnant or even declining since 2018 despite being one of the cheapest sources of power at the point of consumption. Capacity addition in 2020 is estimated at only 990 MW, down 35% over previous year.

Figure: Indian rooftop solar policy landscape

Source: BRIDGE TO INDIA research

All the panellists agreed that policy inconsistency and instability have hurt market prospects. Mr. Joshi mentioned that “overnight U-turns” by state regulators have been troublesome and good intentions for policy change have not been followed up with actions on ground. Another panellist added that it is challenging even to track frequent policy changes across states. The developers agreed that Gujarat, Karnataka and Tamil Nadu have been more challenging states for C&I consumers. However, states like Maharashtra and Kerala provide a useful policy template for other states to follow.

Financing rooftop solar systems has been a persistent bottleneck for the sector. Mr. Shah from IREDA offered a major piece of positive news. MNRE has been working with IREDA to arrange lines of credit aggregating USD 100-125 million from development banks particularly for residential and SME consumers. Depending on market response, the lines could be scaled up to USD 500 million or more in future. As lack of a nationwide branch network has restricted IREDA’s presence in the market (financed only 40 MW of rooftop solar projects so far), they are aiming to channel this financing to system aggregators and other lenders with stronger distribution network.

There was also a brief discussion on impact arising out of BCD imposition, which could be a setback for the market. The government has announced plans to impose the duty from April 2022. A potential 40% duty on modules would raise cost of rooftop solar power by 20-25%. But most developers seem relatively optimistic and feel confident that the market would be able to manage any downside impact with the benefit of learnings from safeguard duty imposition. Change in law provisions have become quite standard in contracts and are well accepted by both consumers and suppliers. Moreover, the panellists opined that even after the proposed duty, rooftop solar would continue to be highly cost beneficial to consumers. Mr. Arijit from LONGi argued that the government should first empower domestic supply chain and only then seek to introduce such duties.

Overall, there is a major disconnect between rooftop solar targets and policy environment. The sector needs a consistent and uniform policy framework to achieve its potential.

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Demand side management needs greater policy thrust

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The Telangana State Electricity Regulatory Commission (TSERC) recently released final regulations for demand-side management (DSM). The initiative is designed to encourage and incentivise consumers to alter their power consumption pattern, both in terms of level and timing of demand. State DISCOMs are required to establish DSM cells and undertake load research and develop baseline data for assessing DSM potential. They are also required to formulate annual DSM plans, which would be used by TSERC to establish targets for load reduction and cost savings.

Demand response programmes can reduce power procurement costs, and ultimately consumer tariffs, by shaving peak requirement;

Based on various studies around the world, a reduction of 2-4% in peak load may be possible in India;

Policy solutions such as demand response are extremely cost and time effective, and can play a vital role in increasing renewable power penetration in the grid;

Maharashtra notified the first-ever DSM regulations in India in 2010. In total, 18 states have now notified DSM regulations including major power consuming states such as Punjab, Haryana, Delhi, Uttar Pradesh, Gujarat, Karnataka and Tamil Nadu.

DSM entails primarily two different kinds of programmes – energy efficiency and demand response. Energy efficiency programmes are relatively easier to implement, and offer direct and larger benefit. By comparison, demand response programmes, require more intricate knowledge of consumer behaviour and demand patterns. The objective is to decrease customer demand during times of high system demand or emergencies by offering them a rebate or lower energy costs.

There are many potential benefits of DSM. Lower power demand has obvious direct financial and environmental benefits. Demand response programmes can further reduce power procurement costs, and ultimately consumer tariffs, by shaving peak requirement, which is typically much more expensive than off-peak power. A US study shows that utilities were able to reduce their peak demand by around 2%. In India, many DISCOMs have completed pilot studies with encouraging results. A Tata Power Delhi study in 2015 showed potential demand response opportunity in India of between 4-8 GW.

Figure: Peak demand reduction from demand response measures in the USA, % of peak demand

Source: US Energy Information Administration, Annual Electric Power Industry Report 2017

As seen in the chart below, Indian power demand typically peaks in late evenings (when solar power is not available) and power prices tend to spike up as seen in the chart below. Reduction of peak load therefore can have substantial financial benefits.

Figure: Total power demand in Uttar Pradesh and traded power prices on 30 April 2019

Source: Uttar Pradesh SLDC, Indian Energy Exchange

Other benefits of demand response include improvement in grid resilience and stability besides possible deferral of expensive generation, T&D system upgrades. These benefits are particularly desirable in increasing share of renewable power in the grid and alleviating dependence on fossil fuels.

Unfortunately, progress has been patchy on the implementation front. Demand response still remains a relatively new concept in India. Pilot initiatives have not been scaled up due to lack of awareness, resources and skills at the DISCOM level. This is a shame because India will urgently need to ramp up efforts to absorb more renewable capacity in the grid as substantial new capacity comes online in the next few years. Policy solutions such as demand response, time of day tariffs and ancillary services are extremely cost and time effective, and should be prioritised over expensive T&D system upgrades.  

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Green power trading off to a tentative start

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It has been a little over three months since renewable power trading commenced on Indian Energy Exchange. Trading has been active for solar and non-solar renewable power separately under two different contracts – intra-day, for delivery within 3.5 hours, and day-ahead, for delivery next day. Longer-term contracts – daily, for delivery between 2-10 days ahead, and weekly, for delivery from Monday to Sunday – commenced only this week.

Trading volume has stayed low at about 2,000 MW daily, about 2.5% of total renewable power output;

Buyers are unprepared to pay a huge premium over conventional power restricting sales appetite of DISCOMs with surplus contracted power;

Trading should pick up by gradually as significant new generation capacity comes online in the next year;

There are some clear trends visible from a look at the trading data so far. As expected, trading volume has stayed low at about 2,000 MW daily, about 2.5% of total renewable power output, or just 3% of total power traded during the same period and 35% of RECs traded during the same period last year. Solar power has enjoyed majority share (88%) in the traded volume because of greater predictability. Average price for solar and non-solar power was INR 3.47/ kWh and INR 3.77/ kWh respectively, significantly higher than conventional power traded price of INR 2.72/ kWh.

Buying interest has exceeded selling interest by a factor of more than 3x, coming in mainly from renewable power deficit DISCOMs. Top four buyers include DISCOMs in Haryana (28%), Kolkata (CESC, 20%), Mumbai (Tata Power, 10%) and Delhi (BSES Rajdhani, 7%) together accounting for two-third of total volume. Large corporate consumers like Vedanta, Dalmia Cement, Jindal Steel and Tata Steel have also been active trying to meet their RPO requirements. The real surprise is that on the seller side, Telangana has accounted for 73% of traded volume with Karnataka (9%) being the only other DISCOM to have sold power. Smaller IPPs had a share of around 15% in the traded volume.

Figure: Renewable power traded volume and price

Source: Indian Energy Exchange

Selling interest is low both because of lack of merchant capacity and low prices. IPPs do not have any untied capacity. Main selling interest is therefore coming from DISCOMs with excess supply of power but in most cases, average cost of their contracted power is in excess of INR 4.50/ kWh and presumably, they are not prepared to sell at a loss. Onerous forecasting and scheduling requirements are also inhibiting volume growth. No schedule revision is allowed under intra-day and day-ahead contracts. Revisions are allowed for daily and weekly contracts but with at least two days advance notice.

Exchange trading of renewable power is a positive development but volumes are expected to stay low. Next year could see a marginal improvement as power demand revives and significant new generation capacity comes online.

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India Renewable Power Policy Update – November 2020

/

This video presents a monthly snapshot of key policy and regulatory developments in India’s renewable power sector.

Read more »

India Renewable Power Tenders Update – November 2020

/

This video presents a summary of major developments for renewable tenders during the month. It includes details of tender issuance, bid submission, completed auctions and related market trend.

Read more »
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