Since January 2021, Maharashtra has issued five renewable power tenders with total capacity of 3.3 GW. In the same time, Gujarat has issued seven tenders with total capacity of 1.7 GW. The two states account for a combined 31% share of total tender issuance so far this year. A comparison of renewable power penetration data for 12-month period to June 2021 across states throws some interesting results. Karnataka has the highest penetration at 33%. Andhra Pradesh (23%), Tamil Nadu (21%), Rajasthan (19%) and Gujarat (16%) are the other leading states with penetration significantly higher than the national average of 10.8%. These five states have also met or exceeded their RPO targets. Amongst other larger states, Telangana (10%), Madhya Pradesh (10%) and Maharashtra (9%) are in the middle, while Punjab (5%), Uttar Pradesh (4.7%), West Bengal (3%) and Haryana (1.4%) are the laggards.

Figure: Renewable power penetration and RPO targets in key states, %

Source: CEA, BRIDGE TO INDIA research

Future growth of renewable power in each state is contingent upon three main factors: absolute power demand growth, renewable power penetration and financial ability of DISCOMs. The leading states, other than the exception of Gujarat, are likely to register low-modest growth over next five years. Their DISCOMs are financially weak and there is some evidence that they are struggling to absorb more intermittent power.

Gujarat and Maharashtra are two obvious bright spots. Both states are the hub of industrial activity, accounting for a total 23% share of national power consumption. They are endowed with attractive renewable resource as well as cheap and abundant land. Their DISCOMs are amongst the highest rated in the country, which helps as both states have a distinct preference for issuing their own tenders over procuring power from SECI and NTPC. Both states, historically cautious because of high costs, are stepping up now. Gujarat – current renewable capacity of over 12.2 GW has set a lofty target of installing 30 GW capacity by 2022. Maharashtra – current solar capacity of nearly 7 GW – has set a target of 13 GW solar capacity by 2025.

The dark sheep is likely to be Uttar Pradesh. Renewable penetration is low at 4.7% for multiple reasons – weak governance, terrible financial condition of DISCOMs, limited land availability and no wind resource. State tenders have been routinely undersubscribed over the years. But the state is the second biggest power consumer (10% share of national consumption) and perpetually facing a power deficit. The regulator has taken a tough stance on RPO shortfall and not only levied a penalty of INR 15 billion (USD 197 million) for FY 2021 on the on DISCOMs but also asked them to set aside INR 58 billion (USD 781 million) for renewable power procurement in FY 2022. The state has an attractive window to procure power from other states with inter-state transmission charges being waived fully for all projects commissioned by June 2025.

We believe that Gujarat, Maharashtra and Uttar Pradesh would be pillars of sector growth accounting for up to 50% of new renewable power capacity over the next few years.