Utility scale renewable capacity addition has been in a slow mode for the past eighteen months. We estimate Q3 2019 capacity addition at only 2,549 MW (solar 2,114, wind 435), about two-thirds of scheduled capacity addition. Since touching a record high of 5,111 MW in Q1 2018, quarterly capacity addition has averaged at less than 2,000 MW, substantially behind the implementation schedule and government targets. The execution slowdown is in stark contrast to soaring tender issuance and allocation numbers. Total project pipeline – projects allocated to developers and at various stages of implementation – now stands at an all-time high of 30,447 MW.
- Delays in land acquisition, transmission connectivity and debt financing are the foremost reasons for slow progress;
- Equity availability is also getting impacted due to increasing concerns about poor project viability, high political risk and lack of successful exit precedents;
- The slowdown looks set to persist for at least another 12-18 months;
Figure: Utility scale renewable capacity addition, MW
Source: BRIDGE TO INDIA research
There are many reasons for the execution slowdown, foremost among them delays in land acquisition, transmission connectivity and debt financing. Land acquisition and transmission bottlenecks are posing acute challenges specifically for the inter-state transmission system (ISTS) based tenders. The government’s move to issue ISTS tenders, where project developers are allowed to locate their projects anywhere in India, was aimed at meeting renewable power demand from hinterland states (Punjab, Haryana, Delhi, Uttar Pradesh, Bihar and Jharkhand) at attractive tariffs. These states have historically had very little RE penetration because of limited land availability and lower renewable resource. But ISTS tenders have exacerbated execution challenges with most developers inevitably choosing Rajasthan for solar projects, and Gujarat and Tamil Nadu for wind projects. More than 80% of total ISTS capacity allocated so far is believed to be located in these three states.
Debt financing problems are another major factor behind the slowdown. The sector started facing lending restrictions back in early 2018 after the NBFC solvency crisis. Debt financing outlook still looks bleak as lenders exercise caution in the wake of worsening DISCOM payment delays and Andhra Pradesh PPA renegotiation attempt.
Figure: Leading developers by pipeline capacity, MW
Source: BRIDGE TO INDIA research
Note: Solar-wind hybrid projects are clubbed with solar projects.
There are other factors affecting progress. Equity availability is getting impacted due to concerns about project viability and, stalled GST and safeguard duty ‘change in law’ relief claims. Projects not eligible for safeguard duty relief are most likely to delay implementation to beyond H2 2020, when the duty expires.
It is not a surprise that the sector is witnessing such extensive delays. Unfortunately, most of the problems look set to persist for another 12-18 months. The government needs to move quickly to address investor concerns, otherwise it risks losing credibility.
