The Modi government recently completed two years in office. Substantial progress has been made in our view on improving overall sector investment outlook and policy environment in these two years under minister Piyush Goyal.
- There is a very supportive broad policy framework in place;
- Specific policies and/or plans have either been put in place or are being deliberated upon for each of the key sectoral issues including land and transmission availability, distribution company (DISCOM) finances and grid capacity;
- More needs to be done on boosting rooftop solar market and improving long-term financing flow to the sector but the industry seems broadly satisfied with overall progress;
Most importantly, the identification of issues and priorities has been spot on. In addition to developing a strong over-arching policy framework through amendments to the Electricity Act (increase in renewable purchase obligations, separation of content and carriage for DISCOMs), the government has moved decisively on facilitating greater private investment in the sector through solar park policy (land acquisition and power evacuation) and UDAY scheme (improving DISCOM finances). Now, the attention is shifting to: i) the grid’s ability to accommodate a larger share of intermittent power (green corridor program, national smart grid mission); and ii) ability of domestic manufacturers to compete with leading global players.
Despite some niggles, the solar parks policy has been very successful in our view and recent reports suggest that the Ministry of New and Renewable Energy (MNRE) is trying to expand the solar parks program and also unveil a solar zones policy very shortly (refer), wherein the government proposes to pre-identify suitable areas with sufficient land and evacuation capacity for development of small-mid size capacities.
UDAY has already achieved tremendous success in a very short period of time by reducing aggregate DISCOM debt by INR 1 trillion (USD 15 billion, approximately 25% of total debt) and materially improving off-take risk outlook.
To improve grid capacity to accommodate a larger share of intermittent power, a green corridor plan has been launched. Also, a technical committee has recently recommended several actions such as bringing flexibility in the conventional generation, frequency control, generation reserves, ancillary services, renewable energy management centers, transmission system augmentation and strengthening as well as certain compliance actions for renewable generation (refer). Implementing these plans will be difficult and time consuming but the deliberations show that the government understands the issues and is actively working to find solutions.
The recent solar CEO survey conducted by BRIDGE TO INDIA showed that 74% of the respondents rated the central government’s policy push as good or very good, showcasing a very high confidence level amongst the industry. That is also highly evident in the way leading international and Indian investors have become increasingly active in the market helping to bring prices down.
What can be improved further? For sure, much still remains to be done on rooftop solar, which seems to be struggling in comparison to utility scale solar. And the lack of long-term debt financing solutions also needs to be tackled. But if the government continues with the same level of commitment, we are sure that these challenges can also be addressed over time.
