India aims to boost renewables, but challenges linger

India aims to boost renewable energy capacity by the end of this decade to meet peak power demand, but cost challenges continue to hinder the government's target for non-fossil fuel-based capacity.

India's peak power demand is forecast at 335GW in the April 2029-March 2030 fiscal year, while the government targets 500GW of non-fossil fuel based capacity by 2030.

The share of non-fossil fuel-based installed capacity in power generation to meet this projected rise in power demand is targeted at 64.4pc by 2030, with India having already achieved 43pc as of May this year, power ministry data show. Meeting the target requires an increase in installed renewable energy capacity from the current 171.9GW to 485.2GW by 2030 (see table).

Coal currently accounts for 50pc of India's installed power generation capacity, while gas makes up 6pc and renewables (including hydroelectric, wind, solar, biomass and waste to energy) make up to 42pc. Nuclear power comprises the rest.

But higher prices of imported solar photovoltaic (PV) cells, lower solar energy auction volumes and trade policies will weigh on short-term PV deployment in the country, the International Energy Agency said. The agency predicts a slowdown of almost 20pc in renewable energy demand in India this year and sees a possible recovery next year.

Weak financial health of Indian power distribution companies (discoms), mostly state-owned, has led to them defaulting on payments to renewable power producers, in turn reducing renewable energy offtake by discoms and investments by renewable power developers. The value of overdue payments to renewable power producers rose to 922bn rupees ($11.2bn) in June — an increase of nearly 47pc since January, data from government website Payment Ratification and Analysis in Power Procurement show.

Onshore wind, hydropower projects

The power ministry has been focusing on wind power projects, but developers face cash flow pressure, mainly because of payment delays as well as challenges in transmission network expansion to cater to the deployment of new capacity, which could ensure effective evacuation of energy generated by wind power plants.

The ministry expects wind power capacity more than double by 2030 to 99.9GW, of which 10GW will come from offshore wind energy projects in Gujarat and Tamil Nadu states. It also sees hydropower capacity, including pumped storage plants, increasing to 78.3GW by 2030 from 51.7GW currently as part of the country's national electricity plan (NEP) (see table).

But wind energy installation has remained slow also because of financial constraints, although the government's move to scrap reverse auction bidding for wind power projects earlier this year and replace it with a single-stage closed-envelope bidding process could curb irrational bidding and lead to higher wind power tariffs and returns for developers.

"We expect tariffs to rise (by) 20-30pc over the recent Rs2.89-2.94/unit (to provide a more than 10pc internal rate of return), on account of (the) change in bidding process, resource variability at newer sites, etc," Mumbai-based rating agency Crisil Research said in a note in March.

Hydropower projects, on the other hand, face delays because of high upfront costs needed for construction and difficulty in land acquisition.

At the same time, the government is building large capacities of pumped storage hydropower projects and batteries for grid energy storage, which are cheaper alternatives to solar battery storage. But these run the risk of becoming a hefty investment with little to no returns if the challenges facing planned and future renewable energy projects are not addressed.

Near-term projects

A total of 54.02GW of renewable energy projects that are currently under construction in the country will be completed by 2026-2027, government documents show (see table).

The Solar Energy Corporation of India (SECI) has the highest number of under-construction renewable projects at 31.68GW, as it serves as a power procurement intermediary between project developers and discoms, besides operating pilot scale renewable energy projects.

Most Indian power producers are eyeing solar-based generation capacity. State-controlled SJVNL is set to build 1.4GW of capacity, followed by state-controlled utility NTPC at 1.2GW, both of which will be completed by 2024. Fellow state-controlled utility NHPC is building 1.04GW of solar generation capacity, which will be ready by 2024, while Indian hydropower project developer Narmada Hydroelectric Development (NHDC)'s planned 96MW of capacity is likely to be ready by September this year.

Among states, Karnataka has a total of 6.42GW of renewable energy projects lined up to be ready by 2027, followed by Chhattisgarh at 1.57GW and Maharashtra at 977.14MW.

Rajasthan is currently the leader in renewable power with a total installed capacity of 24.45GW, including solar power capacity of 22.51GW — ground-mounted, rooftop, hybrid solar and off-grid categories — and Gujarat ranks second with a total renewable capacity of 21.07GW, including 20.29GW of solar capacity.

These projects could help India reach its 2030 target of 500GW of non-fossil fuel-based capacity, but lingering challenges, mainly cost-related, could delay this goal and prolong the country's heavy reliance on fossil fuels for power generation.

By Rituparna Ghosh