I have blogged earlier on multiple occasions urging caution on India's solar generation fad. It does appear that the chickens may soon be coming home to roost. Quoting extensively from a recent article in Livemint, which touches on several dimensions.
Solar energy tariffs in India are among the lowest in the world, but state governments are keen to push them down further. These dangerously low tariffs are turning unsustainable for some developers, who in turn cut corners on quality. Some state power distribution companies (discoms) are also over a year late on paying their power bills... In the last four months, there have been 11 wind and solar project auctions. Only two of these auctions have been fully subscribed.
This is a story of failings at multiple levels. The much hyped entrepreneurial energies of India's private sector was, like elsewhere, missing in action, though doubtless again the government will be blamed,
"Countries on the solar leader board almost all have had a parallel development in solar-based IP, manufacturing and deployment. But in India, we went straight to deployment and that makes us vulnerable to global players like China and Vietnam who lead in manufacturing," said Ashwini K. Swain, executive director at the Centre for Energy, Environment and Resources, Delhi.
The sanctity of contracts took a beating as state governments blatantly reneged on their contractual obligations, as well as started revising policy as per their whims and fancies,
In July, Y.S. Jaganmohan Reddy, the newly elected chief minister of Andhra Pradesh, said solar and wind IPPs that provide power to the state would have to lower their tariffs or else see their long-term power purchase agreements (PPAs) cancelled... the state, at 7.7GW, buys 9.6% of the renewable power generated in India... Credit rating agency Crisil has estimated that Andhra Pradesh’s decision affects 5.2GW of its installed power, placing ₹21,000 crore of outstanding debt at risk of default... The bone of contention for the state government is PPAs signed from 2014-2019 that were over and above the mandated 5% renewable power purchase obligations of the state. Before competitive bidding for awarding projects was introduced for the renewable energy sector in 2017, states invited developers by setting a fixed tariff (called the feed-in tariff). Greenko’s first plants in the state sell power at ₹5.74 per kWh, which appears to incense the current dispensation when prevailing solar tariffs have fallen to a low of ₹2.44 per kWh... Taking a cue from Andhra Pradesh, Uttar Pradesh made an attempt to renegotiate old renewable energy tariffs. Gujarat decided last year that only projects which supply power to the state discom could use land within the state, flouting a central procurement agency’s rule for setting up projects under the interstate transmission system. Rajasthan, one of the most sought-after states for solar power plants, recently announced its decision to impose a charge of ₹2.5-5 lakh per megawatt on all projects that sell power outside the state.
Then there is the perennial power sector problem - the inability of discoms to pay out their dues,
As of July 2019, which is the latest data available from the Central Electricity Authority, state discoms owe a whopping ₹9,735.62 crore to renewable energy companies. Of this, ₹6,500 crore is due from just three states—Andhra Pradesh, Tamil Nadu and Telangana. Andhra Pradesh discoms, the worst offenders, haven’t paid their dues in over 13 months.
One of the most important players in inflating the solar bubble were from the financial markets, yet again demonstrating that finance loses all its disciplining powers when in a bubble,
While the renewable energy sector has been fuelled mostly by private equity (PE) investments so far, the number of firms now able to attract investment has dwindled. PE investment into renewables have stayed flat in 2018 ($1.93 million) and 2019 ($1.8 billion, till date). And large banks like State Bank of India are no longer lending to renewable energy projects that sell power at below ₹3 a unit.
Worsening the situation is the poor quality of the panels, another illustration of how unregulated market dynamics leads to skimping and cutting the corners by corporates.
But beyond the rising risks and regulatory uncertainty, an increasing area of concern is also the quality of solar energy installations in India, most of which are chasing cheaper panels from China to break-even. Animesh Damani, managing partner at Artha Energy Resources, a Mumbai-based renewable energy consultant and investment bank, said: “We have access to data on the performance of solar energy installations in a variety of states, and there is enough data available to show higher-than-expected degradation levels in the solar modules that Indian developers are using... Usually, we assume an average annual degradation rate of 0.8%. That is, generation from an installed solar plant falls by 0.8% roughly for every year of operation. But we’re now noticing that after a plant’s fourth or fifth year in operation, the average annual degradation is as high as 2-3%." A 2016 all-India survey by a team of experts from IIT Bombay on photovoltaic (PV) module reliability found significant variability in the quality and degradation rates of solar modules in India. The study warned that quality issues in solar PV cells could be the result of “very aggressive pricing and commissioning deadlines for PV plants in India in recent years". It cautioned that due diligence should be exercised while selecting and procuring modules, including verifying the antecedents of the manufacturer, and independent checks on the quality of the modules imported into India. “Indian developers rarely use tier-I panel manufacturers when setting up plants in India," said Damani of Artha.
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