India’s 100 MW Solar Target is at the Mercy of States and Conflicting Government Policies

India’s push to promote clean energy development marks an important chapter in its growth story that could create a more sustainable future, but only if its various government agencies can work together to implement complementary policies in support of that goal.

In January 2018, the country reached a significant milestone of 20 GW in cumulative solar installations. It took nearly eight years to achieve the 20 GW mark even though it was achieved four years ahead of schedule based on the previous administrations’ initial goals, demonstrating what is possible with committed efforts. Now comes the hard part —installing 80 GW in the next five years to reach the government’s goal of achieving 100 GW of solar by 2022.

While it’s true that the efforts by the Prime Minister Narendra Modi’s government have produced positive results, the conflicting goals being pursued by various agencies and implementing bodies now threaten to slow solar installations and derail the country’s plans to achieve its ambitious goal. To be successful, all government agencies must work together to advance a unified policy vision.

India’s 100 MW Solar Target is at the Mercy of States and Conflicting Government Policies

India’s Solar Inflection Point

The Indian solar industry is at an inflection point, and the government needs to immediately identify and eliminate the bottlenecks that are preventing the sector from going to the next level.

Both domestic and international private sector companies have so far stepped up and contributed significantly to reach 20 GW of solar installations achieved so far. These companies have invested millions, provided employment to thousands, taken big risks, and are ready to move on to the next level. However, many recent moves by government agencies have raised concerns in the investment community about their seriousness in reaching the 100 GW installation goal.

Diving deeper reveals that the current government structure makes it nearly impossible for all stakeholders to advance the 100 GW goal. Central government agencies, like the Ministry of New and Renewable Energy (MNRE), have been tasked with setting goals and facilitating new installations but lack any real enforcement power.

MNRE’s budget has also fallen and the coal cess that was established to fund renewables never really flowed to the agency, further handicapping it. MNRE has done a commendable job over the years with its limited powers to the get the industry to this level in the face of many challenges.

Lack of Authority Hinders Effectiveness of Central Government Agencies

A senior executive at a large renewable company in India that has invested billions in the sector, commented, “There’s a disconnect between the formulating and implementing agencies. The MNRE is making trajectories, guidelines; but has no power to enforce them. The state DISCOMs and renewable energy development authorities have the power to decide PPAs, PPA terms, solar park area, land, etcetera. This makes the entire system absurd because if any issue arises, then the body with all the information is not allowed to make any decisions. Take the example of Jharkhand. Over 1 GW of solar was tendered. Now what’s the situation there? Not even a single PPA has been signed. If the central renewable agencies had some authority, work would have begun by now.”

Another executive at an Indian energy conglomerate added, “The MNRE issues subsidies and incentive programs. We develop the projects, and then have to wait for months to get the subsidy amount. We do not add such a long waiting period to our calculations while bidding. This shows that something is not right.”

He went on to say, “Moreover, the MNRE keeps on issuing orders to states asking for the implementation of must-run status. To date, if and when DISCOMs choose, they can refuse to evacuate, it is not as rampant as it was back in 2016, but it still exists. The MNRE cannot do anything to curb this 100 percent. In Uttar Pradesh, developers have to renegotiate PPAs to construct projects, the MNRE had made PPAs sacrosanct, but here we are renegotiating tariffs.”

Contradictory Policies are Working Against Each Other

The government has many contradictory policies that have become liabilities and are hampering the growth of solar and pulling central agencies in different directions. Here is one such contradiction: The Make in India initiative promotes local manufacturing, which by extension involves implementing measures like an anti-dumping duty, safeguard duty, and port duties. However, these policies clash with the 100 GW of solar by 2022 goal which aims to promote renewable energy to slow climate change, reduce pollution, and promote energy independence at an affordable cost to the tax payer.

Let’s take the port issue. The misclassification of solar modules by port authorities is creating confusion and delays for project developers. MNRE tried to help by providing recommendations and inputs to the Ministry of Power but, to date, the 7.5 percent (plus cess) duty remains in place and developers can only get their modules released after paying a bank guarantee or provisional bond. This move immediately made solar projects more expensive.

Meanwhile, the decision on the proposed anti-dumping duty is at the mercy of the Directorate General of Anti-Dumping and Allied Duties (DGAD) and the Ministry of Finance. Both have their own priorities that again contradict with the growth of solar. The Safeguard Duty is likewise dependent on the Ministry of Finance and the Safeguard Directorate.

It is Ultimately Up to the States

While central government agencies would like to see compliance with Renewable Purchase Obligations (RPOs) it is ultimately up to the states; the must-run status of renewables is also up to states. So, too, is the timely payments and the decision to renegotiate Power Purchase Agreements (PPAs) with the developers.  States will only procure solar if it is the lowest-cost option and are likely to slow down solar power procurement if power demand falls short of expectations.

In many states, projects are being jeopardized by disputes between distribution companies, state renewable energy development agencies, and state electricity regulatory commissions. However, central government agencies lack the authority to provide solutions.

Developers Grapple with Uncertainty

Unpredictability has become a routine part of doing business for solar companies in India. Nobody knows what the next policy decision could bring and this is creating a state of uncertainty that is detrimental to investments. If installations decline this year, which we are forecasting – vital jobs will be lost, and the implications of policy uncertainties cannot get any more real than that. Several solar companies have revealed that several companies have already reduced their workforce due to sector inactivity.

It is time for government agencies to take stock of where we are to identify policy bottlenecks, create solutions, issue clarifications, and eliminate uncertainties as fast as possible. This process should ideally be performed every quarter.

At the end of the day, the 100 GW solar installation goal is an aspiration of the administration that can only be realized with the help of every state and also central government agencies working together to achieve a common goal.

It is time to get the solar industry back on track to complete what would be an incredible achievement of installing 100 GW by 2022.

Raj Prabhu Raj is a recognized thought leader in clean energy markets where his work has influenced policies worldwide. He has a deep understanding of regulatory policy and clean energy markets and his market and opinion pieces are regularly published on both MercomIndia.com and other leading publications globally. Raj is also a regular speaker and presenter on clean energy policy and finance topics at conferences worldwide. Raj attended the KLE College of Science in Bangalore, India for physics and chemistry, and holds a Bachelor of Science Degree in Hotel and Institutional Management from Johnson and Wales University, Rhode Island. More articles from Raj Prabhu.