India’s prime minister Narendra Modi made a big push for renewable energy by raising the target twice. And that is taking this industry to another level.
In 2014, his government upped the 2022 target of the national solar mission to 100 gigawatts, from the earlier 20 GW. And at the Paris climate summit in December, he said that India will produce 175 GW from non-fossil sources by 2022. In eight years after that, 40 per cent of the nation’s electricity will come from renewable energy.
Such ambitious targets have spurred big-ticket investments, and a bunch of companies have emerged to take advantage of the opportunity, which includes getting subsidies over a period of time by the government to encourage more companies to set up plants for solar and other renewable energy. India will need to add 15 GW of capacity each year until 2022 to meet the goal set by the government.
However, the regulatory environment and infrastructure needs to keep pace to meet such lofty targets. India’s current installed capacity is 2,900 MW. No country has ever managed to grow like Modi’s government wants it to. China, the largest producer of solar energy, has a capacity of 40 GW. Germany, which leads in renewable energy in Europe, has lower installed capacity.
For now, the sector is growing fast and that pace is expected to accelerate in 2016, assuming that the broader macro environment does not worsen significantly. However a major challenge will be on selling solar power to state-owned distribution companies that are heavily indebted in several states such as Delhi, Tamil Nadu, Uttar Pradesh and Bihar. Gujarat, where Modi had launched a solar mission when he was chief minister, is now a power-surplus state, so does not need that much of solar power.
Second, a bidding war might force renewable power producers to bid for lower tariffs that might hurt profits. The companies will be helped by the decreasing costs of solar and wind power, which can now rival that produced by new coal plants.
But that said, the year ahead promises to bring in a lot more addition in solar capacity, and might see even lower costs of production at a wider scale. Investors would be watching to see if the electricity can be profitably sold.