The renewable sector received a massive boost following the government’s announcement in May 2015 of achieving a target of 175 gigawatts (GW) by 2022. However, over the last year the momentum has been lost.
A number of policy missteps, such as a safeguard duty on imported solar panels, confusion around the Goods and Service Tax (GST), and unpredictability in auction including ad hoc caps, have played a role in the market’s slowdown. But perhaps the biggest reason was the financial weaknesses of discoms – delayed payments to renewable companies; attempts to renegotiate PPAs; and failed auctions were a result of stressed discoms.
Bold ideas and significant investment support from the government were needed to jumpstart the renewable sector; however, the Budget was disappointing. The budgetary allocation to the Ministry of New and Renewable Energy (MNRE) marginally increased to Rs 5,255 crore. The allocation to the solar power sector increased by a pitiful 1.1% to Rs 3,004 crore compared to the last year’s revised estimates. The wind sector fared even worse, with allocation dropping compared to the last year’s revised estimates.
The Budget speech spoke about using the successful experience of promoting LED bulbs to expand solar cookstoves. While this is an interesting idea, the Budget doesn’t detail any funding to support this. It also talks about distributing eight crore LPG connections in addition to seven crore cylinders that have already been distributed.
While the numbers look impressive, the real outcome is not. Refill rates have been very low, given the LPG cylinders are too expensive for poor households. In its draft National Energy Policy, the NITI Aayog has suggested promoting induction stoves that are extremely efficient and have far lower operating costs than LPG. With the Saubhagya scheme providing electricity connection to every household, it makes sense to ensure regular power supply for induction stoves rather than setting up new distribution infrastructure to provide LPG cylinders to every small village across the country.
Financial stability of discoms is vital to the sustained growth of the renewable sector. However, the Budget speech glancingly talked about the UDAY scheme, which was introduced almost four years back, to improve the performance of discoms. The government data already shows that the UDAY scheme has not succeeded - discoms are not meeting most of the key goals such as cutting Aggregate Technical & Commercial (AT&C) losses, installing smart meters, and timely tariff revisions. Therefore, the speech saying that the “UDAY scheme is being reviewed and it will be improved” does not inspire much confidence.
The renewable sector has also been hit by issues such as attempts to renegotiate PPAs, delays in payments by discoms to developers, and new RE power procurement contracts. Some of these issues need to be handled through market reforms of the power sector that are not in the scope of Budget discussion.
Indeed, the Budget mentions that the “package of power sector tariff and structural reforms would soon be announced”. However, we would have liked some clarity on the Payment Guarantee Scheme, which was set up to ensure timely payment to developers. The scheme needs to be tightened and its provisions enforced.
Second, the government needs to introduce financial sector reforms to encourage financing for solar rooftop. The subsidy-driven model has its limits and has, in any case, not worked for the solar rooftop segment. The Budget failed to even mention, let alone address, this gap for this segment.
Finally, we were hoping to see some big bang ideas for the solar manufacturing industry. The government has emphasised upon a strong manufacturing sector with its ‘Make in India’ campaign. However, it has done little to support the solar wafer/cell manufacturing industry.
Its main initiative - auctions linked to new integrated manufacturing capacity – has failed with auctions amended and postponed several times after repeatedly failing to elicit interest. Another attempt - safeguard duty on imported panels imposed last year - provides temporary relief to the domestic manufacturers. Overall, it may in fact be negative since it raises costs for the solar developers, which increases tariff.
India needs a comprehensive policy encompassing research and development (R&D) investment, infrastructure, subsidised financing and domestic business to support the manufacturing sector that faces intense competition from China. This Budget offered no such hope.
(The writer's views are personal.)
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