India to solve teething issues before seeing actual RE investments

Almost each new day sees a major renewable energy developer announcing multi gigawatt investment plans in India. Adanis announced a 10 GW solar investment in Rajasthan and so did the Essel Group, which has not built even 50 MW till date. Even major US developers such as First Solar and SunEdison have announced huge gigawatt investments in India, even though First Solar sees major problems in land acquisition, financing and power purchase.

The reason for all these announcements is that the Indian government recently set up an ad which asks for developers to commit to large investments in the India RE sector. Almost all companies, 266 companies at the last count have obliged. It does not take any money to announce a major investment plan. You can announce a 1 GW, 10 GW and even 100 GW of investment without spending a single penny. These are all MOUs which like the investment jamboree of Vibrant Gujarat count for very little in terms of commitment except for soundbytes.

The Re-invest summit held by the Indian government was mostly about soundbytes, with major companies coming and announcing gigawatts of investments. But how much of it will be actually built is the question. India has announced huge plans of 100 GW of solar energy, 50 GW of wind energy and multi gigawatts of small hydro and biomass. But teething problems remain in their implementation. It will not only take billions of dollars in investment; but also solving major structural problems like how electricity will be generated, transmitted, distributed and absorbed by the Indian consumer will be a challenge. Electricity is a concurrent subject which means that both the state and the central government have to agree on reforms. With most states treating electricity as a poll sop, this presents huge problems for the Modi government. Narendra Modi himself criticized parties for announcing free or 50% free power, even though they did not generate a single kWh in the states where they were campaigning for.

The state distribution utilities are bankrupt and cannot buy power. The Indian developers and the banks do not consider the state distribution utilities as bankable and require guarantees from others before selling power to these state organs. Grid integration will become an issue sooner rather than later, given the pathetic state of India’s transmission and distribution infrastructure. There is also the problem of the high interest rates that Indian developers suffer from. This might come down due to global deflation, but still makes Indian RE tariffs high. It is estimated that on an apples to apples basis, India RE prices are 30-50% higher than developed countries due to higher interest rates. The hurdles remain quite high for the Indian RE sector. I do not think that these multi gigawatt announcements will help much. Solving the teething issues will automatically attract the gigawatts from power developers not only from India but also from across the world. Having an investment summit and getting empty paper commitments will not do much.