India's Renewable Energy sector: How did 2018 go and what to expect in 2019

The year 2018 saw India's renewable energy sector respond positively to various initiatives from the Narendra Modi government resulting in a steady addition to capacity.

The country now has around 70GW of installed capacity with another 15GW currently under construction. Sumant Sinha, Chairman and Managing Director of ReNew Power, believes this implies significant progress towards the ambitious medium-term target of 175GW that the Indian government had set for this sector. 

“However, last year was not without its share of challenges – with a depreciating rupee and rising interest rates impacting profitability of projects, especially with a cap on tariffs. With financial markets tightening, some players found project financing a tall order.”

As some companies bid aggressively, Sinha says overall risk in the system has gone up. “Our biggest takeaway from the year gone by is the need to bid factoring in all market dynamics. We have to create businesses that are sustainable in the long run, and a sector that is healthy and yet competitive.”

On an annualised incremental basis, the share of renewable energy in the Indian power generation mix increased from 5.6% in 2015 to 7.8% in 2018. According to ReNew Power, in 2019, the industry expects strategic interventions from the Indian Government to “maintain” the growth trajectory.

First of all, the government needs to finely balance its objective of ensuring affordable power with the need to incentivise renewable companies through healthy returns, Sinha adds.

“With Renewable Energy being a capital intensive sector, there is a need for more broad based, diverse sources of capital. This will only happen when the government can ensure reasonable returns that take into account all the risks including execution and financial risks. It would do good to relook at the cap on tariffs and allow pricing to be decided by a competitive auction.”

Secondly, a strengthening of the grid through better management should be a priority. “Steps need to be taken to enhance the grid’s capability to absorb more Renewable Energy than at present. This will require more transmission lines to be set up and usage of state of the art software.”

Thirdly, developing robust evacuation infrastructure in high wind and radiation zones, and propping up the demand side (i.e. move more consumption towards renewables, encourage shift from utility scale to distributed solar) would be needed. 

“Finally, the government needs to introduce more storage based bidding and incentivise the development of storage in the country for better grid management,” Sinha concluded.