India will have to add 36 GW annually to reach 450 GW RE target by 2030: IEEFA

• The share of renewable energy capacity has been increasing in India's power sector, delivering more than two-thirds of India's new capacity additions in FY20

• India installed 9.39 gigawatts (GW) of new on-grid renewable energy capacity during 2019-20

New Delhi: To achieve the Central government's ambitious target of 450 GW of RE (renewable energy) by 2030, India will have to install RE capacity of 36 GW annually, the IEEFA (Institute of Energy Economics and Financial Analysis) has said in its latest report on RE investment trends in India. The share of renewable energy capacity has been increasing in India's power sector, delivering more than two-thirds of India's new capacity additions during the fiscal 2019-20 year.

India installed 9.39 gigawatts (GW) of new on-grid renewable energy capacity during 2019-20, plus some 1.5GW of behind-the-meter rooftop solar in the calendar year 2019. This rate of renewable energy installation to date is positive, said IEEFA. However, in order to scale the growth up to meet the target of 450 GW by 2030, India will require capital flow from both domestic and international investors, the report said.

FY20: Key investment deals in RE generation totalled $8.4 bn

An analysis of data shows that key investment deals in Indian RE generation during 2019-20 totalled US$8.4bn. Over 63 percent included capital investment by five renewable energy companies — Greenko Energy Holdings, ReNew Power, Adani Green energy, Infrastructure Leasing & Financial Services (IL&FS), and Sterling and Wilson — while 46 percent was contributed by five investors — General Insurance Corporation (GIC) and Abu Dhabi Investment Authority (ADIA), Orix, Temasek, Total and Shapoorji Pallonji, and Khurshed Daruvala.

While Greenko Energy Holdings has been the top RE developer in India during 2019-20, GIC and ADIA have been the biggest investors, with all capital invested in Greenko Energy Holdings: 46% percent in the form of equity (US$824 million) and the remaining in green bonds (US$950 million). Greenko has also raised another US$350 million from JP Morgan and Deutsche Bank via green bonds.

41% of total investment went to solar sector

Further analysis echoes this investment trend with the majority of the biggest deals packaged as equity investment or green bonds, followed by mergers and acquisition (M&A) and finally initial public offering (IPO). Almost half (48 percent) of the total investment was for generalised renewable energy, with 41 percent targeting the solar sector and 10 percent to wind. Only 1 percent of the total investment during 2019-20 was for storage or solar pumps.

Will capital flow to the deflationary renewable energy market?

Renewable energy prices in India have now stabilised at rates 20-30 percent below the cost of existing thermal power, and up to half the price of new coal-fired power.

In April 2020, a bidding price of Rs 2.55/kWh for 25 years emerged in a solar bid tender by NHPC Limited. A new non-mine mouth or imported coal-fired power plant in India cannot compete with this as they require a starting tariff of Rs 4-5/kWh with annual escalation.

"And in May 2020, a bid price of Rs 2.90/kWh for the first year with 3 percent annual escalation emerged for supply of round-the-clock power by SECI (Solar Energy Corporation of India Ltd). This tariff for the supply of power using 100 percent renewable energy with storage is a very good proposition for power distribution companies (discoms) to meet their energy demand need," said Vibhuti Garg, energy economist with IEEFA India.

"With the decreasing cost of debt and solar module prices, it is an opportune time for the government of India to accelerate the energy transition through better regulation and policy definition in the power sector. The government needs to reduce off-taker risk by ensuring discoms honour contracts and make payments to generators," said Garg.

Further, they need to ensure discoms comply with renewable purchase obligations (RPO), that is, either buying electricity generated by specified 'green' sources, or in lieu of that, purchasing renewable energy certificates (RECs).

'Ensure police certainty to attract more funds'

"Finally, to attract more investment, the government needs to ensure policy certainty and explore innovative financial solutions in order to attract more funds," said Garg.

With the global appetite changing in favour of cheaper deflationary renewable energy technologies, and with over 130 and counting globally significant banks and financial institutions committing to divest their funds from the fossil fuel sector, it is time to make India an attractive investment opportunity, and in so doing, build a strong economy with sustainable energy choices.

The recent downgrading of India's sovereign credit rating highlights an increased risk for global investors and poses a threat for attracting more investment into the renewable energy market. The government needs to undertake reforms and strengthen the supervision, regulation and capitalization of the financial sector to boost investor confidence.