According to International Energy Agency (IEA) website publication on Renewables 2022 Analysis and forecast to 2027 report:
Consistent policy support and ambitious long-term targets enable India to double its renewable capacity by 2027
With the addition of 145 GW, India is forecast to almost double its renewable power capacity over 2022-2027. Solar PV accounts for three-quarters of this growth, followed by onshore wind with 15% and hydropower providing almost all the rest. Renewable capacity deployment will be dominated by utility-scale plants contracted through competitive auctions. However, distributed PV is expected to be increasingly important thanks to growing consumer awareness and continued policy support.
This year’s forecast has been revised upwards 7% from last year’s owing to higher-than-expected PV capacity additions in 2022, the announcement of several ambitious domestic PV manufacturing projects and a planned improvement of auction rules for wind farms. The overarching drivers of renewable energy growth are India’s targets of 500 GW of non-fossil installed capacity by 2030 and net zero emissions by 2070, ensuring long-term visibility for renewable energy developers.
India’s auction volumes declined in 2022, but the participation rate rose thanks to policy improvements. From January to September 2022, India auctioned over 8 GW of renewable capacity, 30% below the average for these months in 2019-2021. This slowdown was caused by auction organisers focusing on finalising PPAs and developers prioritising the execution of projects already under construction.
Almost one-quarter of capacity awarded since 2021 has been contracted through hybrid auctions that require multiple renewable technologies to provide power at specified minimum annual capacity utilisation factors. These auctions usually result in the addition of significantly more capacity than what has been contracted, along with energy storage to ensure compliance with power availability requirements. Hybrid auctions are thus expected to be an increasingly important growth driver as the penetration of wind and PV technologies in India’s power system grows and grid integration challenges emerge.
The undersubscription rate fell to just 10% in 2022, with most auctions significantly oversubscribed. Reducing off-taker risks prompted greater auction participation as the number of auctions held by national rather than state agencies increased and the solar parks programme advanced, facilitating land procurement and grid connection.
On the demand side, higher renewable purchase obligations, which were announced in July 2022 and specify targets for wind, hydro and other renewable energy sources (solar, bioenergy), should further encourage power utilities (DISCOMs) to procure renewable energy. Increasing participation in auctions, an expanding project pipeline and higher renewable energy demand from DISCOMs are all expected to accelerate utility-scale capacity growth in India over 2022-2027.
However, the poor financial health of India’s DISCOMs continues to prevent faster renewable capacity deployment. The number of overdue payments to renewable power producers continues to grow, worth almost USD 3 billion in June 2022 – an increase of nearly 60% since January 2021. According to the Ministry of Power’s latest annual financial performance report, the share of energy supplied by the lowest-rated DISCOMs increased from 32% in FY 2019-2020 to 70% in FY 2020- 2021.
While DISCOM payment delays negatively affect developers’ profits and increase project risks, DISCOMs are also often reluctant to support rooftop PV deployment in their grids because they fear losing revenue from energy sales. Although they are obligated to fulfil their renewable purchase obligations and increase renewable energy procurement, they often lack the financial capacity to sign new PPAs with auction winners, resulting in project commissioning delays.
In June 2021, India’s government approved another support scheme for DISCOMs, linked with achieving financial and operational improvements worth almost USD 40 billion. So far, about 65% of the planned amount has been earmarked for 38 qualified DISCOMs, but the actual effects of the programme remain to be seen, as previous such incentives (UDAY) did not improve the situation substantially.
In 2022, the average tariff awarded in PV-only auctions increased by 10% in Indian rupee terms, and is now back at the 2019 level to compensate for higher PV equipment prices since 2021. Moreover, in April 2022 the duty on imports increased from 15% to 40% for PV modules and to 25% for solar cells. Developers prepared for this change by stocking up on PV equipment, leading to record imports of roughly 10 GW in Q1 2022. This import rush is expected to result in an unprecedented 16 GW of PV capacity additions in 2022, 60% more than in 2021.
However, future projects benefitting from any type of policy support will have to source their supplies from government-approved manufacturers. As of August 2022, the list of authorised manufacturers encompasses about 18 GW of PV module manufacturing capacity, all domestic. Although this is enough to cover India’s demand in upcoming years, the modules offered are often based on outdated technology and are smaller than the top-tier products predominantly used by developers today. The low availability of domestic top-tier modules could raise investment costs and tariffs in the short term.
At the beginning of 2022, the government awarded support for the ProductionLinked Incentive (PLI) scheme’s first 9 GW of integrated PV manufacturing capacity, and the second batch of projects is in the allocation process. This programme aims to expand India’s solar PV cell and module manufacturing capacity to over 70 GW in this decade, including 29 GW of manufacturing capacity fully integrated across the whole supply chain. Supply-demand synergy in the Indian PV market is also expected to stimulate capacity growth in the medium term.
Onshore wind deployment in India has been slow in recent years as a result of land procurement and grid connection challenges as well as Covid-19-related supply chain disruptions. In addition, an unexpected increase in material and equipment costs since 2021 has rendered many projects economically unviable. In consequence, a large portion of capacity awarded in auctions has been delayed or cancelled: as of September 2022, only 45% of the 14 GW of wind projects awarded during 2017-2020 had been commissioned.
In July 2022, the Indian government announced it is suspending reverse bidding in wind auctions and is considering limiting the process to closed-envelope submissions. This could raise tariffs for wind energy, which should make projects more feasible. Although DISCOMs may be reluctant to accept higher energy prices, the new renewable purchase obligation for wind should encourage them to sign PPAs. In addition, expanding wind-based power generation has the potential to alleviate some of the grid integration issues faced by DISCOMs that have high shares of solar PV in their systems. These positive policy changes are the basis of our upward wind forecast revision this year.
Annual distributed PV additions doubled in 2021 with the commissioning of many projects delayed by Covid-19-related disruptions. Although expansion slowed in 2022, deployment is expected to accelerate steadily in upcoming years. Public awareness is growing, and the economic attractiveness of investing in distributed PV is becoming apparent for commercial and industrial consumers, especially in times of higher energy costs.
Still, several major obstacles are preventing India from achieving deployment commensurate with its huge potential. While DISCOMs are hesitant to support rooftop PV growth because they fear revenue loss from reduced energy sales and higher grid costs, financing options for small commercial and residential consumers remain limited.
Over one-third of rooftop PV systems added in 2022 were installed in the state of Gujarat, which is home to just 5% of India’s population. High deployment in this state was achieved through net billing and subsidies, which exist in most Indian states. This indicates that effective on-the-ground implementation of policies is crucial to achieve faster distributed PV growth in India.
In the accelerated case, India achieves 50% higher renewable capacity deployment over 2022-2027 than in the main case, putting the country firmly on course to meet its 2030 targets. Raising the capability of DISCOMs to procure more renewable energy will be crucial to achieve faster growth.
To this end, improving the financial performance of DISCOMs and increasing penalties for non-compliance with renewable purchase obligations should limit delays in signing PPAs with auction winners, making developers and investors more willing to undertake new utility-scale projects. In addition, offering DISCOMs financial and regulatory incentives to increase rooftop PV deployment in their grids should encourage them to attract tens of millions of potential prosumers by facilitating investment, thereby tripling main-case distributed PV deployment for 2022-2027.
Achieving faster solar PV growth will also require the timely deployment of manufacturing projects included in the PLI scheme and expansion of competitive auctions. For wind, the rapid implementation of simplified auction rules, more government support in site identification and land procurement, and greater policy support for repowering could double the main case’s capacity growth.
