India’s RE Sector At The Crossroads

The renewable energy sector has made tremendous strides in the past five years. According to a joint study by Paris-based International Energy Agency (IEA) and Council on Energy, Environment and Water (CEEW), the country’s renewable energy sector investments has doubled over the last five years to around $20 billion in 2018, surpassing the capital expenditure in the thermal power sector.

Moreover, India had set a target of 175 GW renewable energy capacity by 2022 and has already installed 80.47 GW, of which solar and wind comprises 29.55 GW and 36.37 GW respectively.

However, of late, the solar power sector is witnessing slowdown primarily due to looming uncertainty over power purchase agreements (PPAs) being honoured and lack of financing. Weak availability of long-term, fixed-rate debt and decreasing profitability are causing steep fall in interest from investors. As per a ‘Bridge to India’ report on Indian solar sector, “Capacity addition fell to 4,810 MW in FY 2019, down a steep 47 per cent over previous year as the sector struggles with execution and financing challenges including land and transmission bottlenecks, safeguard duty, increase in financing costs etc.”

Notably, last two reverse auctions floated by Solar Energy Corporation of India (SECI) went undersubscribed. This mirrors the challenging scenario for the industry.

At this juncture, proposed removal of priority sector lending limit for the renewable energy sector by RBI may yield positive results for both developers and long-term investors.

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