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As Lockdown Hits India’s Renewables Target, How Will Govt. Bounce Back?

As Lockdown Hits India’s Renewables Target, How Will Govt. Bounce Back?

Workers clean photovoltaic panels inside a solar power plant in Gujarat, in 2015. Photo: Reuters/Amit Dave/File photo.

Bengaluru: Last week, Prime Minister Narendra Modi highlighted the importance of building local manufacturing capacity while launching a 750-MW solar plant in Madhya Pradesh. His statement came on the heels of an announcement on May 13 – of a liquidity injection package of Rs 90,000 crore to power distribution companies as part of the Centre’s ‘Atmanirbhar Bharat Abhiyan’ economic stimulus.

“This [liquidity injection package of Rs 90,000 crore] is a welcome move. … We hope this liquidity soon ends up in the pockets of developers, [some of] whose bills have been unpaid for over a year,” Subrahmanyam Pulipaka, chief executive officer of the National Solar Energy Federation of India (NSEFI), an umbrella organisation of solar stakeholders, said.

The Rs-90,000-crore economic package to the power sector is almost equal to the pending bills of many power-generating companies, including solar and wind energy, according to Disha Agarwal, programme lead at the Council on Energy, Environment and Water (CEEW), a Delhi-based think tank. “Of the Rs 92,000 crore, about Rs 9,112 crore was owed to the renewable sector as of March 2020,” she said.

However, the package itself may not be enough.

Experts say more financial aid is required to boost local manufacturing, given India relies on China for about 80% of its solar inputs. Along with the labour shortage and the lockdown’s impact on industries in general, this has disrupted India’s ambition of installing 100 GW of solar energy by 2022, as well as the 21.35 GW of generating capacity in various stages of construction.

Instead, according to experts, the Centre should grant more financial aid to the renewables sector by using the coal and clean energy cess, and subsidies. And to ensure solar energy is actually green, experts are also pitching for a decentralised model of solar energy development that does not endanger grasslands and desert ecosystems.

“The problem of payment to renewable energy generators by distribution companies existed even during pre-COVID-19 times,” Agarwal said. But during the lockdown, the demand for energy dropped, distribution companies’ losses mounted and their ability to pay generating companies nosedived.

Lockdown’s shadow

“Solar imports from China dropped by around 70% this January compared to January 2019,” said Neeraj Kuldeep, Agarwal’s colleague at CEEW. “In February and March, these imports declined even further because of restrictions in cross-border trade and also because manufacturing sectors in both the countries were shut due to the lockdown.”

“Procurement was a problem for those who were importing, and we have to now look at how domestic manufacturing can rise to support the solar ecosystem,” Pulipaka said.

Engineering, procurement and construction companies seem to be the worst hit. Now, while the lockdown is being lifted in a staggered manner, mobilising the workforce, including labourers who have already migrated to their hometowns, might be a major challenge for those involved in construction activities.

But experts also note that the 34.62 GW of existing operational capacity has largely been intact, considering the government declared operations and management activities at solar plants to be essential services within a week of announcing the nationwide lockdown, in the last week of March.

Rooftop solar, however, was badly affected anyway for two reasons: its labour cost and its dependence on the country’s commercial and industrial sectors, which didn’t receive ‘essential service’ status.

According to Ritu Lal, senior vice-president and head of institutional relations, Amplus Solar, a distributed energy company engaged in setting up on-site solar projects, rooftop solar requires seven-times as many people for construction and operations and maintenance (O&M) compared to utility plants.

“Our glass modules need regular O&M because dust and grime settle on them and this reduces their generation [capacity]. Due to the lockdown, O&M and construction activity was hit by labour shortage,” Lal said.

“These [rooftop plants] work on an operational basis, where they get paid every month based on units of electricity generated,” according to Pulipaka. “Since there has been no industrial or commercial activity, these plants will not receive about three months’ payment.”

Navigating financial distress

About 70-80% of the cost of solar projects is financed through debt, Kuldeep said. This means thanks to the reduced demand, solar plant developers may not be able to repay their debt.

In fact, many developers may soon invoke force majeure clauses in their contracts to suspend obligations. But since such moves will not cover fixed costs and loss of profit, developers are currently experiencing a liquidity crunch that will likely continue for the next few months.

On March 27, the Reserve Bank of India issued an advisory – that all commercial banks, non-banking financial institutions and other financial institutions are allowed to grant a moratorium of three months on payment of all instalments due between March 1 and May 31, 2020. The bank has since extended the moratorium for another three months.

Also read: For Developing Countries, More Solar Power – and More Lead Contamination

“But we have to see how the individual banks respond to this advisory … If they follow the guidelines but continue charging interest during this period, it might still be a cost that some developers might not be able to bear,” Kuldeep said.

On April 17, India’s Ministry of New and Renewable Energy also granted an extension extended to under-construction renewable energy projects for the entire lockdown period plus an additional 30 days. This is a blanket cover – meaning the benefit will be extended to all renewable energy projects without a case by case check.

“The general consensus in the solar sector is that this one month extension [beyond the lockdown period] is not enough. We need at least three months,” Lal said.

Use coal cess, reroute subsidies

Pulipaka said, “The coal cess was initiated to curb the impact of the coal sector and to protect renewable energy. And as of now, there is about Rs 14,000 crore here. … [NSEFI’s] long-standing demand has been to utilise this money to support the [renewable] sector.”

Similarly, there is also the clean energy fund that could serve the purpose it was meant to, said he.

Because of falling oil prices, the cost of importing oil is also lower and “since subsidies [to oil] are dependent on import cost, the government will have some surplus money,” Kuldeep added. “This surplus amount can be used to support the renewable sector.”

Rerouting subsidies could also help narrow the gap in subsidy support between the oil and gas sector and renewables. In the financial year 2018-19, for example, oil and gas subsidies amounted to Rs 67,679 crore, according to a CEEW report. Renewables received subsidies worth Rs 9,930 crore in the same period.

“When the country’s solar target was revised from 20 GW to 100 GW by 2022, it gave a jolt to the renewables sector and, aligned to this, some schemes to support the sector were announced,” Pulipaka explained. “So eventually, the government will have no choice but to prioritise subsidies for the [renewables] sector, which is their baby, a new entrant worth recognition.

“The only long-term solution, however, appears to be to localise manufacturing in solar energy, and I see the [Ministry of New and Renewable Energy] MNRE moving in this direction,” Kuldeep said.

Pulipaka agreed with this assessment, and added that the government “is trying to promote local module [solar panels] manufacturing and the establishment of infrastructure for harnessing solar-cell manufacturing. Strategies for this have recently been discussed with manufacturing stakeholders.”

In a press conference on May 16, finance minister Nirmala Sitharaman also mentioned special incentives for solar and battery-cell manufacturers. These are meant to fast-track investments into certain ‘champion sectors’, including solar-cell manufacturing and battery-cell technology.

“We had been asking for this for a long time and though [Sitharaman] did not announce the details, we believe this is a good move,” Pulipaka said. “Our sources in MNRE said the policy is in formulation and we are looking forward to details being discussed sometime soon.”

Ensuring solar is actually green

India has pledged to have clean energy account for at least 40% of its installed capacity by 2030. But in this push, a key point is that solar energy or, for that matter, any ‘green energy’ isn’t green by default.

“Solar power is great and it is the way forward” – but a major disclaimer is the location, said Abi T. Vanak, an associate professor at the Centre for Biodiversity and Conservation, Ashoka Trust for Research in Ecology and the Environment, Bengaluru. “Whether it is the Rewa power plant or the one in Pavagada [in Karnataka] – these have come up in what is termed as ‘wasteland’, which is nothing but erroneously classified savannah grasslands or semi-arid scrub savannahs.”

These ecosystems are important habitats for endangered fauna like the great Indian bustards and caracal, and are also common grazing lands. The solar plant in Pavagada was built on farmland.

Also read: Karnataka’s Days in the Sun: The Paradox of Expanding Solar Parks

One of the biggest advantages with solar is that it can be decentralised. “You have thousands of hectares of built-up area in the country in industrial parks in special economic zones, large factories, railway stations,” Vanak said. “Essentially, wherever large amounts of electricity are required, … you can install utility-scale solar plants.”

“So what economic sense does it make for you to install solar plants far away [in grasslands and deserts], and then invest in transmission lines and also lose electricity in transmission, which averages between 10% to 33%?” Vanak asked.

Note: This article was corrected at 7:30 pm on July 20, 2020, to state that rooftop solar requires seven-times as many personnel to construct and maintain, not other costs, and that the renewable sector was owed Rs 9,112 crore in pending bills, not Rs 68,000 crore as was stated earlier.

Rishika Pardikar is a freelance journalist in Bengaluru.

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