The Budget Wish List- Renewable Energy

Will The Hope for Less be Met?

For the many firms in India’s renewable energy sector, a heavy  government overhang was a given. For one, its the sheer scale of ambition.  Be it the 100GW figure for solar by 2022, or the 60 GW for Wind energy, the picture is rosy all the way to 2030, by when India is hoping for 500GW of renewable power capacity. Critically, almost all of this capacity is supposed to be built and funded by private entities.  For some time in 2015-17, the industry hoped that the personal interest of Prime Minister Narendra Modi, who was also instrumental in establishing one of the biggest multilateral initiatives in the form of the International Solar alliance in 2015, would help. No such luck, as it turns out.

Then, energy is such a critical area impacting consumers, that it is simply impossible to free it up beyond a point. Starting with the monopoly buyers of energy, the state distribution firms (Discoms). These discoms, thanks to their resistance to reform of any kind, continue to bleed, on course to lose over Rs 27,000 crores this year itself. That explains part of the pressure RE players face to keep prices low. But even the relatively better off discoms, especially in large metros, have almost pushed back against rooftop solar, to give just one example, with various policies, both covert and overt.

Thus, the paperwork and wait to get rooftop subsidies and acceptance of net metering applications is just one example of covert methods. Be it for residential or commercial rooftop. On top of that are lobbying efforts that reek of short-termism and pettiness, as the recent effort in Maharashtra to switch to gross metering, or even the move to add a grid balancing charge to rooftop bills. Both moves have a simple aim. To make rooftop solar unattractive to the early pioneers who are willing to take the risk, and keep them dependent on grid power.

On top of these shenanigans is the government’s zeal to push for manufacturing in India. It refuses to accept the fact that this push is looking flawed for two reasons. One, India simply doesn’t have the competitive chops to out compete China based manufacturer’s , in a swiftly evolving sector. Two, manufacturing in solar, unless pursued as a matter of energy security, is simply not going to deliver the scale and quality of jobs that it used to. The newest factories in China today are operating with 60% of the workers they would employ for the same size in 2015, and by 2024, some expect to operate with 25 percent of the workers they would have employed in 2015.  Thus, even as the Safeguard duty, almost universally condemned as useless in its attempts to stimulate manufacturing in India, winds down by July 2020, plans are afoot to ensure the duty ‘protection’ doesn’t go away, with a 10 percent duty on modules, to be raised to 30 percent in phases.

What that means is that for a questionable motive, we are saddling our whole grid with higher than normal costs for renewable energy. This becomes even more interesting when one considers the act that contrary to all pronouncements, India has actually been subsidising its thermal sector in multiple ways. From repeated extensions to thermal plants to install pollution control equipment, to a recent proposal to waive the cess on coal production that was to be used for cleaning up, and cleaner energy respectively. The value of this waiver could be as high as Rs 24,000 crores, going by reports. That’s about 2.5 times the total subsidy offered on the FAME2 scheme for enabling an EV transition.

So what can the renewable energy sector hope for, from the budget?

For starters, it is in every one’s interest to see an effort to resolve the mess at India’s discoms. A cleaner, less stressed discom balance sheet will allow more rational planning for discoms to meet their Renewable Purchase Obligations as well as take a longer term view on supporting renewables.

A second area would be to see a move to link duties on imports to outcomes. If a minimum amount of manufacturing interest cannot be rustled up despite the duty protection, then the government has to find a better way to provide support to deserving manufacturers, and allow the rest of the sector to aim for better quality at lower prices.

A single window policy for rooftop solar nationally is still awaited.

Open access power markets in more states  needs to be provided protection from sudden proposals of the type we have seen in Maharashtra. If that requires specifying just what level of renewable power generation will not attract any sort of ‘grid stability charges’, it should be done across each state. In any case, the onus of grid stability should be  on the discoms, not power producers. Like fuel costs, India simply cannot  allow disparities in renewable energy costs beyond a point.

The green corridors, or dedicated renewable powered grids for agricultural consumers, necessitated by agri subsidies primarily, need to be supported with a central grant for quicker implementation. This has the potential to both push production of renewable energy and weed out massive inefficiencies in discoms that use these to mask their other issues.

Thus, as Finance Minister Nirmala Sitharaman steps up on Feb 1 to present her plans and vision for the country’s finances,  all that the industry will hope for is relief for their biggest tormentors (discoms), a genuine pullback from fossil fuels as per global commitments made by India, and allowing the renewable energy sector greater freedom to find market based solutions. Is that too much to ask? We will know in less than a week.