In 2015, India announced ambitious targets for renewable energy—175 GW by 2022—one
of the largest expansion initiatives in the world. Just four years later, at the United enewable energy (RE) capacity to 450 GW by 2030 (PIB 2019). India’s journey to reaching these targets is at a critical juncture. The pace of capacity addition in utility-scale wind and solar power, which saw a rapid increase during 2014–2017, has since slowed down (Figure ES1).

Private investment has shaped deployment trajectories so far. Today, solar and wind technologies have advanced, supply chains have strengthened, and expertise has developed.
Despite the highs and lows, investor confidence in India’s RE sector continues to remain robust. Further, many factors favour investments in RE. It has proved itself to be resilient in
times of crisis, including the COVID-19 induced shocks in 2020. There are strong signals
that RE is a preferred choice, not just because of its green attributes, but because of its
favourable cost economics for all stakeholders.

Central policies: kickstarting solar but leaving wind behind
The initial drivers for RE capacity addition were fiscal, financial, and tax incentives, like
accelerated depreciation, generation-based incentives, and feed-in tariffs (FiTs) determined
by state commissions. Wind turbine manufacturers were the first movers. The de-licensing of
generation under the Electricity Act 2003 (EA) set the stage for private investments in RE.

Currently, apart from setting up inter-state projects, there are no other mechanisms to equitably share the costs of hosting RE projects to supply power to other states. Further, despite RE tariffs attaining grid parity, investors continue to rely on RPOs for demand creation, indicating deeper causes obstructing further RE penetration in markets. Inadequate compliance of Central policies by states also point to certain legitimate state concerns that may not have been addressed (Figure ES2).

Private investment has shaped deployment trajectories so far. Today, solar and wind technologies have advanced, supply chains have strengthened, and expertise has developed. Despite the highs and lows, investor confidence in India’s RE sector continues to remain robust. Further, many factors favour investments in RE. It has proved itself to be resilient in
times of crisis, including the COVID-19 induced shocks in 2020. There are strong signals that RE is a preferred choice, not just because of its green attributes, but because of its favourable cost economics for all stakeholders.

From approximately 21 GW of utility-scale solar and wind capacity at the end of financial year (FY) 2012 (1 GW solar and 20 GW wind), India achieved 70 GW capacity by 31 September 2020 (32 GW ground-mounted solar and 38 GW wind) (MNRE 2020b). This growth story is undoubtedly remarkable. Solar and wind energy have also proved to be resilient in times of crisis, including during the COVID-19 pandemic in 2020, and have continued to attract investment and attention from policymakers.

Before we embark on a policy analysis to determine the best tools to address the above challenges, we look back and study the sector’s evolution and evaluate the policies’ impact
on RE. As RE growth slows and faces newer challenges, it is the right time to conduct such
an analysis. Such an exercise will enable us to understand what are the gaps in the existing
policies that need to be mended to adapt to the changing dynamics and yet achieve our
objectives. The legislative architecture, along with a diversity of stakeholders and their objectives and interests, makes power sector policymaking and governance a complex space.
Therefore, policy evaluation can be done through multiple lenses. This study focuses on
the evolving risks for project developers in the bulk RE procurement market and the policy
response of the Centre and states to those risks.

Solar Park Scheme
Land procurement in India is hugely complicated, with challenges ranging from the legal to the political (TERI 2017). For developers, private procurement is expensive and timeconsuming. This is evidenced by the consecutively increasing time limit for obtaining possession under the NSM. In Phase I, 180 days was the time limit; in Phase II, Batch I, the time limit was increased to 210 days; and currently, developers must show possession only at the time of commissioning the project.

Renewable purchase obligations – a regulatory mechanism for creating demand

The NSM, Solar Park Policy, and other fiscal incentives are supply-side measures, targeted
at reducing investment risks. However, a measure to create demand was essential because
RE was considerably more expensive than conventional power in 2010. Demand for RE was
created through the RPO mechanism.

Setting RPO targets
The RPO targets notified by states are set out in Table A1 in the Annexure. As is evident,
states’ RE ambition varies widely, and there was considerable variance between them and
the NAPCC targets. Karnataka, Tamil Nadu, Maharashtra, and Rajasthan set relatively high
targets, while Andhra Pradesh, Bihar, Madhya Pradesh, and Uttar Pradesh set quite low
targets.

Compliance with RPO
The obligated entities can comply with their RPOs through two routes: direct procurement (FiT/competitive bidding) and purchasing RECs from power exchanges. State regulations typically contain provisions for monitoring compliance, which require the obligated entities to submit information to the state nodal agencies, and the nodal agencies are required to file periodic compliance reports with the SERC. The SERC can also initiate suo moto proceedings to verify compliance.

Variance in compliance within states
The MNRE has consistently been urging states to align their RPO trajectories with that of
the Central Government and ensure strict compliance. In August 2019, the MNRE sought
APTEL’s intervention to nudge SERCs to enforce and align RPOs and not to allow any waivers
or carrying forward (MoP 2020a). In 2019–20, some RE-rich states, including Maharashtra,
Gujarat, Tamil Nadu, Rajasthan, and Telangana, fell short of meeting their RPO targets.
Apart from Andhra Pradesh, Rajasthan, Karnataka, and, more recently, Tamil Nadu, no
other state has met their RPO targets (MoP 2020a). Figure 4 compares the RPO compliance
situation across 2015–16 and 2017–18 of Tamil Nadu, Maharashtra, Bihar, and Punjab and is
representative of the compliance situation across the country.

Participation in the REC market mechanism
The trading mechanism instituted for RECs in the power exchanges has not led to its uptake,
as there has been a consistently high number of unredeemed RECs (see Figure 5). In addition,
developers installed only around 2266 MW of RE capacity in 2010–2017 under the REC
mechanism.

Policy evolution in RE-rich states

The southern and western states of India have a long history of RE development since RE
resources are concentrated in these states (Figure 7). These states attracted investments in
solar and wind energy well before the launch of NAPCC and the NSM. This section recounts
the journey of RE policies in states that have high solar and wind energy potential. The RErich states covered are Andhra Pradesh, Gujarat, Karnataka, Madhya Pradesh, Maharashtra,
Rajasthan, Tamil Nadu, and Telangana.

Policies pre-2014
In January 2009, Gujarat became the first Indian state to launch a solar power policy (Economic Times 2010). In 2012–13, over 40 per cent of Tamil Nadu’s total capacity was based on wind power (TN Energy Department 2012), well before the Government of India adopted the ambitious target of 175 GW RE capacity by 2022, including 60 GW wind.

Global market developments
Apart from reduced risk perceptions due to stronger institutional mechanisms, developers’
expectation of fall in solar module prices also drove them to place extremely aggressive bids
in the auctions (Deign 2017). Solar module prices witnessed an overall drop in prices (see
Figure 9). However, even small fluctuations in module prices can affect project economics
adversely.

There were short periods when module prices increased during 2017–2020 due to various
reasons such as China slashing its subsidies, reduced polysilicon supply in China, module
suppliers demanding price renegotiation, and supply chain disruptions due to the COVID-19
pandemic (Bridge to India 2017). Excessive reliance on imported modules and largely from a
single country, makes the projects vulnerable to geopolitics and domestic policies intended to
promote domestic manufacturing (Chawla 2020).

2016 onward, SECI’s tendering activity has shifted towards ISTS-connected solar projects.
Between 2016 to 2019, it issued tenders worth 13,000 MW of solar PV capacity (ISTS I to ISTS IX) and 12,600 MW of wind capacity (Tranche I to Tranche IX). Figure 12 shows the deployment progress of solar projects awarded under the ISTS I to ISTS IX tenders by the SECI (as of August 2020).

Policy evolution in RE-deficit states

As discussed above, southern and western states in India have abundant RE and land resources to develop large-scale wind and solar power projects. However, the northern states in the Indo-Gangetic plains are densely populated, agricultural states. The mountain regions in the north have excellent solar resources and are sparsely populated but have forest areas and difficult terrains and low transmission capacities. The coal economy is dominant in the eastern states.

Looking back to look ahead

With the evolving policy landscape at the Central and state level, we have seen India’s renewable energy sector grow tremendously. In 2010, the total installed RE capacity was just about 18 GW, which has grown almost five-fold over the decade. As our analysis suggests, there were high and low points in this journey. Every time a roadblock emerged, India has been successful in testing and identifying alternate approaches and solutions. Some of these include bundling solar power with conventional power to counter high tariffs in 2010; introducing solar parks when deployment became slow and tough; increasing RPO targets to create the necessary demand; creating and backing SECI to address counterparty risks; accelerating tendering activity to signal a commitment to creating strong pipelines; encouraging solar–wind hybrid parks to improve utilisation factors; introducing protocols and mechanisms such as market-based economic dispatch, a real-time market, and a green term ahead market to optimise grid integration costs. With economics favouring RE, its share in India’s electricity mix is only expected to grow.

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