By Himraj Dang
The renewable power (RE) sector in India has matured. Low tariffs found by bidding have little doubt supported a quick scale-up (17% CAGR within the final 5 years). Photo voltaic capability has reached 33GW out of a complete of 89GW of RE capability, itself 24% of the nation’s whole energy capability. The latest bid in November this 12 months has delivered a outstanding tariff of Rs 2/kwh, a discount of 15% from the final bid simply this summer season.
We are able to argue endlessly that the marketisation of tariffs occurred earlier than the business reached an acceptable scale, however property proceed to be constructed, SEB opposition to RE is decreasing, and as elsewhere on this planet, there isn’t any return from this significant market transition.
The flip facet of the buildout based mostly on razor-thin margins has been the consolidation of the RE business, promoted by a flight to scale, primarily favouring the decrease value of capital achieved by the highest IPP mills. This transition shouldn’t be accessible to present or potential SMEs, and they’re largely absent from the brand new bids.
The previous few years have additionally seen a number of new IPP platforms being created, Temasek’s O2 Energy being the latest well-capitalised entrant. There may be nonetheless hesitation from home bankers to lend to low-tariff initiatives, given ongoing execution and PPA dangers (not signing SECI-awarded bids and never paying state-awarded property). So, even because the sector does continue to grow, additional aided by the most recent tariff discount, we will anticipate that assembly the goal of 175GW BY 2022 will nonetheless be a problem.
Does this mature section of energy era seem enticing for recent new enterprise creation and entrepreneurship? Most likely not, given the mismatch between dangers and rewards, and the aggressive positions of the deep-pocketed IPP leaders with very low-cost capital. Agnostic entrepreneurs and recent funding ought to observe different segments which aren’t so capital-intensive, the place there may be much less want for leverage, and nonetheless the prospect of upper returns to capital and time spent.
These may very well be the pairing of renewable energy with electrical mobility functions by means of managed charging packages, decentralised energy options in rural areas, RE forecasting, O&M providers, buying and selling of regulatory merchandise, power effectivity functions (photo voltaic ag. pump units, photo voltaic chilly storages, lighting, metering). Using renewable energy, however for a higher-value software than merely energy to the grid. With the prospect of displacing typical options utilizing the pricing benefit from the path-breaking low value of RE energy era at Rs 2/unit.
By producing round the clock (RTC) energy, with the next PLF achieved by coupling with battery storage, many higher-value industrial functions of energy (eg low-temperature heating functions), by-passing customary energy era, will also be explored.
One other growth which can scale back uncertainty is the production-linked assist (PLI) being given to the home module manufacturing business. We are able to assume the photo voltaic PV modules will finally come largely from India, so will Li-ion batteries. Most likely at a considerably larger value, however with no China-specific sourcing or general contracting threat. New companies should use the excess or marginal output from this capability for solarising India.
The funding neighborhood is keenly trying to find non-grid energy functions from RE. Nevertheless, there may be much less urge for food for VC investments. Entrepreneurs have to first get a prototype out, then search for capital to scale-up. Funding assist for the demonstration software itself has been very exhausting to return by. The entrepreneur ought to ideally plan to fund that herself. That is higher for valuations and for maximising promoter fairness worth. Solely with readability on the earnings from the primary software, can and will exterior funding be used.
Gaps in public coverage
For this non-grid energy software section, the assist wanted from the federal government is to refresh the UDAY program and implement severe distribution reforms (DBT, good or pre-paid metering, and personal participation) to make utilities viable—much-needed for myriad causes. If the grids are usually not financially viable ever, and the tariffs don’t mirror value, then finally even non-grid energy functions won’t be able to scale up. We see this within the regulatory obstacles the state grids placed on rooftop photo voltaic mills to carry onto their business and industrial clients and cover-up for the bleeding elsewhere.
The opposite contribution anticipated from the federal government is the event of the enabling framework for the launch of the electrical mobility enterprise, which has already taken off in China and elsewhere. We’re nonetheless at a really early stage, and the regulatory framework must evolve quicker to advertise the proliferation of electrical automobiles from rickshaws to buses.
The last word problem
Power storage was the unique Holy Grail for renewable energy. With the decline in battery costs, this story is now coming to move. For instance, 19GW of photo voltaic PV initiatives with storage are beneath development within the US. The pairing of electrical mobility with renewables has now turn out to be the final word goal of renewables worldwide: to decarbonise transport. Progress on grids and the launch of EV companies ought to afford Indian entrepreneurs with this well timed problem.
The creator advises inexperienced investments. Views are private