SMM: IEEFA of the Indian Institute of Energy economy and Financial Analysis said in a new briefing that although the growth rate of renewable energy in India has slowed, the positive results of recent auctions show that domestic and foreign investors still have a strong demand for renewable infrastructure.
Policies and the collapse in electricity demand caused by the Covid-19 crisis have disrupted India's bidding and production process for renewable energy capacity.
Despite these setbacks, renewable energy has proved to be resilient to investment capital for new projects with favorable risk-return characteristics, says Kashish Shah, a researcher at IEEFA. This is the result of seven auctions of renewable energy capacity and storage held so far in 2020.
Despite the pandemics, they still attracted about $10 million to $20 billion in investment commitments, the report found. Among them, the 2 GW solar auction held by Indian solar company (SECI) in June is a particularly bright spot. It has delivered India's lowest electricity price for renewable energy to date at zero-indexed prices in 25 years, at 2.36 rupees per kilowatt-hour ($31 per megawatt-hour).
Developers from around the world won the bid: Solarpack (Spain), Enel (Italy), Amp Energy (Canada), Eden Renewable Energy (France), IB Vogt (Germany), Ayana Renewable Energy (supported by the UK CDC Group), ReNew Power (India, but supported by Abu Dhabi ADIA, Canada CPPIB, Japan JERA and Goldman Sachs in the United States).
"the cost competitiveness and continued price decline of renewable energy make them more dynamic energy producers than many existing coal-fired power plants and all new imported power plants," Shah said.
"domestic and global investors have noted the decline in renewable energy prices, coupled with the government's clear policy orientation and ambitions, which are reflected in the very positive results of these recent auctions."
The recent decline in electricity demand is hitting India's distribution company (discoms), exacerbating the industry's structural and financial problems. By July 2020, state-owned distribution companies had accumulated about $15 billion in overdue debt to power producers across India, causing a huge liquidity crunch in the industry.
"when demand collapses, distribution companies are not even willing to sign a particularly low-cost new electricity purchase agreement, (PPA)," Shah said. SECI has been trying to sign PPA, with distribution companies because it has auctioned 6GW's renewable energy capacity. "
The biggest losers from the collapse in electricity demand will be the thermal power sector, which has high marginal production costs and inflexibility. The encouraging results of these auctions show strong investor interest in renewable energy in an extremely difficult economic environment. At present, there are more funds than opportunities to invest in India's renewable energy sector. With the right policy environment, India's renewable energy sector will continue to attract international and domestic investment capital. "
A green stimulus could accelerate India's investment in renewable energy infrastructure and help India out of the economic downturn by creating jobs, reducing fossil fuel imports and strengthening energy security.