Sunshine sector: A stable operating environment will enable India’s quick transition towards renewable energy

Solar power tariffs keep crashing, without an end in sight. That is good news. Media reports indicate that recent bids invited by Solar Energy Corporation of India (SECI) recorded tariffs of Rs 2 per unit, a marked fall from the previous low of Rs 2.36 per unit. The constant lowering of tariffs gels with India’s ambitious plan to transition towards increasing the incidence of renewable energy sources to power the economy. Under the umbrella of renewable energy sources, solar power is arguably the most important. It’s where technological advances promise to make today’s low tariffs irrelevant soon.

The Narendra Modi government signalled that increasing solar power generation is a policy priority early in its first term. It set a target of increasing installed capacity to 100 GW by 2022. It was a smart move which coincided with a crash in prices of solar energy equipment. To illustrate, India’s solar capacity at the end of 2019-20 was 34.62 GW, of which 65% had come up in the preceding three years. The favourable global environment was supplemented by some sensible policy decisions to encourage investment in solar power.

Policies such as waiving interstate transmission charges and setting up solar parks to reduce capital costs played a part in the boom. To build on this and hasten India’s transition to an energy economy less dependent on fossil fuels, we need to address challenges that lie ahead. China has played an important part in the ramp up of solar capacity as it is a large supplier of solar cells. In the last four years, China has supplied around 75% to 90% of the value of solar cells imported into India each year. For strategic reasons, the situation cannot continue.

Another challenge is the dire financial position that state electricity distribution companies and state governments find themselves in. The desire to renege on commitments to buy electricity from solar plants can show in many ways. Last year, the new government in Andhra Pradesh walked back on commitments made by its predecessor. The falling tariffs have also adversely affected projects initiated earlier where the tariff is higher as cash strapped states look for ways to lower costs. To build on the early success, both states and the Centre need to foster a stable operating environment for firms. Unless that’s done, we may end up once again with stranded power plants.

This piece appeared as an editorial opinion in the print edition of The Times of India.


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