Last week, I was invited by the World Bank for consultations on the challenges and drivers to investments in Indian renewable sector, especially solar and wind. ( http://bit.ly/9zZ3JD )
It was a day long discussion and interaction session, and was attended by experts from both the solar and wind industry.
While some of the challenges were different for solar and wind, many of them were common.
I am noting the salient levers (either drivers or challenges) in the order of importance as agreed by the participants:
1. Financing – especially access to non-recourse finance, availability of loans at softer interest rates, and longer tenure loans (instead of the current 6-8 years).
2. Renewable Purchase Obligations (RPOs) – If the mandates are implemented strictly, RPOs will act as a significant catalyst to solar and wind power investments
3. Feed-in-Tariffs – For solar PV, this is by far the single-most important investment mover
4. Tax Credits (Investment Tax Credits/ Accelerated Depreciation Benefits/Direct Tax Codes) – These are more relevant for wind, where most investments had so far taken mainly owing to the accelerated depreciation benefits. There was however a fear whether the Direct Tax Code regime that will be ushered in soon will nullify the depreciation benefits.
5. Import Tariffs – Fairly important for both solar and wind which depend on imports to some extent (though for solar PV it has been mandated that all modules should be bought locally in the first phase and all cells and modules should be bought locally in the second phase)
6. Local Content Requirements – As mentioned earlier, local content requirements are mandated by the National Solar Mission. To what extent they will affect investments in power plants is unclear, but they are likely to act as a catalyst for investments in solar cell and module manufacturing plants.
7. RECs – Though new, RECs will have a positive effect on investments in wind and solar as it opens up a domestic avenue of obtaining incentives from green power production.
8. Investment Subsidies – Not relevant in a big way for grid connected power plants, but for offgrid, investment subsidies could drive the market significantly.
9. Getting Clearances (esp. Forest Clearances) – I was informed that one of the reasons for the slow growth of wind industry in Karnataka was the difficulty in getting clearances for forest land (most windy regions in Karnataka were in forest lands!). I am not sure how important this is for wind and solar investments in other regions, but it certainly is a major criterion for small hydro where getting clearances (from as many as 7 or 8 departments) could take years!
10. Scheduling and Forecasting – Banks and other investors are increasingly insisting that they get a better grip on the potential electricity output from solar and wind power plants so that they can more accurately predict cash flows.
11. Policy Stability – In India, especially at state level, one can never be certain whether successive governments will continue with the policies of their predecessors. This creates a barrier to investments.
12. Timely Payments – In some states (especially Tamilnadu), some wind power producers had complained that the electricity board was not paying their tariffs on time. But apparently in some states, the electricity boards are super-efficient. For instance, in Gujarat the board pays the developer in the first week of the month (instead of the last week) and takes a 1% deduction for the advance payment. The Gujaratis sure know how to do business!
Our specialty focus areas include
The very next day after the World Bank consultation, I chaired a panel the Renewable Energy Conference at Chennai ( http://www.renewableenergyconference.in/conf-prog2010.html ), conducted by Exhibitions India. It provided me an opportunity to validate many of the challenges noted above. I am hoping to learn more on this important topic.
I hope these details were of help.
