Bridge India

Will states live up to the ambitions of the central government?

As part of the 60 GW target for utility scale solar, the central government is taking the lead at present through projects developed under National Solar Mission.  But states are expected to play a bigger role over time and develop 20 GW of capacity (refer). In percentage terms, this seems very reasonable given that state policy projects already account for around 60% of the installed solar capacity and 65% of total project pipeline of 10.8 GW in India. However, state policy projects generally tend to suffer significant delays and policy uncertainty.

  • Policy flip-flops at the state allocation level, including recent one in Madhya Pradesh, have hurt investor confidence
  • If central government allocations are exhausted early, as planned, will states be able to sustain demand?
  • India needs to ensure that enough thought and center-state co-ordination goes into plan for state-level allocations

We have seen too many state government flip-flops in the past on solar policies and project allocations. Some prominent examples include: Chhattisgarh changing project allocation criteria after holding a bidding process and observing the results, Bihar not announcing the results after calling for bids and Tamil Nadu cancelling its bidding process several times before recently allocating projects at a fixed tariff.

It now seems that recent allocations in both Telangana and Madhya Pradesh have also hit a speed bump. Madhya Pradesh seems to be reluctant to sign PPAs with companies such as Hero Future Energies and Renew Power. The stated reason is that these bidders have quoted prices materially higher than the lowest bidder, Sky Power. While Sky Power has been issued Letters of Interest (LOI), the other have not yet received it. There is also some confusion for Telangana allocations where the peculiar sub-station level bid process has led to a scenario where a developer with a more competitive bid of say, INR 5.40/ kWh may not be allocated any capacity but other developer with higher bid of INR 5.50/ kWh may be allocated capacity.

Even though central government led allocations have faced their own set of issues, the state project uncertainties are hurting investor confidence much more significantly. And it leads us to ponder whether state allocations will continue to remain a weak link in India ambitious targets.

The larger issue is that the state DISCOMs ultimately need to offtake most of the power being allocated even by the central government, i.e., the entire 60 GW. Both NTPC and SECI are allocating projects after getting consent from the states. Even though central government led allocations provide the cheapest way to meet the state’s RPOs, both NTPC and SECI are still facing challenges getting the required commitment from states. Even if they do, the question is – once states meet their RPO requirements through central government tenders, will they still have the appetite to allocate projects under their own policies? Also, the central government wants to allocate its entire quota in this year itself and then move out for states to take over. If it does, will states be able to sustain the demand and not lead to boom and bust scenario?

We know that the state allocations will need to be a bigger demand driver than the central allocations India has to meet its ambitious targets. We can’t stress enough on the financial health of state DISCOMs and its implication on India’s solar goals. However, before we hit that roadblock, we need to ensure that enough thought and center-state co-ordination goes into state allocations so that we don’t scare away the investors before the appetite for solar power procurement is exhausted.

2 comments

  • I fully subscribe to the view that bigger center-State level coordination is needed before the massive process of solar project development and deployment comes to ” boom and bust” stage..The following steps are imperative and need to betaken care of, side by side, lest the whole process is derailed.
    a) The LCOE of solar projects has to further come down to parity level with conventional energy or lower, so as acceptability of solar energy becomes a need and not some Govt sponsored program, in order to meet RPO or any Regulatory compulsion only..
    b) Financial health of state Discoms, their paying capacity and financial viability, must be improved to reasonable level,, because it is the State Discoms, wherein the buck stops ultimately, irrespective of whether it is State scheme or Central Govt scheme. The political will of the States, dedication and willingness of implementing Central agencies and harmonious coordination of Central and State Govts, all is vital and extremely important to achieve the target.
    c) Deployment of good technology, quality, reliability and dependability of the projects , also needs to be ensured, because it is energy generated at the end of the day, is what that matters. Here my emphasis is to ensure availability of reliable quality power to the Nation. If it does not happen, then also the massive program becomes “bubble and bust”