India’s solar capacity addition has slowed down

• Inconsistent government actions cast a shadow over solar energy developers’ sentiment and slowed down capacity addition momentum, a report by CRISIL Research said Monday.

• India has set an ambitious target of having 175 GW of renewables including 100 GW of solar energy by 2022.

• The outlook for solar energy development in the country is constrained as capacity additions get delayed, CRISIL Research said in a statement.

• CRISIL Research expects solar power capacity additions of 48-50 GW between fiscals 2019 and 2023.

• It said that developer sentiment has been negatively impacted by the lack of clarity on several policy issues and arbitrary bid cancellations, which is contrary to a supportive policy stance from the government.

Background

• Over fiscals 2017 to 2019, while previously tendered capacities continued to be commissioned apace, certain risks to future project implementation manifested.

• There were frequent bid cancellations, lack of clarity on GST procedures, and cost pressure from the imposition of the safeguard duty on imported cells/modules.

• While the GST (good and services tax) clarity was lacking for over a year with a final decision taken in December by the GST council, it ended with an increase in taxation compared to what was expected by the industry.

• Similarly, the safeguard duty has turned out to be a double whammy of sorts, impacting costs of solar power projects and not resulting in any significant offtake for the domestic manufacturing sector, the report said.

CRISIL Research’s outlook factors

• This was coupled by the cancellation of bids post auctions as state utilities / SECI (Solar Energy Corporation of India found tariffs to be higher than expectations.

• Close to 4.7 GW was cancelled in such a manner over March – December 2018.

• CRISIL Research’s outlook factors in the prevailing market dynamics, where regulatory/policy support is itself emerging as a key risk.

• The renewable energy domain is highly dependent on policy support and any uncertainty on that front can have strong negative consequences.

• It stated that considering the current regulatory haze, the outlook has been revised downward.

• The CRISIL Research continued to monitor the same and remain aware of a possibility of upsides to our call, once regulatory risk is mitigated to an extent.

• It stated that adequate land availability, timely implementation of grid infrastructure, and the ability of players to raise low-cost funds will also be crucial enablers.

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Mains Paper 2: Governance | Government policies & interventions for development in various sectors and issues arising out of their design & implementation.

Prelims level: Not much

Mains level: Renewable energy policies in India and issues related to them

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