Recent auctions indicate investor faith in India’s renewable energy sector

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Attracting a US$10-20billion of investment commitments in the seven recent auctions in India’s renewable energy (RE) sector are reassuring given that there has been a slowdown in the pace of growth owing to the Coronavirus crisis which has disrupted the sector’s capacity tendering and commissioning process.

According to a briefing note by the Institute for Energy Economics and Financial Analysis (IEEFA), the outcome of the renewable energy capacity and storage auctions held in 2020 reveals that there is plenty of appetite among domestic and foreign investors to build renewable infrastructure in the country.

And the sector is proving to be resilient despite setbacks with investment capital available for new projects with favourable risk-return profiles, Kashish Shah, Research Analyst at IEEFA, said in the note.

Further RE developers from around the world have participated and secured winning bids in these auctions. These include Ayana Renewable Power (backed by the UK’s CDC Group), Solarpack (Spain), Enel (Italy), Amp Energy (Canada), Eden Renewables (France), IB Vogt (Germany) and ReNew Power (backed by Abu Dhabi’s ADIA, Canada’s CPPIB, Japan’s JERA and the U.S.’s Goldman Sachs).

Growth drivers

The note particularly highlights the Solar Energy Corporation of India’s (SECI) 2 gigawatt (2GW) solar auction in June as it delivered India’s lowest-yet renewable energy tariff at Rs2.36/Kilowatt-hour (kWh) (US$31/MWh) with zero indexation for 25 years. This reflects a 15 percent year-on-year deflation in solar module prices.

“The cost competitiveness and continuing price deflation of renewable sources makes it more viable energy generator than many existing thermal power plants, and all-new import power plants” Shah said.

Declining renewables prices and clear government policy alignment and ambition is making domestic as well as global investors vying to stake a claim in India’s RE sector.

Also making a good case for investment in the RE sector is the possible recession and a collapse in power demand. It is making renewables shine bright as long-term renewables contracts are being seen as safe bets.

With India’s power distribution companies (discoms) severely hit   is exacerbating structural and financial issues in the sector. By July 2020, the state-owned discoms had accumulated total overdue payment liabilities of Rs 116,864 crore (US$15 billion) to power generators across India, creating a massive liquidity crunch in the sector.

“The discoms are reluctant to sign even exceptionally low-cost new power purchase agreements (PPAs) when demand has collapsed and they are already locked into high capacity charges on legacy coal power supply agreements” says Shah.

Even the SECI has been struggling to sign PPAs with discoms for its already auctioned 6GW of renewable energy capacity.

According to IEEFA, the biggest loser from the collapse in electricity demand is the thermal power sector, with its high marginal cost of production and lack of flexibility.

In today’s extremely tough economic environment, the encouraging results of the auctions validate strong investor interest in renewables. With the right policy environment, India’s RE sector will expectedly continue to draw substantial investment capital.

According to the IEEFA note, at the moment there is more capital available than opportunities to invest in India’s renewable energy sector.

A green stimulus that accelerates investments into renewable energy infrastructure could help India to emerge from the economic slump by boosting employment, reducing fossil fuel imports, and building energy security.

Shampa Bahadur has been a business journalist for more than two decades. She has written for Business India, PTI Media TransAsia and India Infrastructure Publication Ltd among others. She has also written coffee table books. She can be reached at shampa@indoasiancommodities.in

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