Mint Explainer | The huge backlog slowing India’s green energy ambitions
India’s renewable energy roadmap has hit an obstacle with no buyers for electricity from projects with about 30 GW of combined power-generating capacity. Although the backlog has declined from about 55 GW, offtake agreements for power from these projects is yet to gain momentum.
On Monday, Union minister for new and renewable energy, Pralhad Joshi, said the government will soon hold a second round of talks to persuade states to sign power purchase agreements for renewable energy. Mint explains the issues behind the unsigned PPAs.
What is a power purchase agreement?
A power purchase agreement is a long-term contract between an electricity producer and a buyer, typically a government agency, for the sale and purchase of energy at a negotiated price.
Renewable energy developers that have won a project sign PPAs with renewable energy implementation agencies such as Solar Energy Corp. of India Ltd, NTPC Ltd, NHPC Ltd, and SJVN Ltd. These, in turn, sign power sale agreements with distribution companies, or discoms, that take the electricity to industry and homes.
Why is there a backlog of unsigned PPAs for green power?
The government in April 2023 announced plans to tender 50 GW of renewable energy capacity every year till 2027-28. However, there have been concerns about grid stability as most of this capacity would be from solar energy and without battery storage.
Another concern is a lack of adequate power transmission capacity. India currently has a power transmission network of 495,405 circuit kilometers. As per the National Electricity Plan, an additional 191,000 ckm of transmission lines would be required by 2031-32.
Also, the continuous decline in solar tariffs—from about ₹4.3 per kilowatt hour in 2017 to about ₹2.6 currently—makes power from newly bid out projects more attractive for power distribution companies, affecting demand for older ones.
Tariffs for firm and dispatchable renewable energy projects, which are integrated to storage capacity, have also become competitive. Madhya Pradesh chief minister Manoj Yadav on Monday said the state recently attracted a bid of ₹2.70 per unit for a solar-cum-storage project.
How does this affect India’s renewable energy trajectory?
India has so far achieved about 251 GW of non-fossil capacity, of which around 96% comprises renewable energy projects. Its target: 500 GW non-fossil capacity by 2030.
But the backlog of unsigned PPAs could diminish investor and lender interest in India’s green energy space, which may cripple the installation of renewable projects.
According to a Deloitte report published in July, India needs $1.5 trillion to address climate change issues at scale, of which about $550 billion would go towards renewable energy and transmission capacity addition.
What is the government doing to resolve the issue?
The government has been in talks with stakeholders including renewable energy developers to resolve the issue of unsigned PPAs. The Union ministry of new and renewable has already held one round of talks with state governments to sign PPAs for green power.
The Union government has also asked states to agree to uniform tariffs for renewable energy. The government proposed uniform renewable energy tariffs in October 2023 but hasn’t been able to implement it yet as electricity is a concurrent subject and would require states to come on board.
But the Union government expects that enforcement of renewable power obligations and penalties may force states to sign PPAs for renewable energy projects.
To ease the backlog of unsigned PPAs, the government is also likely to allow renewable energy developers to relinquish long-stuck projects for which power sale agreements and power purchase agreements have not been signed, without invoking bank guarantees.
The surrendered projects would then be rebid with modifications by integrating battery storage, which is expected to make them more attractive.
How is battery storage crucial to India’s green energy transition?
The integration of energy storage with renewable energy projects is expected to increase demand for green electricity as it would bring in reliability and stability. Given that solar and wind power are intermittent, energy storage would help provide stability to the electricity grid.
The Central Electricity Authority in February asked state power utilities and renewable energy implementation agencies to incorporate two-hour co-located energy storage systems, equivalent to 10% of the installed solar project capacity, in future solar tenders.
Integrating battery storage would make renewable energy projects more expensive. However, as in the case of Madhya Pradesh, tariffs for projects including battery storage are also becoming competitive. Declining prices of batteries imported from China have also helped lower the tariffs.
Post Comment