How India’s Solar and Wind Policies Enabled its Energy Transition

The lessons from the policy journey so far

Key Highlights

• Initial fiscal, financial, and tax incentive policies such as accelerated depreciation, generation-based incentives, and feed-in tariffs (FiTs) were successful to a limited extent in creating wind capacity in India.
• The National Solar Mission’s intermediary procurement model coupled with competitive bidding was instrumental in the exponential growth of solar projects.
• The competitive bidding model was not as successful for wind project because the low tariffs disrupted the business model of existing players, who were also equipment manufacturers.
• Central policies have not fully tackled the critical requirement of timely procurement of suitable land, timely construction of evacuation and transmission facilities, and minimising curtailment.
• Initially when RE tariffs were high, the RE-rich states did not provide sufficient support for project deployment. Further, the states were inclined to meet their RE purchase obligations (RPOs) through local deployment, even if it leads to a shortfall in meeting the targets.
• The main drivers for promoting RE are slightly different for the Centre and the states. While the Centre focuses on energy security and climate change mitigation, the states have been keen to obtain private investment and job creation.
• As tariffs declined, states have provided increased incentives for RE projects, even for the export of power to other states. However, there have also been attempts to renegotiate power purchase agreements (PPAs) signed in the high tariff era. As RE deployment further increase and tariffs continuously decline, states are reluctant to sign new PPAs leading to uncertainty around the tendered capacity.
• Demand creation policies of RPOs and RE certificates (RECs) have not had the intended effect. Most states have not aligned their trajectories with national trajectories and even RE rich states like Gujarat and Maharashtra have not complied with the national trajectories. Currently, apart from setting up inter-state projects, there are no other mechanisms to equitably share the costs of hosting RE projects to supply power to other states.
• The existing policies have resulted in tremendous outcomes, though short of the targets India set for itself.

The sector is faced with imminent market disruptions

Key Recommendations

• Going forward, policies must pre-empt risks and support transition to a market-driven sector.
• Transform RE procurement methods. The share of short and medium-term procurement by buyers must increase. Investors need to reduce dependence on long-term PPAs for their investment strategies.
• Improve the focus on institution building and bringing in Centre–state and inter-state alignment, coordination, cooperation, and engagement.
• Account for costs and benefits of RE deployment and allocate efficiently between the stakeholders.
• Ensure convergence of contrasting interests of RE manufacturers and developers.
• New financial models must enable investment in projects that are able to participate in flexible and market-based procurement.