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Vishnu Sudersan
" In order for India to become reliant on renewable energy, we will have to radically increase our solar and storage capacities as well as reduce dependency on the coal."

Vishnu Sudersan
Partner, J. Sagar Associates

Renewable Energy Explored Through Legal Lens

VISHNU SUDERSAN, Partner, J. Sagar Associates

Published in May Edition
Due to Prime Minister Narendra Modi’s mission to accomplish renewable energy generation of 175 Gigawatt by 2022 has stemmed up numerous new policies and strategies which has eventually surged renewable energy production in 2016. We are here in talks with Vishnu Sudersan, Partner, J. Sagar Associates, who helps explore the renewable energy sector in the current through legal lenses.

By Namrata Nikale Tanna, Oil Asia Journal

OAJ: According to the world economic forum, Renewable energy production surged in 2016, with around two-thirds – or 165 gigawatts – of net new capacity coming from clean sources, what is the current status on the global forum?
Sudersan :Between 2017 and 2022, renewable energy capacity is expected to expand by over 920 GW, an increase of 43%. This forecast is based on the upward revisions for Solar PV projects in China and India. China alone is responsible for 40% of global renewable energy capacity growth.

In terms of the global outlook, China is the undisputed renewable growth leader, accounting for over 40% of the total global clean energy mix by 2022 which is also due to its concerns about the country’s air pollution. In India, renewable capacity is expected to double by 2022. The Solar and wind represent 90% of India’s capacity growth and will continue to dominate the growth charts. Despite the uncertainty in policy, the United States remains the second-largest growth market for renewables. The main drivers such as multiyear federal tax incentives combined with renewable portfolio standards as well as state-level policies for distributed solar photovoltaics remain strong for new onshore wind and solar capacities.

In the European Union, the renewable growth over the forecast period is 40% lower compared to the previous five-year period. Overall, weaker electricity demand and overcapacity remain challenges to growth while limited visibility on forthcoming auction capacity volumes in some markets presents a forecast uncertainty. Beyond 2020, policy uncertainty does remain. However, if adopted, the new EU Renewable Energy Directive covering the post-2020 period would address this challenge by requiring a three-year visibility over support policies, thereby improving market predictability for investors.

OAJ: Renewable energy accounts for 16 % of total India's energy mix, do you think, the percentage share in the overall energy count will increase by 2020? And what number are you expecting?
Sudersan :It is anticipated that the share of renewable energy in the overall energy mix will increase by 2020, given the number of positive incentives and measures being taken at both the central and state levels to encourage deployment of renewable energy. The Central Electricity Authority estimates that renewable energy will account for 21% of the total energy of the country in 2021-22 and 24% by 2026-27.

By 2022, India is expected to have more than doubled its current renewable electricity capacity. For the first time, this growth over the forecast period is higher than the European Union. Solar PV and wind together represent 90% of India’s capacity growth as auctions yielded some of the world’s lowest prices. Currently, India has a total installed capacity of 344 GW as on 31.03.2018, wherein renewable energy constitutes 69 GW, which accounts for a share of 20% approximately.

In order for India to become reliant on renewable energy, we will have to radically increase our solar and storage capacities as well as reduce dependency on the coal.

OAJ: Could you please address the challenges of the renewable energy sector and also share your suggestions to overcome the barriers?
Sudersan :Despite a promising climate fostered by the various measures taken to encourage deployment of renewable energy, many challenges still persist, such as:  Renewable purchase obligations are not being met, with only a few states having met the prescribed targets.
♦ Compliance is often deferred, with non-compliance rarely penalised. Even if penalties are imposed, they are not taken, nor are non-compliant entities ordered to purchase equivalent renewable energy (or renewable energy certificates).
♦ Renewable purchase obligations are unmet despite renewable energy certificates being available.
 Inadequate transmission facilities are hampering the deployment of renewable energy since the lack of evacuation infrastructure leads to the ‘bottling up’/ ‘idling’ of capacity.
 Projects are being backed down for numerous reasons. Since renewable energy does not have a two-part tariff, developers are not paid for the resultant losses.
 Many distribution utilities are distressed due to large-scale losses. Thus, there is significant counterparty risk in the form of payments to generators being delayed.
 Securing low-cost long-term domestic debt presents a challenge due to perceptions of offtake risks, grid constraints and acquisition-delays.
 While competitive procurement has led to record-low tariffs, the drop in tariffs has had the unintended consequences. In particular, distribution utilities are:
♦ Reluctant to sign or honour power purchase agreements that envisage payment of higher tariffs.
♦ Seeking revision of tariff for existing power purchase agreements by seeking parity with bid out tariff.
Some measures that may be taken to address the above challenges are:
 State Electricity Regulatory Commissions should actively penalise non-compliance with renewable energy obligations by directing the purchase of renewable energy certificates.
 New models for evacuation should be developed by taking into account the concerns and needs of developers and transmission utilities.
 The Government of India should work with financial institutions to develop debt products tailored to the specific sectoral needs.
 State Electricity Regulatory Commissions should ensure implementation of ‘must-run’ status for renewable energy projects, and direct distribution utilities to sign/ honour power purchase agreements (and make timely payments).
 A law for renewable energy that moves beyond electricity should be considered, with focus on inter-ministerial and stakeholder coordination.
Uptake of digitization and smart grids (including micro grids) should be accelerated. Improved (and low-cost) electricity storage is also an important for improving grid-management.

OAJ: According to the Prime Minister Narendra Modi’s ambitious project, renewable energy in India is expected to more than double by 2022; do you think we are moving in right direction to achieve the above mentioned targets?
Sudersan :India saw its largest ever wind power capacity addition of 5.5 GW in 2016-17, exceeding the target by 38%. During 2017-18, a total 0.5 GW capacity had been added till November 2017, making cumulative achievement 32.7 GW. In terms of wind power installed capacity, India is globally placed at 4th position after China, USA and Germany.

Separately, India’s largest ever solar power capacity addition of 5.5 GW was achieved in 2016-17. During 2017-18, a total 4.3 GW capacity had been added till November 2017, making cumulative achievement 16.6 GW.

Currently, the Government of India has set a target of achieving 100 GW of solar power by 2022, which will be out of the total 175 GW the country plans to produce from renewable energy sources. A capacity of 20 GW of solar power has already been installed.

As per current estimates by the Government of India, India is likely to achieve its target of 175 GW of installed capacity before 2022. In terms of the initiatives undertaken by the Government of India for renewable energy generation in India the achievement of the ambitious 175 GW target looks promising, however, there may be certain time lag due to other external factors, for example, the general election in 2019, the lending sector outlook towards renewables, development in the energy storage and the global economic stability, may turn out to be crucial factors to be considered while aiming for the 175 GW targets.

OAJ: Could you suggest on how the government can work together with IREDA for successful implementation of the renewable energy programs in the country?
Sudersan : IREDA is an Indian public limited government company under the administrative control of Ministry of New and Renewable Energy (MNRE). IREDA provides various financial services including direct project financing, equipment finance, business development finance, loans for manufacturing facilities of energy efficiency equipment, and loans to banks/financing institutions for on-lending to greenfield renewable energy projects.

The following methods could be adopted whereby the Government of India and IREDA can collaborate to further augment the successful implementation of renewable energy projects:

(i) Creation of a dedicated ‘Green Energy Fund’ by IREDA under the administrative control of MNRE with funds earmarked across each renewable energy sector such as solar, wind and hydro, to be invested as debt or equity to bridge the financing requirements of greenfield projects;

(ii) Including guidelines under state specific bundling schemes of Solar Energy Corporation of India, NTPC under policy initiatives such as the National Solar Mission and other tariff based competitive bidding polices for renewable energy project developers to avail grants/financial assistance from IREDA and mandating IREDA to provide such funding within a stipulated time frame. This would help streamlining the process of achieving financial closure for the project; and

(iii) Identifying projects satisfying minimum qualification requirements in terms of tariff viability, project life cycle and commercial operations and re-financing of existing debt obligations of such renewable energy developers.

OAJ: Which countries in the world will account for two thirds of the global renewable expansion by 2020?
Sudersan : In terms of the present trend and capacity growth, three countries will account for global renewable energy expansion by 2022. These countries are: China, The United States of America and India.

OAJ: How has India's decarburization policy helped in boosting the investments in the Indian renewable energy sector?
Sudersan :As per current estimates, India will need at least USD 125 billion to fund its ambitious renewable energy expansion targets by 2022. India’s current renewable power capacity is about 60 GW and the bidding process for another 115 GW needs to be completed by 2020. To achieve the funding requirements, an investment of up to $125 billion is required.

Private equity firms such as Goldman Sachs, JP Morgan, Morgan Stanley and utilities such as Engie, EDF are already investors in the Indian RE sector. To bridge the huge funding requirements, India would also require funding support from multilateral agencies such as Asian Development Bank, World Bank. Foreign and domestic institutional investors have the highest potential to bridge the financing gap between the expected and required investments for equity and debt investments.

OAJ: The lack of infrastructure is considered to be the major interruption in achieving the goals, could you please throw light on some of the suggestions that can enable a better infrastructure?
Sudersan :The Government needs to plan and build adequate transmission capacity to ensure that there is no shortage of transmission capacity to accommodate renewable energy generation. Adequate transmission capacity would enable better integration of renewable energy into the transmission grid on a large scale. This would enable all renewable energy generation to be utilized, so that the must run status of renewable energy projects, as accorded by the Indian Electricity Grid Code 2010, is not compromised, thereby eliminating the effects of curtailment on project profitability.

In 2017, Power Grid Corporation of India has initiated construction of its first green energy corridor project with an ultra-high voltage direct current (UHVDC) link spanning over 1800 km. The Green Energy Corridor is a key element of integrating renewable energy with the main grid and integrate thermal and wind energy for transmission of power to high consumption centers.

OAJ: Will India witness the revolution in the energy mix?
Sudersan :India has emerged as one of the fastest growing renewable energy markets. This is attributable to the decline in costs associated with renewable energy and this is set to replace India’s dependence on conventional thermal power projects for fulfilling its electricity needs.

There has been a paradigm shift in the manner of execution, investment trends, consolidation strategy in the renewable energy sector, which has witnessed a massive consolidation spree, as was seen in 2016 with Tata Group acquiring the entire renewable energy portfolio of Welspun Renewable Energy Limited and more recently, the acquisition of Ostro Energy’s entire renewable energy asset portfolio by Re-New Power Ventures for an enterprise valuation of USD 1.66 billion. In fact, there have been few proponents wherein it is stated that India actually has the capacity to operate entirely on renewables by 2050 , which though is a bold statement but may be the requirement if we want a better environment for the future generation.

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