It is easy to understand why the government wants to push solar and wind power since, apart from helping keep the planet more green, this will reduce some of the global pressure on India for being, like China, a major source of additional global warming thanks to over- dependence on coal-based power plants. Which is why the government’s new tariff policy says each firm setting up a new thermal plant of, say, 100 MW will have to set up a renewable energy plant of 10 MW as well. The 1,60,000 MW renewable energy target set for 2022 is certainly ambitious but, presumably, the target is meant to both galvanise the government machinery as well incentivise greater innovation to lower costs.
What is not so clear is why Japan’s SoftBank has announced a tie-up with Bharti and Foxconn to invest $20 billion over a period of 10 years in setting up 20,000 MW of solar capacity in India. As an added incentive, Softbank’s chairman and CEO Masayoshi Son added that, if the government was to make the land available, they could even consider manufacturing of solar panels in India. With both announcements coming in a single day, that’s probably the biggest endorsement that Prime Minister Narendra Modi’s Make-in-India ever got. Certainly the three partners have put in a lot of thought into the project, more particularly into how to lower costs—already, technological progress has dramatically lowered costs of both wind and solar energy, and it is only a matter of time when both solar and thermal power may cost the same.
But given that the project will be largely debt-funded—the three companies say the first unit will be operational within the next 18-24 months—the solvency of the buyers will probably be paramount. The Power Finance Corporation reckons the sector’s losses were R1,05,000 crore in FY13 without accounting for subsidies; with more high-cost power having come on stream since, the number has probably risen as tariffs have, by and large, not kept pace. It is due to the inability of the state electricity boards (SEBs) to finance their debt that, in 2013, the government came out with the Financial Restructuring Package (FRP) which, it turns out, is also not working. As FE first reported on June 4, the Rajasthan SEB which first got its loan restructured in 2013 now needs another round of restructuring—more details are in today’s FE. Indeed, it is because SEBs are so cash-strapped that they are not able to buy enough electricity and are preferring instead to go in for load-shedding. While the savvy Sonsan has chosen not to mention it, presumably the speed at which the 20,000 MW will be rolled out will depend on how much progress is made on making the sector solvent.