The tariff cap was one of the reasons cited by the industry, which slowed down the pace of adding renewable generation capacities to 8.6 giga-watt (GW) in FY 19 from 11.3 GW and 11.8 GW in FY17 and FY18, respectively.
Responding to the longstanding industry demand of removing tariff caps in renewable energy auctions, the ministry of new and renewable energy (MNRE) has decided that “cap or upper ceiling tariff will not be prescribed in future bids”. The tariff cap was one of the reasons cited by the industry, which slowed down the pace of adding renewable generation capacities to 8.6 giga-watt (GW) in FY 19 from 11.3 GW and 11.8 GW in FY17 and FY18, respectively. The other reasons were devaluation of the rupee, rising finance costs.
“The move to do away with the tariff cap reflects not only the increasing maturity of the sector but also the government’s belief that robust bidding processed will ensure tariffs remain at reasonable levels,” said Sumant Sinha, chairman and managing director of ReNew Power.
MNRE has sent a letter to NTPC and the Solar Corporation of India (SECI) —the central government agencies which acts as the nodal agencies for conducting the auctions — conveying the removal of such caps.
In the letter, reviewed by FE, MNRE pointed out that the decision was taken in a meeting chaired by power minister RK Singh held on January 31. The tariff cap for renewable energy auctions were earlier set at `2.65/unit, and was gradually raised to `2.93/unit after the industry raised concerns about viability.
“It is a positive move for the sector,” a senior official from a foreign promoter-backed renewable energy company told FE, requesting anonymity. “Investors seek viability for their investment and this will be a step in that direction,” the person added. The renewable energy industry is one of the major FDI earners with the sector attracting $4.8 billion foreign capital till 2019-end since FY15.
As on January 31, the installed renewable energy capacity was 86.32 GW. Further, an additional 35.1 GW is under various stages of implementation and 34.5 GW under various stages of bidding. If their 45.4 GW of hydro and 6.8 GW of nuclear capacities are included, the target under the Paris climate change accord of having 40% of installed power generation capacity from non-fossil fuel sources can be achieved by 2022 itself.
The major challenges being faced by the renewable energy developers are land acquisition, evacuation infrastructure, non-conducive state policies, unwillingness of discoms to purchase renewable energy, delay in making timely payment to solar and wind generators by discoms, curtailment and seeking revision of power purchase agreements.