India, which recently became the world’s 3rd largest power generator after China and the US, had a total installed power generation capacity of 290GW by the end of 2015. The country’s installed power generation capacity grew by 10.6% during the year, with a record 27.8GW of new capacity added, including 18.9GW of coal, 2.6GW of wind and 1.7GW of solar PV. Renewables capacity accounted for 15.2% of the total at the end of 2015.
The peak power demand in the country increased by 3.7% in 2015 to 153GW. Despite the record growth in the new capacity addition, the peak power shortage stood at around 4.9GW or 3.2% of the total maximum demand. The Central Electricity Authority estimates that the peak power demand will increase to 165GW but the country will be peak power surplus by 4.2GW in FY2016-17. In June 2015, India formally adopted the target of adding 175GW of renewable energy capacity by 2022: 100GW of solar power (including 40GW of rooftop solar power), 60GW of wind power, 10GW of biomass power and 5GW of small hydro power (project size less than 25MW).
In September 2015, India submitted its Intended Nationally Determined Contribution (INDC) to the United Nations Framework Convention on Climate Change (UNFCCC). It aims to reduce the emissions intensity of its GDP by 33-35% below the 2005 levels by 2030. The country also aims to achieve 40% cumulative electric power installed capacity from non-fossil energy resources by 2030. Solar power in India overtook the wind sector in terms of attracting total investments, partly aided by a boost in activity in the rooftop solar market, primarily driven by commercial and large industrial consumers. Almost all the major Indian states have adopted net-metering policies. At the end of 2015, the federal government re-instated 30% subsidy for capital costs of solar rooftop installations. However, the scope of the subsidy is now limited to residential and institutional consumers (schools, colleges, hospitals etc.).
Competitive bidding for utility scale grid-connected projects is driving the cost of procurement of solar power in the country to record low levels. 4,840MW of new utility scale solar capacity was awarded through auctions in 2015. The declining costs of panels, among other things, led to a drop in auction bid prices to INR 4.34/kWh (6.7 US cents/kWh) in early 2016. In June 2016, the federal government announced a proposal to invite competitive bids for wind power projects for the first time. These auctions will run separately from the existing feed-in-tariffs offered by different states. The government also released a draft wind repowering policy aimed at replacing all sub-1MW wind turbines commissioned before 2000. About 1.2GW of wind turbines will be eligible to receive interest subsidy for project loans.
India announced its offshore wind policy in October 2015. The policy does not set targets or detail incentives but provides an overview of responsibilities and functions of various stakeholders. In April 2015, the Reserve Bank of India issued revised guidelines to the commercial banks to include renewable energy projects under ‘priority sector lending’. The decline in the year-on-year inflation rate in the country also prompted the Reserve Bank to reduce interest rates: the Bank’s repo rate decreased from 8% to 6.75% and the reverse repo rate decreased from 7% to 5.75% in 2015. This led to a drop in the minimum lending rates offered by commercial banks by more than 0.5% in most cases. The federal government established the National Smart Grid Mission in May 2015. The total planned expenditure for the mission is INR 9.8bn ($153m) for the 12th five year plan which runs from 2012 to 2017. The mission will facilitate grants of up to 30% of the cost of smart grid projects.
In August 2016, a new taxation regime was passed by the Indian parliament which abolishes all the existing direct and indirect taxes and introduces a single tax across all the states in India referred to as the goods and services tax or GST. The new tax regime is expected to take away the fiscal incentives which the renewable energy sector in India enjoyed. This is anticipated to increase the cost of grid connected solar and wind power by 12-16% and 11-15% respectively, though there may be some compensating mechanisms put in place. The federal government announced Deendayal Upadhyaya Gram Jyoti Yojna (new rural electrification scheme) in December 2014 and plans to electrify all the un-electrified villages by March 2017. The government plans to invest INR 756bn ($11bn) for rural electrification activities until 2022. As of September 2016, more than 7,400 Villages remain un-electrified, and the government’s rural electrification targets are not expected to be met on scheduled deadlines.
The electricity distribution utilities are the weakest links in the Indian power sector. As per the latest estimates, the average Aggregated Technical and Commercial (AT&C) losses in the country were at 25% in FY2014-15. Most of the state-owned electricity distribution utilities have operational losses. The total accumulated debt of the state owned electricity distribution was INR 4,300bn ($67bn) as of March 2015.
The weak financial health of the distribution utilities has resulted in payment delays and curtailment in some states despite the central electricity regulators granting a ‘must-run’ status for renewable energy plants. Nevertheless, over 30GW of new solar and wind power is under various stages of implementation as of October 2016.
In November 2015, India announced Ujwal Discom Assurance Yojna or UDAY (the federal government’s debt restructuring scheme) aimed at revival of financially stressed state owned electricity distribution companies. It aims at improving the operational efficiencies of the distribution utilities, reducing the cost of power, decreasing the interest costs of distribution companies and enforcing financial discipline. The federal government aims to bring down the overall AT&C losses of the state distribution utilities to 15% under through the new scheme. India is also rapidly adding new transmission infrastructure for evacuation of power. The country added 28,114 circuit kilometres of new transmission lines and 62,849 MVA of transformer capacity in FY2015-16.
India scored 2.17 in Climatescope 2016, an improvement on its score the previous year. This placed it 6th on the list of countries overall, down one from the previous year. Its strongest performance was on Low-Carbon Business & Clean Energy Value Chains Parameter III.
On Enabling Framework Parameter I, India scored 1.85 and gained two places to rank 9th. This reflected, among other things, a number of positive features in its power sector structure, such as independent power transmission and a wholesale power market.
India ranked 15th on Clean Energy Investment and Climate Financing Parameter II. It saw $11.2bn of new money in 2015, which was split almost evenly between the wind and solar sectors, and up from approximately $9bn in 2014.
On Parameter III, the country placed 2nd globally, behind only China. Its clean energy sector is exceptionally well developed, with 34 value chains and 19 service providers.
The country’s score on Greenhouse Gas Management Activities Parameter IV improved thanks, in part, to an increase in Clean Development Mechanism activities. It was ranked 9th.
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