Cheap Power or Clean Energy? India’s $200 Billion DilemmaRajesh Kumar Singh and Anindya Upadhyay
A weak link lurks in Indian Prime Minister Narendra Modi’s push for an unprecedented $200 billion expansion of clean energy: cash-starved state electricity distributors.
The retailers have racked up more than 2.5 trillion rupees ($39 billion) of losses partly because they’re forced to sell below cost to keep energy affordable, Power Ministry data show. Reliant on loans and subsidies, their scope to embrace solar and wind over cheaper, dirtier coal-fired supplies is in question.
That leaves Modi juggling the needs of India’s 750 million poor, his clean-energy ambitions, and pressure to pledge emissions curbs at a United Nations global warming summit in December. For billionaires such as SoftBank Group Corp.’s Masayoshi Son who have vowed major solar investment in India since Modi took office last year, distribution poses a key risk.
“Most distribution companies are a big question mark,” said Sunil Jain, chief executive officer at New Delhi-based Hero Future Energies, which runs 260 megawatts of renewable plants. “We’ve raised the issue of distributors’ health with the government many times. We face the risk of delayed payments.”
Modi’s objective is 175 gigawatts of green energy capacity by 2022, up from about 37 gigawatts, at an estimated cost of $200 billion -- more than the size of Vietnam’s economy. SoftBank, Adani Enterprises Ltd., Reliance Power Ltd., SunEdison Inc. and Trina Solar Ltd. are among those planning investment.
The premier’s push has helped spur rallies in renewable energy companies, such as wind turbine maker Suzlon Energy Ltd., which has risen 48 percent this year, compared with a 1 percent gain in the S&P BSE Sensex index.
Son’s $20 billion venture with Bharti Enterprises Pvt. and Foxconn Technology Group will seek potential sites in sun-baked Rajasthan and Andhra Pradesh states.
Yet those regions, together with Uttar Pradesh and Tamil Nadu, suffered distribution losses of about 540 billion rupees in the year through March 2013 alone, a report by government-controlled Power Finance Corp. shows.
These four states also account for a significant chunk of India’s solar goals -- such as 30 percent of a national 40-gigawatt target for rooftop panels by 2022, according to India’s Ministry of New and Renewable Energy.
Rajasthan’s state power transmission utility, Rajasthan Rajya Vidyut Prasaran Nigam Ltd., underscores the challenge ahead.
“We’re getting conventional power at 3 rupees a unit,” said its Operations Director R.P. Barwar. “There’s no point paying almost double that rate for solar.”
Barwar said the utility won’t purchase renewable energy beyond the amount required by regulators, adding electricity generators will have to look for other customers.
Half of Tamil Nadu’s 8,000-megawatt wind capacity is curtailed partly because distributors can’t afford it, according to ReNew Power Ventures Pvt. Chief Executive Sumant Sinha.
Such examples show why successful renewable projects will have to encompass sales to private companies -- as captive providers or over the open market -- as well as to utilities to be successful, consultancy PricewaterhouseCoopers India said.
“The renewable target can’t be based on sales to utilities alone,” said Sambitosh Mohapatra, a partner at the consultancy. “And investors do realize that.”
Another approach, practiced by wind specialist Mytrah Group, is to operate across a number of states to diversify distribution risk. Mytrah’s business is spread over six states.
India remains reliant on coal, which fires about 60 percent of its power generation capacity. While Modi is trying initiatives such as dollar-linked solar contracts to cut costs and woo investment, India has yet to allow higher distribution charges so utilities can afford more renewable supplies.
“Many of these utilities have no ability to buy cheaper conventional power,” said Debasish Mishra, a senior director at Deloitte Touche Tohmatsu India Pvt. in Mumbai. “It raises questions whether they would buy costlier renewable power.”
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