Narendra Modi Faces Test To Revive India’s Renewable Energy Sector

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Narendra Modi at India Economic Summit 2008 Credit: World Economic Forum | CC BY-SA 2.0

The man who can very well be credited to have kickstarted India’s ongoing march towards solar power capacity of 22,000 MW by 2022 — Narendra Modi — has been handed a historic mandate in the world’s largest-ever democratic exercise.

The Narendra Modi–led Bharatiya Janta Party (BJP) secured a simple majority in India’s general election. This historic win has been welcomed by the renewable energy sector, which expects favorable reforms.

Modi has been the Chief Minister of the state of Gujarat for over 10 years during, in which he initiated what was then the largest-ever solar program in the country. Under his leadership the state power distribution companies in Gujarat signed agreements to procure electricity from solar power projects with a cumulative capacity of more than 900 MW.

These projects, some of which have been set up by foreign companies, are considered as the base for the National Solar Mission. With a national installed solar power capacity of around 2,600 MW, Gujarat continues to command the numero uno status with a share of about 34%.

Challenges Before The Renewable Energy Sector

The renewable energy sector is India is facing a number of problems. The wind energy sector has only just started seeing a resurgence after a year of policy vacuum which saw the capacity addition falling to a three-year low. The sector can now ill afford such a policy vacuum as it awaits the launch of the National Wind Energy Mission.

The domestic solar photovoltaic manufacturers are in unspeakable financial mess. The national solar mission has completely failed in providing any sort of revenue addition to their business. The Indian solar power market is overwhelmingly dependent on cheap, imported solar PV modules. The module manufacturers as well as the developers are facing a status of indecisiveness as the government is unable to take a decision on whether to impose import duties on imported modules or not.

The biomass power project developers have been urging the government to help them revive ailing projects. The sector has numerous issues, including the cost and availability of fuel and level of preferential tariff being offered.

The renewable energy sector on the whole is suffering from inaction on the implementation of the Renewable Purchase Obligation (RPO) that requires large industries and power distribution companies to procure a set minimum percentage of their electricity from renewable energy sources.

The main reason for the lack of incremental demand in renewable energy is the poor financial health of the state-owned power distribution companies. On March 2012, these companies had a cumulative financial debt of $41 billion. The challenge that awaits Modi is the financial revival of these companies while ensuring that electricity remains affordable to the end users.

Smooth implementation of the National Wind Energy Mission and putting the National Solar Mission back on track are some of the other challenges facing the new government. The BJP, in its election manifesto, had promised to fast-track the National Solar Mission.

One may expect some creative and unique policy initiatives being implemented to boost the renewable energy sector. Modi implemented the canal-top solar power program in his state which is now planned to be replicated in other states as well.

The business community, however, remains optimistic that a change in the government will bring healthy results for the overall industrial growth and investment in the country.

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