Green Dreams, Grey Reality: 30 GW Faces Hurdles in India

India’s renewable energy sector, despite its rapid expansion and ambitious targets, is currently facing significant hurdles in selling nearly 30 gigawatts (GW) of green power capacity. This challenge stems from the complexities involved in finalizing agreements for power purchase and supply amidst a landscape of inconsistent tariffs and grid connectivity issues. The situation has become more pronounced as stakeholders await the implementation of uniform tariffs and improvements in grid infrastructure.

According to sources familiar with the matter, approximately 15 GW of renewable energy capacity is yet to secure power purchase agreements (PPAs). Additionally, another 14 GW is waiting for power supply agreements (PSAs) to be finalized. In the renewable energy supply chain, power developers usually enter into PPAs with power procurers such as state-run entities like the Solar Energy Corporation of India (SECI), NTPC Ltd, and SJVN Ltd.. The delay in finalizing these agreements not only affects the operational viability of these projects but also creates bottlenecks in achieving broader policy goals for renewable energy expansion in India.

The challenge is particularly pronounced for older renewable projects, especially those focused on solar energy. As reported, projects developed more than a year ago are finding it increasingly difficult to attract buyers. This situation is partly because projects that were developed recently have already managed to finalize their agreements, thereby securing their place in the market. In contrast, older projects are becoming less attractive due to a variety of factors, including declining technology costs and increasing competition from newer projects that can offer power at lower tariffs.

India’s renewable energy landscape has been evolving rapidly, with the government setting ambitious targets to expand green energy capacity. The country aims to tender up to 50 GW of renewable power projects each year until FY28. Prime Minister Narendra Modi reaffirmed this commitment on August 15, underscoring India’s intention to lead in renewable energy production globally. However, the aggressive push to expand renewable capacity has coincided with a slowdown in signing necessary agreements, creating a surplus of unsold capacity in the market.

The situation has been exacerbated by the trend of continuously falling tariffs in the renewable energy sector. Projects with lower tariffs keep entering the market, making power generated from older projects, which may have been developed at a time of higher capital costs and less favorable tariffs, increasingly unattractive to potential buyers. This creates a market paradox where, despite the surge in green power generation capacity, the demand does not match the supply at current pricing levels.

This market oversupply comes at a time when India is aggressively tendering new projects, aiming for significant annual increments in green energy capacity. According to data from JMK Research, there is a substantial amount of capacity bid out each year. However, the accumulation of unsold capacity raises questions about the sustainability of the current approach. If agreements are not finalized in a timely manner, it could deter investors and developers from participating in future tenders, potentially derailing India’s renewable energy goals.

Furthermore, regulatory and policy uncertainties, particularly regarding the implementation of uniform tariffs, continue to be a significant concern for stakeholders. While the industry has been advocating for more consistent and predictable policies, there has been little movement from the government on this front. Queries sent to the Union Ministry of New and Renewable Energy and SECI remain unanswered, reflecting a gap in communication and coordination that could further dampen investor sentiment.

On one hand, there is tremendous potential for growth, backed by government support and an increasing global focus on sustainable energy. On the other hand, market and regulatory challenges need to be addressed urgently to prevent a backlog of unsold capacity, ensure investor confidence, and align market dynamics with policy ambitions. The next few years will be crucial in determining whether India can achieve its renewable energy goals and emerge as a global leader in green energy or whether these systemic challenges will lead to a slowdown in progress.

The image added is for representation purposes only