India’s solar sector #4. Growth minus market scaffolding

We published the last of our solar stories today.
Essentially, all the hype and bombast notwithstanding, solar power sector is struggling. Take a look at the sector and you will see slowing capacity addition, developers cutting costs/restructuring/exiting, and rising M&A activity.
This needs to be understood. In part because high solar/renewable targets are a cornerstone of our government’s claims to be a leader in the global fight against climate change. And yet, the sector is slowing. The answer lies in domestic factors. For a long while, the falling costs of finance and solar equipment kept bringing down solar tariffs. We discussed this in the second part of our series. Talking to executives in the sector, however, it seemed that successive governments had been lulled into complacency given these supportive trends. One fallout? They did not design a scalable market for solar.
Here is one instance. On-Ground Solar projects are the biggest chunk of the solar sector in India. 80% of the capacity it adds in a year, however, comes from tenders by NTPC and SECI. In other words, more than demand (discoms ability to buy power) or supply (money looking to come in), the capacity of both to produce tenders drives the market.
In recent years, another factor has added itself to this dysfunction. The country’s solar policy – like many other things – has become very whimsical. In 2015, the BJP abruptly hiked the target for National Solar Mission from 20 GW to 100GW by 2022. The target for Rooftop solar rose to 40GW. But discoms were not prepared. The second link above explains why.
The outcome? They cracked down on Rooftop Solar.
Another instance, in part three, the abrupt decision to push for ‘atmanirbharta’ in solar equipment despite concerns it will result in a hike in solar tariffs.
Given this dysfunction, as described in part four, solar is not just slowing in India, it is also likely to get costlier. Coal, but naturally, will be the gainer.
It’s quite a familiar tale, isn’t it? This Sunday, I read Ian Hall’s book on Modi’s foreign policy. It talks about how the government came out with ambitious plans (make India the vishwaguru) but lacked both the intellectual depth and a concrete policy that could be implemented (in service of an inchoate objective, at that).
Solar is the same. Here too, ambitious promises, all geared to impress, were made, and then undone by the state not thinking through neither implementation (100 GW by 2022?) nor even foreseeable consequences (discoms + rooftop solar, solar atmanirbharta).
And so it goes. I am done with solar. I will refocus on Lakshadweep for a while longer, I think.

PS: These articles have also been cross-posted by The Wire.

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