One of most asked questions in the run up to the elections has been ” Do you think a Modi Government in the centre will lead to an explosive growth in the renewable energy sector in general, and solar in particular?”. My answer was always ambivalent. Bloomberg asked RESolve this question during mid-March 2014, and our response was “While Modi could enable the speedy deployment of renewables by faster decision making, it remains unclear if he would boost the industry’s scale, given that there is a slowdown of new solar projects in Modi’s home state.”(Click here to read the Bloomberg article).
The reason for our guarded answer was that while Gujarat has been a pioneer in solar(grid connected, canal top and rooftop top) systems in India, there has been very little solar capacity additions in the state in the last 2 years and there are very few solar projects in the pipeline. (Click here for a related article from Business Standard). And there was no indication at that time that Gujarat was interested in increasing solar installations at the state level in the near future. (The petition of Gujarat Urja Vikas Nigam Limited(GUVNL) to reduce solar tariff was also something that shook the confidence of investors. Thankfully, the regulator(GERC) rejected that petition).
However, we also believed that if Modi were to become a PM, he could enable the speedy deployment of renewables to meet the existing targets. Fortunately, I had the opportunity to be part of 2 solar projects in Gujarat, and I had spent considerable time in the field. I came back very impressed by the decisiveness and the speed of decision making of GEDA, GPCL and everyone involved in the solar projects. I was also mightily impressed by the efficiency of Bureaucracy which was always on its toes. This suggested that we could expect a similar decisiveness and efficiency from PM Modi. Apart from that, as recently as February 2014, Mr. Modi highlighted the importance of Renewable Energy in the nation’s Energy Security(click here for more).
Wind is another area that instills confidence in investors. During his tenure as CM, the wind sector in the state also grew tremendously from about 637 MW in 2006-07 to 3,384 MW at the end of January 2014. That represents a more than 5 fold increase, and Gujarat’s share in the overall wind installations in India increased from 9% to 17% in the above period. Today, Gujarat is considered one of the top destinations for wind investors.
Now that the election is over, and Mr. Modi is set to become the PM, the industry is eagerly waiting to see Mr. Modi’s plans for the sector. While only Mr. Modi can tell what changes are in the offing, here are some possible possibilities that could have a positive impact on renewables.
a. Dissolving MNRE and bringing it under the unified Super “Energy Ministry” – Today’s Economic Times has an interesting article which gives an indication of how the cabinet could look like. It says that Mr. Modi is keen on a lean cabinet, with only 20 cabinet ministers. The way to do it is merge multiple ministries(many of which were created only to give ministerial berths to sulking coalition partners) and create “Super Ministries”. This makes sense for multiple reasons. At present, when it comes to energy, there is a petroleum and natural gas ministry(MoPNG), Ministry of Power(MoP) and of course the Ministry of New and Renewable Energy(MNRE). While it was often cited that India was one of the few countries to have a Ministry separately for the Renewable Energy, the relevance of a standalone ministry is debatable, especially now that Solar Energy Corporation India(SECI) has been created to execute the Jawaharlal Nehru National Solar Mission(JNNSM).
While a unified “Energy Ministry” may not be bad per se, a Minister of State who is made accountable for achieving the targets under the JNNSM and the proposed “National Wind Energy Mission”, along with other Renewable energy targets will be something that might be considered. (Click here to read the article in Economic Times about the “Super Ministries”).
b. Cabinet Minister – The choice the Minister for Energy/Power/RE will have a great impact on the progress of the sector. RESolve considers Mr. Suresh Prabhu of Shiv Sena as the most qualified, and likely Minister of Power, and will be very happy to see back as the power minister because of his track record. He has many things to his credit, some of which are highlighted below.
- He is a eminent Chartered Accountant and has rich experience as a Cabinet Minister, having been the Minister of Power in addition to heading 3 other Ministries at various points of time.
- Mr. Suresh Prabhu played a pivotal role in the electricity sector reforms, having laid the groundwork for the successful legislation of the Electricity Act of 2003. The current policy and regulatory framework for power sector reforms like Open Access, renewable energy promotion, especially the Renewable Purchase Obligations(RPO), was created as part of the Electricity Act of 2003.
- His experience in the Environment and Forests Ministry should help him take quick decisions on the fuel linkages related issues.
Interestingly, in an extensive interview with Economic Times yesterday, Mr. Suresh Prabhu talks about an integrated Ministry, revival of the Power Sector, and about Renewable Energy. He also stresses the importance of energy security, which is reproduced below. “ Narendra Modi, in my opinion, could be the first prime minister who has a clear vision on energy. Gujarat has developed the largest solar park in the world. Gujarat is also home to one of the fastest growing wind energy. Gujarat could probably be the first state trying to harness tidal energy. Modi has always been talking about energy security as a national priority.If we continue to import oil and gas and now coal, we could never be truly independent, and thus we need integrated strategy. The call of having an integrated ministry can be taken by the PM himself. ” (Read the full interview here).
Shiv Sena is likely to get 2-3 Cabinet Ministers, and it is very likely that Mr. Prabhu, who is apparently close to Mr. Modi, will be back in the Ministry of Energy/Power.
c. Focus on Renewable Energy – Prabhu’s above comment that “If we continue to import oil/gas/coal, we could never be truly independent”, could be interpreted as an increased focus on Renewable Energy. So, what are the options for the new government when it comes to Renewable Energy?
i. Increase the targets under JNNSM – The target of 20 GW by 2022 sounded ambitious in 2009, when the JNNSM was announced. But the situation is now completely different. In 2009, the capital cost was about Rs. 17-20 Crores/MW. Today, it is around Rs. 7-8 Crores/MW. Moreover, when India struggled to cross the 2 GW installed capacity in about 3 years, China installed 12 GW in 2013, more than 5 times India’s total installed solar capacity in just one year alone. Wait, the bigger news is just coming. Last week, China announced its plans to increase the solar installed capacity to 70 GW by 2017(read here). Sure, India is not China, and we have never been very good at setting aggressive targets and executing them at the pace of China. But just look at the numbers – 70 GW by 2017 by China vs 20 GW by 2022 by India. Shouldn’t we at least try to match at least half of what is China is targetting? Yesterday, Mr. Modi said that he will carry forward all the good work done by the previous government. The JNNSM will be good starting point to carry forward some of the good work done by the previous government.
ii. Renewable Purchase Obligations(RPO) – One need look no further than the RPO to find an example of how a robust, well-intentioned and well-drafted policy can be a disaster if not properly executed. While the central government cannot force the states to diligently enforce the RPO for their respective states, the central government could incentivise states that take their RPOs seriously. The PM has enough power to influence in at least the BJP ruled states to lean on them to enforce RPOs.
iii. National Wind Energy Mission(NWEM) – In January 2014, the MNRE had started consultations on the proposed National Wind Energy Mission. The Mission is of great significance, considering the fact that India has about 102 GW of Wind potential, whereas the cumulative wind installed capacity is only about 20 GW at the end of 2013. The new Minister could expedite the process of implementing the NWEM.(The presentations from the NWEM consultations can be accessed here.
iv. Off-grid Solar and Distributed Power Generation(including Rooftop PV) : Off-grid solar PV/rooftop PV was one area which started with a bang at the start of the JNNSM, but lost its mojo within a year or two. After offering 30% capital subsidy for sub-100 kW projects, MNRE stopped disbursing subsidies citing lack of funds. This was a big letdown for the industry as many System Integrators are stuck with huge losses which could have been avoided had the subsidies been disbursed on time. Many enthusiastic, capable and well meaning entreprenuers who entered the sector with new business models are now left stranded, and hoping for the best. The new minister should focus on off-grid in a major way because of two reasons – one, off-grid PV can make a big difference in the lives of the people, especially those 400 million people who do not have access to electricity. Two, off-grid and distributed power generation has the potential to create much more jobs at all levels(unskilled, semi-skilled and skilled) than a utility scale power projects.
Well, the list is longer, but we are sure that the incoming government, with its impeccable credentials in the sector knows what to do and has the capability to execute. The only question is whether Renewable Energy is high on the priority list of the new government. If it is indeed a priority, “sun” will once again rise on the sector with lot of tail”winds” to aid the growth of the sector. Watching the video of Mr. Modi at the time of the inauguration of the largest solar park gives a feeling that gives lots of hope.
PS: As a stakeholder of the sector, what would be your wishlist for the new government? We will be happy to read your views in the comments section below. ______________________________________________________________________________________________
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