Renewables - Analysis and Forecast in Context to Indian Market

Renewable capacity additions was expected to hit a new high of over 10% in 2021. The acceleration was supposed to be fueled by two causes, resulting in the fastest growth since 2015. First, in markets where construction and supply chains have been interrupted, the commissioning of delayed projects. Quick government actions in key markets like the United States, India, and certain European countries have allowed developers to finish projects months after policy or auction deadlines that were originally set for the end of 2020. Second, growth was expected to continue in 2021 in some markets, including the United States, the Middle East, and Latin America, where the pre-Covid project pipeline was strong due to sustained cost reductions and policy support.

In 2022, India is predicted to be the leading contributor to the renewables boom, with yearly additions nearly tripling from 2020. Following delays caused by Covid-19, contract negotiations, and land acquisition problems, a considerable number of auctioned wind and solar PV projects are projected to become operational. Capacity expansions in the European Union are expected to increase in 2022. The majority of this is due to the completion of previously auctioned utility-scale solar PV and wind projects in France and Germany.

Member states’ plans to reach the EU’s 2030 renewable energy objective, as well as the EU recovery fund, which provides low-cost funding and grants, promote growth. Renewable energy additions in the Middle East and North Africa region, as well as in Latin America, are expected to return in 2022, owing to the commissioning of projects that were previously awarded in competitive auctions.

Renewables are set to lead the global electricity sector

Strong renewables growth is predicted after 2022, thanks to cost reductions and continued policy support. The basics of renewable energy expansion have not changed, despite the constraints posed by the Covid crisis. In most nations, solar PV and onshore wind are already the most cost-effective options to install new electricity-generating plants. Wind and solar PV plants will compete with current fossil fuel plants in nations with abundant resources and low-cost financing.

Solar power installations now provide some of the cheapest electricity ever. Renewables are expected to account for 95% of the net increase in global power capacity between now and 2025.

In 2023, total installed wind and solar PV capacity will surpass natural gas and coal 2024. Solar PV contributes for 60% of all renewable capacity expansions until 2025, with wind accounting for the remaining 30%. Annual offshore wind additions are expected to skyrocket, accounting for one-fifth of the total annual wind market by 2025, thanks to ongoing cost reductions. Offshore expansion is expanding outside Europe to new markets such as China and the United States, where there is still plenty of room for expansion. The fast expansion of variable renewables around the world necessitates more regulatory attention to guarantee that they are safely and cost-effectively incorporated into power grids.

By 2025, renewables will have surpassed coal as the world’s leading source of electricity. They’ll be supplying a third of the world’s electricity by then. Hydropower will continue to provide nearly half of all renewable energy in the world. Wind and solar PV are the second and third major sources of renewable electricity in the world, respectively.

As the cost of renewable energy continues to fall, the investment landscape and the role of policies are shifting. From less than 5% now to more than 15% by 2025, the share of renewables growth that comes from purely market-based settings – outside of regulatory programs like auctions and feed-in tariffs – triples.

Corporate power purchase agreements, plants with a larger exposure to wholesale power pricing, and other arrangements fall under this category. While rules and regulatory frameworks are vital for long-term income stability, contract prices will continue to fall due to competition. Green certificate schemes and auctions are expected to cover 60% of renewable energy. Executive

Over the next five years, worldwide capacity expansion is expected. From 2020 to 2025, major oil and gas firms are expected to invest tenfold in new renewable electricity generation.

Covid-19 disruptions cause a significant slowdown in 2020 PV deployment, but a strong rebound is expected in 2021 and 2022.

In 2020, solar PV capacity additions in India was one-third lower than in 2019. In the first half of 2020, new PV capacity installations were 70% lower than the previous three years’ average first-half increase. This reduction was caused by a combination of supply chain delays and construction slowdowns caused by Covid-19, as well as increasing macroeconomic concerns.

The poor financial health of distribution companies remains the main challenge to greater solar PV deployment

The financial viability of distribution companies were jeopardized by the Covid-19 problem (DISCOMs). Due to the financial insecurity of many DISCOMs, payments to generators are delayed, reducing the profitability of existing projects and increasing the risk level assessed by future developers and financial institutions.

One-third of energy sales in 2018 came from DISCOMs graded below B+ on a six-grade system ranging from C to A+, according to the Ministry of Power’s annual financial performance evaluations. New PV installations on networks operated by low-grade utilities will almost certainly experience more challenges than those managed by healthy DISCOMs. The UDAY scheme, which was launched in 2015 to enhance DISCOMs’ financial health, has only been partially successful, as delayed payments to generators have begun to rise again in 2018. Overall delinquent payments owing by DISCOMs increased by 28% for all electrical generators and 10% for renewable generating plants from January to June 2020.

In May 2020, India’s government announced a large-scale loan program to help generators pay off past-due debts.

Competitive auctions will continue to drive utility-scale PV growth, but challenges concerning project implementation remain

Reverse-bid auctions are the primary driver of utility-scale PV deployment. In 2020, the shift from state-level to central auctions will continue, as the latter offers higher payment security and draws more competitors. Despite the disruptions caused by Covid-19, India auctioned 8.2 GW of new PV capacity by the end of September 2020, which was higher than the same period the previous year.

Tariffs granted in 2020 was on average 4% lower than in 2019, making them among the lowest in the world. Furthermore, the government awarded a record 12 GW of PV capacity, as well as 3 GW of PV module production.

That year, new types of hybrid auctions for solar-storage systems were held, making these systems competitive with existing coal-fired generators in many jurisdictions. Low bid ceilings, on the other hand, have been a major cause of under subscription in many previous auctions. As a result, the government declared in March 2020 that future auctions will not have ceilings, allowing developers to fully reflect changes in the economy in their bids and assure long-term revenue.

Transmission grid delays and land acquisition difficulties persist despite advancements in auction design. The Indian government is working to eliminate these barriers, primarily through the Green Energy Corridor and Solar Parks programs, although more progress is required to meet aggressive national capacity targets by 2022.

Due to the disruptions caused by Covid-19, distributed PV deployment in the commercial and residential sectors is projected to decline. Distributed PV capacity additions were 58% lower in 2020 than in 2019, and not to exceed the 2019 level before 2022, as demand for installations is likely to remain depressed due to macroeconomic and employment instability.

States with higher-graded utilities are more likely to reach their rooftop PV targets because DISCOMs in better financial health are more likely to encourage rooftop PV project development. Faster rooftop PV expansion necessitates the resolution of DISCOM’s financial issues to ensure their active participation in the implementation of state net metering rules, as well as the availability of affordable financing. New business models have evolved for DISCOMs to benefit from distributed PV deployment, which is a beneficial development. In addition, demand aggregation models are being created to expedite borrowing, but the reach of such programs is still restricted.

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