According to reports, the government needs to tweak its policies on renewable energy to make wind and solar power projects cost-effective if it has to achieve the ambitious target of doubling the capacity to 55,000 mw by 2017, according to a recent survey.
A survey conducted by Climate Policy Initiative (CPI) and Indian School of Business (ISB) said renewable energy requires policy support as unsubsidised energy is 52-129 per cent more expensive than conventional power.
As per the current policy, the government provides support through a combination of state-level feed-in tariffs and federal subsidies in the form of a generation based incentive, viability gap funding, and accelerated depreciation.
“However, given the ambitious goals, but limited budgets, the cost-effectiveness of these policies becomes an important criterion for policymakers,” the report said.
CPI-ISB noted that if cost-effectiveness was the only criterion of interest, a class of debt-related federal policies that provide low-cost, long-term debt are more cost- effective.
“Our main finding is that, in the long-term, debt- related policies are more cost-effective than the existing ones. In particular, the combination of reduced cost, extended-tenor debt is the most cost-effective policy,” it said.
With a tenor extension of 10 years, for wind energy, a 5.9 per cent loan could reduce the total the sum of the central, state and tax subsidies by 78 per cent compared to the most cost-effective version of the generation based incentive of Rs 2.03 per unit.
For solar energy, for the same tenor extension, a 1.2 per cent loan could reduce total subsidies by 28 per cent compared to the most cost-effective version of the existing policy, viability gap funding, which is at 56 per cent.
Furthermore, this policy combination would allow for a high degree of subsidy-recovery of 76 per cent for wind and 49 per cent for solar.
The report however noted that though reduced-cost, extended-tenor debt is clearly attractive from a long-term perspective, in the near-term, the government may have insufficient funds to provide support solely through this policy.
“The government needs to design policies in a way to incentivise power producers along with production and take a comprehensive, long-term measure of capital efficiency to achieve renewable energy goals in the most efficient way possible,” the report said.