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‘Govt need to tweak norms on renewable energy to reach target’

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.

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