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The uneasy rise of renewables

According to reports, the sustained increase in renewable capacity additions may be unsettling conventional energy businesses. But the ambitious capacity addition targets may bring along execution challenges, cautions Moody’s Investors Service.

Based on the current capacity addition targets, the ratings agency forecasts India will meet 19% of its power demand from renewable energy sources in five years, by fiscal year 2022 (FY22). Fuel-wise, the share of solar in total installed generation capacity is projected to rise from 4% now to 18% by FY22. While coal-based energy is expected to play a diminished role, the share of wind energy is estimated to rise 13%.

Strong capacity additions can face headwinds if they are not accompanied by grid strengthening measures and financial improvement at the procurers’ end.

As a Moody’s report points out, the overall policy framework for renewable energy is still evolving. States’ adherence to renewable purchase obligation has been low till now. While payments are frequently delayed and some states are backing down on power offtake, the challenge, as the report points out, is the timely development of the transmission network.

If the transmission system is not developed in time, it can curtail offtake of generated power, affecting the financial performance of these projects. “The curtailment is one of the key risks for renewable projects globally, especially in countries that are growing their renewable portfolio very rapidly—for example in China, the average curtailment for wind projects was 17% in 2016, compared with 8% in 2014,” adds the Moody’s report. “Similarly for solar projects in China, the average utilization hours fell by 67 hours to 1,133 hours in 2015.”

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