India will stop announcing annual clean energy tender targets, and this will be a big change in the strategy of procuring renewable energy in the country. The action is timed when policymakers re-examine the realities of the market, especially the increasing disparity in project approvals and real power offtake. The emphasis is shifting away from volume-driven targets to instead a demand-driven development.
The 43 GW renewable capacity has demand disparity
The policy change has mainly been fuelled by the fact that there is a backlog of close to 43 GW of renewable energy projects that are already approved or have been awarded but still have not been sold. These initiatives—solar, wind, and hybrid—have failed to get long-term power purchase agreements (PPAs).
Consequently, some of the ventures end up stagnating even after having received regulatory approvals and, in others, land and grid connections.
Move into market-led procurement
The government will eliminate the need to announce tenders annually to synchronize additions to renewable capacity with the real demand for electricity.
In the future, developers will have to obtain buyers, i.e., distribution companies, commercial consumers, or industrial off-takers, prior to working on new tenders. The change will probably minimize speculative bids and will raise no more stranded renewable assets.
Implication on Developers and Investors
The new approach poses both challenges and discipline to the developers of renewable energy. Although this expansion in terms of aggressive capacity via large central tenders might decelerate, firms with robust offtake schemes and a corporate PPA pipeline will probably gain.
In the meantime, the policy can be considered a stabilizing measure by investors, who will reduce the probability of oversupply and enhance long-term project bankability.
India has implications in terms of energy transition
Notably, the change in policy does not portend a withdrawal of the clean energy goals of India. Rather, it is a more disciplined, sustainable model of growth of renewables.
India is still determined to increase non-fossil fuel capacity and achieve its climate goals, but with an added focus on grid stability, financial soundness of discoms, and actual consumption growth.
Renewable Market More Balanced in the Future
Quite generally, termination of annual clean energy tender goals is a strategic recalibration and not a deceleration.
India is winning to establish a healthier renewable energy ecosystem, a system that favors the developers, guards the purchasers, and guarantees both long-term energy security and renewable growth.
