SUBJECT :Energy 

India's green energy goals are in line with the UN climate change pact, but the country may not meet its target of having 100 gigawatts (GW) of renewable energy capacity by 2022 as long term investment to the sector may dry up as aggressive bids threaten the profitability of projects, said Sumant Sinha, founder of ReNew Power.

India's renewable energy target for 2022 hinges on capacity addition in the solar sector, which has witnessed record capacity addition in the past two years. The tariff bid for new projects has fallen to unprecedented levels with some projects being bagged at Rs 4.63 a unit from bids that ranged between Rs 12.76 only till five 10.95 and years back.

"This was the first time that India went with an open mind without a defensive posture to the climate change meet in Paris because the targets were not being imposed on us but were the target which we were anyway trying to achieve internally," he said.

"Indian government is well intentioned but there will be bumps along the way.If we don't manage to source long term funding, we may only achieve 70-80GW and miss the 100GW target," Sinha said.

The UN climate change conference in Paris concluded with countries agreeing to a global temperature increase cap at 2 degrees Celsius of the pre-industrial level, which means 4070 per cent emission reduction by 2050 from 2010 levels. Nations committed to balance greenhouse gas emissions with reforestation and planting of trees.

"The challenge is that we are trying to add the same capacity in renewable energy in seven years that was added in conventional energy over several decades. There are physical challenges in that. But the bigger problem is that we need $50-60 billion of equity investment which will come only if the returns are attractive," he said.

At bids below Rs 5 a unit, projects would have an internal rate of return of 10 per cent, which will be exposed to forex risk and other cost overruns.Sinha's company too bid be Rs 5 a unit, which in retrospect, he feels was "aggressive". Bids could settle at Rs 5-5.25 a unit, going ahead. Sinha echoes concerns of some other industry players that if in vestors burn their fingers in solar projects, it will freeze future fund flows to the sector.

ReNew Power has raised a total equity funding of $655 million from investors such as Goldman Sachs, Abu Dhabi Investment Authority, Asian Development Bank, and Global Environment Fund.

Under the climate Under the climate change accord, nations will have to increase the $100 billion spend a year that they had previously agreed to provide beginning 2020. While there is a lot of ambiguity around how this fund would work, it could be of big help for a country like India. "We don't know the modalities of the fund yet, but given our carbon emission, it would be safe to say 20-30 per cent of this should come to India," Sinha explained.

He said that besides the in vestment on the capacity addition, the country needs to invest and develop supporting infrastructure like transmission and distribution for evacuating power from solar power projects.

Source: December 21, 2015, The Economic Timne