In the month of August, many deals and decisions were made in the energy sector by the Ministry of Power despite the impacts of the pandemic and the ensuing lockdown on the power sector. The government is continuously pushing large renewable energy projects of solar, wind, and hydro. The investors are investing in the Indian energy sector.
The nation is struggling with pandemic and the hurriedly imposed lockdown. Therefore, the economic activities were shut down, and subsequently, power consumption was low during this period. The power sector’s financial condition was not stable or looking bright even before the lockdown in the generation sector and discoms. But, the lockdown has further exacerbated the liquidity of the power sector especially discoms. Therefore, the government is infusing liquidity. It seems to a more bailout for the independent power producer rather improving the quality of power supply. On 19th August, the cabinet committee on the economic affairs, chaired by Prime Minister approved the one-time relaxation to PFC and REC for extending loans to distribution companies (DISCOMS) above a limit of the working capital cap of 25% of last year’s revenues under Ujwal Discom Assurance Yojana.
India’s coal imports have fallen because of the shutting down of economic activities during the lockdown. On the other side, the country has announced commercial mining auctions of 41 coal blocks. India’s coal import has also fallen to 43.2 percent to 11.13 million tonnes (MT) in July this year. Last year in 2019, the country had imported 19.61 MT of coal, however, the non-coking coal imports stood at 38.84 MT from April-July 2020, as compared to 60.97 MT imported in the corresponding period last year. During the same period, total coal imports were recorded at 57.27 MT, which is 35.76 percent lower than 89.15 MT imported during the last year of 2019.
In the hydropower sector, an Indian state-owned company Satluj Jal-Vidhyut Nigam is going to construct SJVN Arun-III Power Development Company (SAPDC) on a build-own-operate and transfer (BOOT) basis in Nepal. The SJVN and government of Nepal had signed a Memorandum of Understanding for the project in March 2008. The company is investing approximately 11,000 crore Nepali rupees in Nepal over the next five years. Nabil Bank, which is one of the lenders for the project from the Nepali side, signed a pact with India’s SJVN, setting a record of the largest ever foreign direct investment to the Himalayan nation. The project is financed by five Indian banks including, State Bank of India, Punjab National Bank, Axim Bank, and UBI worth 8598 crore Nepali rupees. Apart from this, two Nepali Banks Everest Bank and Nabil Bank also agreed to lend 1536 crore in Nepali rupees. Nepal will get 21.9 percent out of 900 MW electricity produced in a year for free.
In the renewable energy sector, a Spanish wind company has signed a MoU with Adani Green Energy to supply 473 megawatts wind turbines for Adani’s Fatehgarh, Rajasthan project. The project is expected to be commissioned by September 2021. This is one of the largest orders on record for the Spanish firm in India. With this order, the existing contracted capacity of the Siemens Gamesa–Adani partnership has now reached about 860 MW. The company had earlier signed for a total capacity of 391.2MW with Adani of which 87.6 MW has already been commissioned in Fatehgarh Rajasthan.
In the solar sector, Gujarat Urja Vikas Nigam (GUVNL) has opened up a tender for 700 MW Dholera Solar Park in Gujarat. Tata Power and Vena Energy, each won 100 MW, are the lowest bidders for Solar Park, both have quoted tariffs to the tune of Rs2.68 per kWh. This is phase IX of Dholera Solar Park for grid-connected solar on a build-own-operate model. GUVNL agreed for a maximum tariff of Rs2.92 for the 25-year PPAs. So there are five companies that are sharing this project. Apart from Tata and Vena Energy, there are three more companies including ReNew Power won 200MW at a tariff of Rs2.79, SVJN won 100MW at a tariff of Rs2.80 and TEQ Power took 200MW at a tariff of Rs2.81.
Similarly, NTPC is also developing a solar park with a capacity of 750MW in Ananthapuramu Districts of Andhra Pradesh. The tender of the project won by three developers. The Ayana Renewables power private Ltd (ARPPL) is one of them that has won 250 MW at a tariff rate of Rs.2.73. A financial institution is evaluating the solar energy project company to provide a non-sovereign loan as part of a 750MW solar park in India. Ayana Renewable Ananthapuramu solar park Ltd. (AASPL) is a special purpose vehicle (SPV) for the 250 MW solar energy project in AP. The estimated cost of the project is $151.5 million targets a 75:25 debt-to-equity ratio. The project is about to complete its financial closure soon. The project is looking for a total term loan of $113.6 million. AIIB will approve $50 million by the third quarter of 2020 and SBI is also financing $63.6 million. ARPPL is putting in total equity of $37.9 million in the project. Green Growth Equity Fund (GGEF) and NIIF have shares of 25.5% each and the CDC Group has 49% share in the project company. The SPV signed a 25-year PPA with NTPC at a tariff rate of Rs2.73 per kWh. NTPC also signed a 25-year agreement with Discoms Company of Andhra Pradesh to sell the electricity generated by the solar park. Other developers are SBG Cleantech won 250MW at a tariff rate of Rs2.73, and Spring Energy won 250MW at a rate of Rs2.72.
Further in the protest against the draft Electricity (Amendment) Bill 2020 and the privatisation of state-owned distribution companies, about 1.5 million power sector employees of India held nationwide protests on 18th August, demanding the withdrawal of bill 2020 and opposing the privatization of state-owned discoms. The protest was called by the National Coordination Committee of Electricity Employees and Engineers (NCCOEEEE) and All India Power Engineers Federation (AIPEF). The chairman of AIPEF Shailendra Dubey mentioned that after the forceful opposition by the 11 state governments and two Union Territories (UTs) in power ministers’ conference on July 3rd, 2020, union power minister has committed to modify the draft of the Electricity (Amendment) Bill 2020. But even after more than 45 days, the Centre is yet to place the modified draft in the public domain. Instead, it is proceeding with its plan to privatize discoms in union territories mainly Pondicherry, Chandigarh, and J&K and Ladakh.
Further, the government of India is privatising the state-owned power distribution companies, despite that India’s state-owned power generator company, NTPC is entering into the business of renewable energy and power distribution sector. The concurrence has obtained from NITI Aayog and DIPAM, Ministry of Finance for the formation of a wholly-owned subsidiary for NTPC Renewable Energy Business. It is targeting to generate nearly 39 GW of its overall power capacity from renewable energy sources by 2032.
India’s target to achieve 100GW of solar power by the year 2022 is way behind the schedule due to the pandemic. According to Mercom India’s research, the country has only 36.8 GW installed capacity as of March 2020 and another 36.9 GW in the pipeline. The research firm further estimated that, due to the pandemic, the country will only install 5GW this year. Despite that, the government is imposing import duties on solar modules up to 25% and 15% tariff on cells from China and Chinese controlled companies under the Atmanirbhar Bharat strategy. India is heavily dependent on Chinese imports for solar equipment. Hence, the imposing duty on renewable energy’s equipment will further delay the target.
A Germany based Deutsche Bank has tightened its ‘Fossil Fuels Policy,’ for a stricter framework to deal with coal, oil, and gas business activities. The bank will end its global coal mining business by 2025 as a move to facilitate the transformation to a sustainable economy. The new policy contains new guidelines that dictate how the bank will deal with energy companies that are more than 50% dependent on coal. The bank will offer to finance companies in the future if they provide relevant diversification plans. Earlier, the bank had set itself a target of lowering its loan exposures to coal-fired projects by 20%, and that goal has been achieved by the end of 2019.
India’s energy sector is the backbone of the Indian economy and the key sector for the Indian government. The pandemic has impacted across sectors in India. It will take a long period to recover. India’s energy consumptions dropped significantly due to the shutting down of economic activities during the lockdown. Even renewable energy projects and targets were delayed. The pandemic has further deepened the financial crisis in the energy sector. However, the pandemic crisis does not stop investors from investing in the Indian energy sector, especially hydro and solar projects.