New investments in clean energy in India dropped 20% last year as a result of cancelled auctions and renegotiated power contracts. Energy analyst Ankit Mishra spoke to experts to find out what went wrong and how India can be put back on track. India’s push to electrify all new vehicles by 2030 will also require strong action from the government if it is to succeed.
In November 2017, Bloomberg’s Accelerating India’s Clean Energy Transition report showed that the country added renewable energy plants with a total capacity of 12 GW during FY 2017 (April 2016 to March 2017)—a 66% year-to-year growth rate, led by rooftop photovoltaic (PV), which clocked in at a four-year compound annual growth rate of 117%.
A mixed year
Another study by Mercom Capital Group, a US-based research and consulting firm, also highlighted strong growth in the solar energy sector. Last year, solar power accounted for 39%—over 7,100 megawatts (MW) in additional capacity —to India’s electricity grid. This increase in solar power capacity followed the Indian government’s push for renewable energy, with a target of installing 175 GW of renewable energy (including 100 GW from solar sources) by 2022.
New investments in clean energy dropped by 20% as a result of a number of cancelled auctions and renegotiated power contracts
Despite the growth in renewable energy, India had a mixed year in 2017, with the additional capacity falling 3,000 MW short of the annual target set by the Ministry of New and Renewable Energy. In addition, new investments in clean energy dropped by 20% as a result of a number of cancelled auctions and renegotiated power contracts.
At Cleantech Forum San Francisco 2018, I interviewed Karthik Chandrasekar, Partner at Sangam Ventures, an early-stage venture fund that invests in sustainable energy and resource productivity solutions. He said that project failures in the renewable energy sector last year were largely caused by poor bids and cost overruns.
“Poor bids and cost overruns were especially due to delays in procurement of necessary land, permits, and mismanagement of funds, and are the major reasons for projects failures,” according to Chandrasekar. To resolve the matter, he suggested that the Indian government should change the auction process by setting a cap on the lowest price and allowing more developers to undertake projects.
For developers, auctions have resulted in risks of project delays, possible cancellations, and difficulties in sourcing technologies and financing
If this were done, bidders would be less likely to expose themselves to project risks and reduced profit margins across the supply chain. “The auction process can be changed by setting a cap on the lowest price and letting more developers take up projects, thereby reducing the risk of extreme dependency on the lowest bidder. This way, India can scale up installations rapidly while accounting for project risks,” he said.
According to Climate Policy Initiative (CPI), India may be an example of the “winner’s curse” phenomenon under auctioning schemes. This “winner’s curse” can partly explain the very low bids, but strategic first-mover behavior might have also been a cause. Nevertheless, the current system in India has introduced problems when used for concentrated solar power. Namely, for developers, auctions have resulted in risks of project delays, possible cancellations, and difficulties in sourcing technologies and financing.
Dr. Gireesh Shrimali, Director of CPI’s India program, also attended the San Francisco conference. He said that improving India’s auction process by imposing stricter qualification requirements for bidders and setting realistic timelines can substantially increase the likelihood of project completion.
Future bidding rounds could benefit from incentivizing bidders to use energy storage as costs are expected to decline in the future
“Our conversations with stakeholders identify potential improvements including stricter qualification requirements for bidders, setting more realistic timelines for bidding, making better solar irradiation data available, allowing sufficient time for construction, and then enforcing penalties more strongly for delayed projects,” he said.
Under India’s National Solar Mission (NSM) program, the government intends to support solar PV power plants with storage systems. Dr. Shrimali added that future bidding rounds could benefit from incentivizing bidders to use energy storage as costs are expected to decline in the future.
“Furthermore, in order to promote learning and future cost reductions in energy storage, future bidding rounds may need to provide incentives or separate windows for plants using energy storage, which are planned under Phase II of the NSM,” Dr. Shrimali suggested.
Lack of raw materials
The development of electric vehicles (EVs) is quickly becoming a key priority for the Indian government. Led by economic and environmental needs, Power Minister Piyush Goyal stated in 2016 that India plans to become a “100 percent electric vehicle nation by 2030.” The push to electrify all new vehicles by 2030 is compelling auto manufacturers and carmakers to develop plans for electrification and address the high cost of batteries, which are still not manufactured in India.
In November 2017, the Rocky Mountain Institute and the Federation of Indian Chambers of Commerce (FICCI) published a report arguing that the government will have to make provisions for increased battery manufacturing at low costs to attain all-electric cars by 2030. A key cost constraint in manufacturing lithium-ion battery lies in India’s low reserves of cobalt and lithium, minerals which are primarily found in Chile, Argentina, Bolivia, China, the Democratic Republic of the Congo, and the United States (Nevada).
A shortage of these materials combined with a lack of manufacturing facilities has resulted in companies being heavily dependent on the import of Li-ion cells from China and making battery packs in India.
“It will not be easy for Indian companies to compete with global battery manufacturers. They lack key ingredients such as technology, production scale, raw materials, access to customers, cost of capital, and so on”
I interviewed Praveen Sahay, Partner at Wave Equity Partners, a venture capital and private equity firm specializing in clean energy, food and wastewater industries, regarding the feasibility of manufacturing lithium-ion batteries in India. He said that a lack of minerals is a significant problem for India. Unlike China, which confronted the supply constraint by prioritizing energy storage and EV industries, Indian companies often lack access to both key inputs and the latest technologies to make batteries more efficient, cheaper, and safer.
“The Chinese government confronted the issue early by prioritizing the energy storage and EV industries as high national priorities and laying down strong incentives and mandates. As companies grew bigger, they secured mining rights and supply contracts with key producers around the world. It will not be easy for Indian companies to compete with global battery manufacturers. They lack key ingredients such as technology, production scale, raw materials, access to customers, cost of capital, and so on,” Sahay said.
Despite the challenges, Sahay remains optimistic about India’s chances to become a battery manufacturing center. He views battery technology to be rapidly evolving, which could provide an opportunity for the Indian industry if they develop a viable alternative to the lithium battery.
India has only a handful of charging stations—primarily alternating current chargers that take up to eight hours to fully charge electric sedans like the eVerito
“The good news is that it is a rapidly evolving industry. I expect that we will see the emergence of new battery chemistries in the next 5–7 years that will offer commercially viable and superior alternatives to lithium-ion chemistry. If Indian industry leaders keep abreast of those technology developments, perhaps by partnering with leading venture capitalists, they can jump in at an opportune time,” he recommended.
Improving charging infrastructure
For India to achieve its objectives by 2030, the Indian government also needs to provide clarity on a number of issues involving infrastructure for electric cars. For instance, India has only a handful of charging stations—primarily alternating current chargers that take up to eight hours to fully charge electric sedans like the eVerito.
In recent months, the government has taken steps to increase the number of charging stations by amending the Electricity Act 2003. Previously, the Electricity Act only allowed for Indian power distribution companies to sell electricity. Aniruddha Kumar, joint secretary at the Ministry of Power, recently said that they would loosen these regulations and allow for more players to participate in the market. “Sale of electricity is a licensed activity. We have taken an in-principle decision that this will be considered a service,” Kumar said at a recent event in New Delhi.
Besides increasing the number of stations, charging time and range anxiety remain big obstacles. Reuters recently reported how Ola, a popular Indian ride-sharing service, faced serious challenges conducting an EV pilot in the city of Nagpur. One of the pilot’s stations was closed due to traffic jams caused by EV drivers’ lining up and waiting to charge.
I interviewed Akhil Aryan, Founder of ION Energy, an energy storage startup based in India that is developing battery-swapping technology, about facilitating the development of recharging stations. Aryan recommended prioritizing the electrification of small & mid-size vehicles and incentivizing pilots that can address charging times and range anxiety. India is the world’s largest three-wheeler market (3W) and recently overtook China as the world’s largest two-wheeler market with close to 18 million unit sales in FY2018.
“One gets the sense that Chinese officials are held strongly accountable, and they make genuine efforts to attract, retain, and support the best technologies and entrepreneurs from the world. Similar accountability standards could ultimately help India”
“Consumers will not readily switch to EVs unless they are given an experience equal or superior to what they already have. Portable batteries and battery-swap stations solve the problems of long charging times and are readily implementable models for vehicles like scooters with small batteries,” Aryan said.
These models of portable batteries and battery swap stations, as suggested by Aryan, can offer additional benefits by doubling as mobile power sources and islands of energy storage. This, in turn, could help India’s National Energy Storage Mission and integration of intermittent renewable sources onto the grid.
But perhaps the most important hurdle for India lies in the speed and efficiency of execution. According to Sahay, China has been very efficient in managing manufacturing plant operations with officials being held accountable to implement policies and goals.
“One of our portfolio companies has built battery-related manufacturing plants in China. We are impressed with the speed and efficiency of execution. One gets the sense that the Chinese officials are held strongly accountable, and they make genuine efforts to attract, retain, and support the best technologies and entrepreneurs from the world,” Sahay highlighted. He added that similar accountability standards could ultimately help India.
“If the central government can lay down similar rules and policies as China, then India would benefit from operational execution to scale the usage of electric vehicles,” he said.
Ankit Mishra is a senior growth analyst at Premise Data, where he manages network operations in Africa. He previously worked for the government of Ontario as an economist, analyzing the impact of the TransCanada Energy East Pipeline on Ontario’s economy, natural gas supply and environment. Prior to that, he worked at the OECD’s Economics Department, conducting research on India’s power sector for the OECD’s Economic Survey of India 2014.