Evolving Financial Performance Expectations & Power Procurement Mechanisms In India
The Indian utility-scale RE sector was characterised by contrasting fortunes in 2020 and the first half (H1) of 2021. Interest to invest remained robust even amid the COVID-19 disruption with solar PV and hybrid solar-wind capacity awarded rising 35% year-over-year to 21 GW in 2020. However, capacity awarded plummeted to 2.6 GW in H1 2021 as a backlog of unsigned power sales agreements (PSAs) held up the tendering of new capacity. In parallel, the awards of new wind capacity came to a standstill in 2020 and remained sluggish in H1 2021 amid subdued tendering activity. The RE sector has witnessed considerable innovation in tender design, largely geared towards easing the integration of variable renewable power. The sector also saw increased participation from central public sector undertakings (CPSUs) as well as new international independent power producers (IPPs) which drove solar tariffs fell to a record low of INR 1.99/kWh even amid considerable volatility in commodity prices.
These developments have intensified the scrutiny on the returns associated with the Indian RE sector. To shed light on these matters, the Clean Energy Investment Trends 2021 report analyses project-level equity returns expectations associated with plain vanilla assets over the period July 2020 – June 2021 as well those corresponding to select hybrid projects. It endeavours to contextualise these returns expectations by comparing them with those in other geographies and examines their sensitivities to solar photovoltaic (PV) module prices, which are now subject to increased volatility. The report also examines land-related challenges inhibiting the utility-scale RE sector and offers updates on debt financing and other key market trends.