Power and infrastructural projects require strong financial backing in order to reach completion and the same also applies to the ambitious renewable energy targets that India has set to achieve. Terms of the financial loans, interest rates, duration period are the few key aspects which significantly add up to the cost of production.
Even though India has more than enough wind and solar potential, the renewable energy sector still has not been able to reach its ultimate potential due to unexpected, undecided factors. Although financing of renewable energy projects didnÄ't seem to be a major hurdle initially, it has been realised as a challenge lately due to change of government policies and varied fluctuations in forex prices, adding 24-32 percent to renewable energy costs and keeping the investors away.
The issue which has been in news of late is the demand by a member of parliament to the government to incentivise states, enabling them to increase their share of 'Renewable Purchase Obligation' promoting solar and wind energy generation as well as a market-based mechanism called Renewable Energy Certificates (RECs) which so far has failed to attract investment. .
So far reduction of RPO targets to accommodate the concerns of utilities has been a common measure taken by state electricity regulatory commissions (SERC) but still almost 22 out of 29 states in India have failed to meet their Renewable Purchase Obligation (RPO) targets which lead to a loss of more than 25 percent of electricity that was expected to be generated from renewable energy sources in 2012
Nonetheless, India’s progress in the renewable energy sector has been impressive and its continuous ability to be able to sustain growth will enable a smooth market transition. Mr. Jasmeet Khurana from Bridge to India in his article in pv-magazine states that the Indian market is already in transition and is moving away from being an incentive driven market and towards a parity driven market. It is this transition that is causing states to re-consider the incentives being given to developers and is thus responsible for a lot of policy uncertainties. However, it is crucial that states now focus on the fulfilment of their existing commitments to ensure a smooth transition.