Solar energy segment to remain a key driver for RE capacity addition, going

forward; Record capacity addition in the RE segment during FY2016 led by

wind & solar energy segments: ICRA

April 2016
Executive Summary
The renewable energy (RE) sector has witnessed a record capacity addition of 6.9 GW during FY2016, which was driven by sizeable
capacity addition in both the wind and solar energy segments. The wind and solar energy capacity addition contributed to 48% and
44% of the total RE capacity addition in FY2016. As on March 2016, installed RE based capacity stood at 42.7 GW which accounted for
14.1% of the overall installed capacity in the country, increasing from the level of 10.5% at the end of March 2010. Within the RE
segment, the wind energy segment continues to occupy a dominant share at 62.6% followed by solar energy contributing 15.8%,
bagasse co-generation and biomass segment at 11.3% and small hydro at 10.0%. The increasing share of RE capacity in the overall
installed capacity can be attributed to increasing cost competitiveness of generation from RE sources, shorter execution cycle for
wind and solar power projects as compared to conventional power projects and policy support from central and state governments to
RE sector.
The wind power capacity addition during FY2016 stood at 3300 MW, increasing by 43% over the capacity addition of 2312 MW
achieved during FY2015. This growth was led both by the IPP segment with its focus on feed-in tariff based PPAs and by the non-IPP
segment with the re-introduction of the accelerated depreciation benefit. A major portion of the wind energy capacity addition
during FY2016 was driven by new projects in the state of Madhya Pradesh (MP), given the attractive tariff (which was highest among
all the major states with large wind energy potential at Rs. 5.92 per unit) being offered in the state in the period leading up to March
31, 2016.

Contacts
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The share of solar energy capacity within the RE segment has increased considerably largely aided by sizeable capacity additions from
FY2012 onwards led by favourable policy support both by Central Government as well as at State level and improving regulatory
framework. In addition, reduction in capital costs for solar power projects resulting in improved cost competitiveness also played a
role in driving the capacity additions. The solar power capacity addition stood at 3019 MW in FY2016, reporting a significant jump of
171% as against the capacity addition of 1112 MW in FY2015, driven by capacity additions in the states of Andhra Pradesh, Madhya
Pradesh, Tamil Nadu and Telangana.
In contrast to wind and solar energy, other segments namely small hydro and biomass energy segments have not seen much capacity
addition with annual addition at a relatively paltry level of 600-650 MW. Small hydro capacity addition has stagnated mainly because
of significant execution challenges, arising out of inherent risk factors such as proneness to natural calamities, difficult terrain and
infrastructural constraints. By contrast, biomass sector has stagnated mainly because of issues pertaining to availability and pricing of
fuel (mainly agricultural residue and wood) and in some cases inadequate revision of tariffs in relation to increase in fuel costs.
With a strong focus on promotion of RE, the Government of India (GoI) in the union budget for FY2016 announced a RE capacity
target of 175 GW by the year FY2022. The revised target of 175 GW comprises of 100 GW of solar power generation capacity, 60 GW
wind power generation capacity, 10 GW biomass power generation capacity and 5 GW small hydropower generation capacity.

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 Based on the tenders already floated and proposed for award of solar projects under various State and Central Government policies so far, ICRA estimates the solar
capacity addition to increase to about 5.7 GW in FY2017 as against the 3.0 GW seen in FY2016. However, in the wind energy segment, ICRA notes that there could be a
decline in fresh capacity addition from 3.3 GW seen in FY2016 to around 2.5 GW in FY2017 because of several factors. These include: a) substantial reduction in
preferential tariff (from Rs. 5.92 per unit to Rs. 4.78 per unit) for new wind energy projects to be commissioned in MP; and b) slowdown in signing of fresh PPAs &
delays in payments by state owned utility in the state of Maharashtra. Further, the expiry of generation based incentive (50 paise per unit) on March 31, 2017 and
reduction in accelerated depreciation benefit from 80% to 40% are likely to adversely impact the wind power capacity additions from FY2018 onwards. The small hydro
segment and biomass energy segments are also unlikely to see any significant capacity growth owing to the aforementioned constraints. Overall, ICRA estimates the
capacity addition in the RE sector to increase to 8.8 GW in FY2017 as against the 6.9 GW seen during FY2016, primarily led by the higher capacity addition in the solar
segment. Further, solar power is expected to remain a key driver for RE capacity addition in the medium term. In spite of aforementioned favorable factors, transmission
challenges and counterparty credit risks affecting signing of PPAs and timely payments could pose challenges for the sector. Further with the concerns on the viability of
the competitively bid tariffs in the solar energy sector, actual solar capacity addition would hinge on timeliness in achieving the financial closure by IPPs, as well as in
signing of PPAs with the buyers, viz. the State-owned utilities.

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Renewable Energy Capacity Addition in India

45000

16.0%

Chart 1: Trends in All India Renewable Energy Capacity

40000
35000

MW

30000

12.3%
10.5%

12.5%

12.9%

13.2%

14.1% 14.0%

Chart 2: Mix of Renewable Energy in All

India Installed Capacity as on 31-03-2016

12.0%

10.6%

10.0%

1.9%

14.1%

25000
8.0%
20000

6.0%

15000

14.2%

4.0%

10000

69.8%

2.0%

5000
0

0.0%
Mar'10

Mar'11

Mar'12

Renewable Energy Capacity

Mar'13

Mar'14

Mar'15

% Share in overall generation capacity

Mar'16
Thermal

Hydro

Nuclear

Renewable

As on March 2016, installed RE based capacity stood at 42.7 GW which accounted for 14.1% of the overall installed capacity in the country, increasing from the level of
10.5% at the end of March 2010. Within the RE segment, the wind energy segment continues to occupy a dominant share at 62.6% as on March 31, 2016 followed by solar
energy contributing 15.8%, bagasse co-generation and biomass segment at 11.3% and small hydro at 10.0%. The increasing share of RE capacity in the overall installed
capacity can be attributed to increasing cost competitiveness of generation from RE sources, shorter execution cycle for wind and solar power projects as compared to
conventional power projects and policy support from central and state governments to RE sector.
The RE sector has witnessed a record capacity addition of 6.9 GW during FY2016, which was driven by sizeable capacity addition in both the wind and solar energy segments.
The wind and solar energy capacity additions contributed to 48% and 44% of the total RE capacity addition in FY2016 followed by smaller contribution from small hydro and
biomass segments. The capacity additions in the small hydro segment is impaired by the permitting risks and execution related challenges arising out of inherent risk factors
such as proneness to natural calamities, geological surprises, difficult terrain and infrastructural constraints; while in case of biomass capacity, issues pertaining to
availability and pricing of fuel (mainly agricultural residue and wood) and in some cases inadequate revision of tariffs in relation to increase in fuel costs have affected the
capacity additions.
The wind power capacity addition during FY2016 stood at 3300 MW, increasing by 43% over the capacity addition of 2312 MW achieved during FY2015. This growth was led
both by the IPP segment with its focus on feed-in tariff based PPAs and by the non-IPP segment with the re-introduction of the accelerated depreciation benefit by GoI in
the Union Budget presented in July 2014. A major portion of the wind energy capacity addition during FY2016 was driven by new projects in the state of Madhya Pradesh
(MP), given the attractive tariff (which was highest among all the major states with large wind energy potential at Rs. 5.92 per unit) being offered in the state in the period
leading up to March 31, 2016. The tariff for new wind energy projects in MP has been revised downwards from Rs. 5.92 per unit to Rs. 4.78 per unit w.e.f April 1, 2016.
The share of solar energy capacity within the RE segment has improved considerably largely aided by sizeable capacity additions from FY2012 onwards led by favourable
policy support both by Central Government as well as at State level and improving regulatory framework. In addition, reduction in capital costs for solar power projects
resulting in improved cost competitiveness also played a role in driving the capacity additions. The solar power capacity addition stood at 3019 MW in FY2016, reporting a
significant jump of 171% as against the capacity addition of 1112 MW in FY2015, driven by capacity additions in the states of Andhra Pradesh, Madhya Pradesh, Tamil Nadu
and Telangana.

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Chart 3: Trends in Annual Wind and Solar Energy Capacity Additions

3500

3300
3019

3197

Chart 4: Source wise mix of Renewable

Energy Capacity as on 31-03-2016
15.8%

3000
2350

MW

2500
2000

2084

11.3%

1699

1565

1500
906

1000

500

2312

743

947

1112

10.0%

25

0
FY2010

62.6%

FY2011

FY2012
Wind

FY2013
Solar

FY2014

FY2015

FY2016

Wind
Biomass & Bagasse
Waste to power

Small Hydro
Solar

Source: ICRA Research, Ministry of New and Renewable Energy and Central Electricity Authority

With a strong focus on promotion of RE, the GoI in the union budget for FY2016 announced a RE capacity target of 175 GW by the year FY2022. The revised target of 175
GW comprises of 100 GW of solar power generation capacity, 60 GW wind power generation capacity, 10 GW biomass power generation capacity and 5 GW small
hydropower generation capacity. In January 2016, the GoI also revised the solar renewable purchase obligation (RPO) target from 3% to 8% by FY2022 so as to be in line
with the revised solar capacity installation target of 100 GW by FY2022.
Based on the tenders floated and proposed for award of solar projects under various State and Central Government policies so far, ICRA estimates the solar capacity
addition to increase to about 5.7 GW in FY2017 as against the 3.0 GW seen in FY2016. However, in the wind energy segment, ICRA notes that there could be a decline in
fresh capacity addition from 3.3 GW seen in FY2016 to around 2.5 GW in FY2017 because of several factors. These include: a) substantial reduction in preferential tariff
(from Rs. 5.92 per unit to Rs. 4.78 per unit) for new wind energy projects to be commissioned in MP; and b) slowdown in signing of fresh PPAs & delays in payments by state
owned utility in the state of Maharashtra. This is given the fact that wind energy capacity addition in State of Maharashtra and MP together accounted for about 35-40% of
incremental capacity addition seen on all India level in last 2 year period, given the fairly attractive feed-in tariffs notified by SERCs in both the states. Further, the expiry of
generation based incentive (50 paise per unit) on March 31, 2017 and reduction in accelerated depreciation benefit from 80% to 40% are likely to adversely impact the wind
power capacity additions from FY2018 onwards. The small hydro segment and biomass energy segments are also unlikely to see any significant capacity growth owing to the
aforementioned constraints.
Overall, ICRA estimates the capacity addition in the RE sector to increase to 8.8 GW in FY2017 as against the 6.9 GW seen during FY2016, primarily led by the higher capacity
addition in the solar segment. Further, solar power is expected to remain a key driver for RE capacity addition in the medium term. In spite of aforementioned favorable
factors, transmission challenges and counterparty credit risks affecting signing of PPAs and timely payments could pose challenges for the sector. Further with the concerns
on the viability of the competitively bid tariffs in the solar energy sector, actual solar capacity addition would hinge on timeliness in achieving the financial closure by IPPs as
well as in signing of PPAs with the buyers, viz. the State-owned utilities.

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