Energetica India 89 - May 2020

RENEWABLE ENERGY energetica INDIA- May_2020 53 Sectorial support in the medium term Considering the foreseen downfall of the economy, both fiscal and monetary stimuli are anticipated in the coming months with an increase in government expenditure (and hence govern - ment borrowings) to boost the economic growth. This would likely reduce the pool available to be lent or invested in other businesses/projects, including in the RE sector. As a result, project developers might witness the cost of capital, which typically accounts for more than half of the bid tariff, going up. Swift recovery of the economy and ensuring sustained devel - opment of the RE sector are essential for generating employ- ment and meeting long term climate commitments. The gov - ernment could consider setting up a fund to provide low-cost finance to greenfield projects and act as a payment guarantee from the discoms.The CEEW Centre for Energy Finance rec- ommends several financial interventions such as the issuance of tax-free bonds, interest subvention, and subsidising the cost of credit enhancement to projects. There are consider - able funds available for such government-driven interventions. For instance, according to a joint study by the International Institute of Sustainable Development (IISD) andthe Council on Energy, Environment and Water (CEEW), coal subsidies by the government are estimated to be to the tune of Rs. 15,500 crores for FY-19. Diversion of such subsidies would help the Indian RE sector ride through the tide of uncertainty and prog- ress towards meeting national commitments. This will either reduce the cost of projects and/or reduce exposure to risks associated with payment delays. This epidemic has again brought to light India’s dependence on China for critical components. Imports from China have been rising continuously over the last five years. Export-Import data bank by the Ministry of Commerce and Industry shows that India imported cells and modules from China worth ~INR 12,000 crores in FY 18-19, which was 78 per cent of the total import value of cells and modules. The Indian currency has depreciated by ~10 per cent, over the last year, and is feared to deteriorate further on account of foreign capital outflow. Such heavy reliance on imports, especially from China, could have long-term implications on energy security, trade deficits, and employment generation.It is therefore imperative that for the long run, boosting domestic manufacturing, diversifying import portfolios, promoting research and development and deploying strategic reserves for key components and resourc - es should bekey points on the agenda of policymakers. The government’s response to address the issues related to supply chain disruptions, RE curtailment and cash-flow crunches has been timely. However, the current situation should also be viewed asan opportunity for course correction to bring about structural changes involving financing, manu - facturing, and contract enforcement in the RE sector.Going for - ward, this will pave the way for a smoother and more effective energy transition.