Context: According to the International Energy Agency’s (IEA) new report - Renewables 2020 - Analysis and forecast to 2025, India may contribute the most towards pushing the renewable energy sector up in 2021.  

More on the news:

  • The report described the impact of COVID-19 on renewables in the electricity, heat and transport sectors.
  • The agency expects India to double its green energy capacity addition next year from 2020 levels. 
  • Many auctioned wind and solar photovoltaic (PV) projects are expected to become operational following delays due to COVID-19 and challenges in negotiating contracts and acquiring land.

Findings of the report:

  • Optimistic outlook: 
    • Although global energy demand is set to decline 5 per cent, renewable electricity generation will grow 7 percent. 
    • This is due to long-term contracts, priority access to the grid and continuous installation of new plants.
  • Growth on track: Renewable capacity additions are on track for a record expansion of nearly 10 percent in 2021. This will be due to commissioning of delayed projects where construction and supply chains were disrupted.
  • Key markets: Comprising the United States, India and some European countries have permitted deadlines to be extended for auctions and policies and robust pre-COVID-19 project pipeline ensure continued momentum.
  • Unresolved crisis: Decline in global renewable capacity addition in 2022 due to the ensuing policy uncertainties, ongoing financial struggles of distribution utilities in India.
  • India’s wind and solar market:
    • Wind capacity additions: Are expected to drop 60 percent in 2020 as compared to 2019. 
    • Solar PV capacity additions: In the first half of 2020, new PV capacity installations were 70 percent below average first-half growth of the previous three years.
      • This is due to COVID-19-related supply chain disruptions and construction slowdowns, as well as increased macroeconomic risks.
  • Distribution utility woes: The report highlighted the difficulties to India’s distribution utilities as COVID-19 deteriorated their financial viability.
    • Although policies to improve utilities’ financial health through the Union government’s Ujjwal DISCOM Assurance Yojana (introduced in 2015), it has only been partially successful.
    • New renewable energy plants managed by utilities with low credit rating would likely face greater obstacles than those overseen by healthier utilities.

Innovative approach adopted by India:

  • Reverse-bid auction: The switch from state-level to central reverse-bid auction is a move that provides more payment security and attracts more competition.
  • Wind-solar-storage hybrid auctions: Also make renewables more competitive. 
  • Green Energy Corridor and solar parks: To address the issues of transmission grid bottlenecks and land acquisition.

Way forward for India:

  • Help distribution utilities: To find a sustainable solution to their financial challenges to reduce off-taker risks. 
  • Introduce comprehensive, transparent and investor-friendly rules: For signing private power purchase agreements and open grid access that could spur higher investment independent from the auction system.

The International Energy Agency (IEA):

  • It is a Paris based autonomous intergovernmental organisation established in the framework of the Organisation for Economic Co-operation and Development (OECD) in 1974 in the wake of the 1973 oil crisis. 
  • The IEA acts as a policy adviser to its member states, but also works with non-member countries, especially China, India, and Russia. 
  • The Agency's mandate has broadened to focus on the "3Es" of effectual energy policy: energy security, economic development, and environmental protection. 
  • IEA member countries are required to maintain total oil stock levels equivalent to at least 90 days of the previous year's net imports.