India Inc needs an incentive framework to go green

When you develop renewable technologies on one side changes are bound to take place on the other side, we have to gear up as a country. Corporates should be incentivised in the initial phase to take the next leap forward in RE, says Somesh Kumar, Partner & Leader - Power, EY. Edited excerpts.


ET Now: We have seen in the solar energy wave that solar energy prices initially were very high. Over the time, prices came down. How different this time could be this entire clean energy investment cycle, because in the past every time somebody has attempted to do something in wind or solar, they have not reached too much of success?
Somesh Kumar: Yes, you are right in the past and couple of years back, the solar prices used to be very high in the range of Rs 15-20 a unit and now they have come down significantly close to Rs 2 or even less than Rs 2 in certain cases. So, there is a drastic drop --which has happened which is definitely good for the economy. Earlier, as and when the technologies are new and not matured the prices and the costs are high. Over a period, the solar industry matured and the costs of modules, panels fell sharply which is the primary reason for the prices coming down. Of course, the financing was also available at much more attractive rates. So, this is something which is here to stay and something which will go away. We are seeing prices coming down for solar and even other industries around the whole world.



Wind has not seen such a sharp fall. It has also come down but not so sharply as solar has come down in last 10 years or so. But, this is definitely here to stay and good for the industry. The projects that we are seeing-- which were bid at fairly low rates, are now at different stages of execution. Some of them are seeking regulatory approvals. Some of them are under construction already. Some are going to be completed soon.

So, this is something that we are going to see coming up much more in future and we are fairly optimistic about this scenario of decreasing costs and prices and similar trend will happen in other clean energy sources with huge investments coming in, whether it is battery storage or hydrogen fuel cells, etc. The whole ecosystem will follow this trend with increasing supplies and at scale which is happening, technology will show downward trend in terms of costs and then get reflected in prices.


ET Now: There is also this resistance to change, will India Inc have to be incentivised to go green to take the next leap forward?
Somesh Kumar: Yes, we saw a regime where huge incentives used to be offered in the form of subsidies, tariffs, in terms of renewable purchase obligations but over the years we have seen that the incentives which were offered to corporates to come into this sector have been going down and we have left it to the market to sort of evolve. Still, we see certain incentives which are applicable in certain sunrise sectors, particularly electric vehicles or batteries as there is a PLI scheme of Rs 18,000 crores for batteries. In the sectors which have not yet matured fully, where costs are still higher than what is viable and what will work in the market--- some bit of investments or incentives will definitely be needed for a certain period of time.

As the technologies mature and costs become rational, the incentives automatically go out and incentive framework will automatically reduce. The incentive framework will not continue forever, that is something we should keep in mind other than the tax incentives that we see on power itself, on manufacturing, the other incentives will definitely be lowered. Some bit of incentive frameworks are necessary in the initial period when the stimulus or the fillip has to be provided to the industry to catch up. So yes, initially there will be yes to corporates and then going forward they will be tapered down.

ET Now: Many companies actually have aggressive RE expansion plans and if all do come on time--is there a possibility that the market will be over supplied, has there been any study on this to understand the implications and what will happen to coal based plants as well, if RE does get integrated with that storage capacity?
Somesh Kumar: We have not seen an instance of oversupply in the market at least in these areas as of now. We are still dependent on imports to a large extent even for solar modules and battery projects are still far and few, there is no situation of oversupply in the market yet. I do not foresee oversupply happening in the market in the near future as well. We may look at--India becoming a hub for even exports, we will look at exporting batteries and other fuel cell but I do not think in the domestic market-- we will see a large amount of oversupply of these equipments.

For your second question in terms of the coal assets, yes, we have seen that some of the coal assets have shown a decline in terms of their PLFs, they have been because of renewable coming in, they have not been utilised to the extent they were set up. The intention is to phase out coal projects obviously, we are not seeing any more new coal projects being announced. So, one thought is to sort of look at re-purposing coal assets also, how we can utilise the existing coal assets going forward for other purposes. All these things will now catch attention, they are already growing in terms of debate and various stakeholders are already thinking on the lines of what to do with fossil fuel based investments which have already been made.

When you develop renewable technologies on one side these changes are bound to take place on the other side, we have to gear up as a country, as an economy to face these things. I think the debate is there, people are already thinking about it so we will come to a resolution of what to do to optimise our coal assets--where all the stakeholders are at par and no one is sort of at loss for the investments made.