Solar energy in India is rapidly increasing capacity with the 9000 MW milestone crossed.
However, the overall power industry in India remains a mess with most state run distribution utilities still drowning in huge accumulated losses. Wind power in India has frequently faced power curtailment by utilities as they sometimes do not have money to pay these plants and sometimes due to excess power.
Given that wind(NYSEARCA:FAN) and solar (NYSEARCA:TAN) power are perishable goods and costs for these green sources is fixed, curtailing power purchases from solar and wind plants means losses for the producers. They cannot run the plants at low PLF, unlike gas and coal power plants. There is no fuel. Also coal and gas power plants have to be paid a fixed price even if no power is procured by the utilities. The power price has a fixed and variable component but solar and wind power does not have such a breakup. In case the utility stops buying power, it does not have to pay anything making them an easy and better target for power procurement curtailment.
While the central government has tried to bring pressure on the state regulators and Indian utilities to stop this practice, it has been unable to do so as of date. With the solar power expected to double this year making India the 3rd biggest market, the risk of solar power curtailment is set to grow. There has been huge investor interest in India’s renewable energy, making it one of the prime reasons for the growth of this industry. The Indian central government does not want to kill this golden goose because of the vagaries of India discoms. The government plans to introduce a fixed component in the tariff paid to green power producers. This component will have to be paid by the discoms irrespective whether they buy the power or not. This will ensure that at least the debt part of the solar plant capex is serviced and the plant does not go into default. This will also put the solar and wind power plants at par with the coal and gas power plants which receive a similar treatment from the distribution utilities.