Relief to renewable energy: MNRE declares Coronavirus force majeure

The renewable energy industry is one of the major FDI earners. (Representative image)

In a relief to upcoming renewable energy projects worth about Rs 3.5 lakh crore, the Ministry of New and Renewable Energy (MNRE) on Friday announced that “delay on account of disruption of the supply chains due to spread of coronavirus in China or any other country” would be considered as a force majeure event. This means project developers will not have to pay any penalty for missing commissioning deadlines, if they can prove their consignments were delayed by global restrictions on freight movements stemming from the pandemic.

Force majeure refers to unforeseeable circumstances that prevent someone from fulfilling a contract.

As on February 29, the installed renewable energy capacity was 86.8 gigawatt (GW). Further, an additional 35.1 GW is under various stages of implementation and 34.5 GW under different stages of bidding. Every GW requires investments of about Rs 5,000 crore. Solar capacity has gone up by more than 13 times to 34.4 GW since March 2014 and more than 80% of equipment has been imported, mostly from China, where panels are substantially cheaper.

Though gradually falling since the imposition of the safeguard duty in July 2018, China remained the largest source of solar cells in April-December FY20, with imports worth $1.2 billion. Overall, in the first nine months of FY20, solar equipment of $1.5 billion was imported. Total such imports in FY19 was $2.2 billion. The government in July 2018 had imposed a 25% safeguard duty on import of solar cells from China, Malaysia and developed countries. The duty period ends in July and currently the safeguard duty stands at 15%.

However, the sector already reeling under the impact of demand slowdown, reneging of power purchase agreements (PPAs) and irregular payment by discoms, might face another blow in the form of restricted access to funds due to the ongoing crisis. “They will find it difficult to raise capital – both debt and equity – in these challenging times due to Covid-19 pandemic,” said Debasish Mishra, leader, energy resources and industrials, Deloitte in India. “Some bids with low tariff may never get implemented.”

Solar tariffs discovered in auctions since April, 2019 have been in the range of Rs 2.5/unit and Rs 3.3/unit.

The renewable energy industry is one of the major FDI earners. From 2014 to the end of 2019, the sector attracted $6.1-billion foreign capital, when total investment in this business has been around $75 billion.

The other major challenges being faced by developers are land acquisition, evacuation infrastructure, non-conducive state policies, curtailment and unwillingness of discoms to purchase renewable energy.

Experts pointed out that many utility-scale solar projects are insulated from the coronavirus impact as their commissioning dates are linked to construction of transmission lines, which may also get delayed due to the crisis. However, for rooftop solar projects, several state timelines will expire in March and May.

“Since China is deeply entrenched into the global supply chain today, delivery of equipment is virtually impossible,” said Shravan Sampath, CEO, Oakridge Energy, a rooftop solar installer.

When asked about the impact of the coronavirus outbreak on the country’s ability to increase clean energy capacity, Union power minister RK Singh had informed the Rajya Sabha earlier in the month that “the solar industry is under no compulsion to import solar cells, modules and other equipment from China”, adding that “they are free to meet their requirements either from domestic market or alternative sources”.