India has been charging ahead in the fast-growing solar energy sector. The United Nations recently conferred the "Champions of the Earth Award" to Prime Minister Narendra Modi in recognition of India's work in promoting new areas of cooperation on environmental action and championing the International Solar Alliance (ISA).
ISA is a platform for cooperation among solar resource rich countries to reduce the cost of finance and technology, and for mobilizing more than US$1 trillion of investments by 2030.
However, despite the government's focus on developing the solar energy sector, India's regulatory and legal framework leaves a lot to be desired. Instead of supporting the solar power developers, it appears to be disincentivizing them.
Imposition of safeguard duty: The Ministry of Finance in a notification on 30 July, imposed a safeguard duty, a duty payable on import of goods that are already being manufactured in India, on "solar cells whether assembled in modules or panels" for a period of two years.
While it helps to protect the interests of the domestic module manufacturers, it dissuades developers from continuing with their projects under implementation as the additional duty increases the cost because most Indian solar power companies import their modules mainly from China and Malaysia.
Solar projects that have the tied-up power purchase agreements with a fixed tariff, determined keeping in mind the costs of the (imported) solar modules, will now become unviable because of the additional safeguard duty. It is important that the government step in and take corrective measures to protect the interests of the solar power developers at least for the projects that are under implementation.
Lack of clear regulatory policies: Apart from the new duty, there are many other grey areas from a regulatory perspective, where governments and commissions should provide some clarity.
One such area is the lack of a clear mechanism for giving grants and subsidies – either monetary or availability and trading of renewable energy certificates – to solar power developers. Currently, it takes a long time for the beneficiaries, including solar power developers, to receive any such grants and subsidies, so much so that they in fact do not even consider it while ascertaining the financial viability of solar projects.
Another critical issue faced by solar power developers pertains to the lack of a clear policy framework for net metering arrangements; and wherever there are policies, ineffective implementation by the distribution companies. The net metering arrangement, which allows customers who generate their own solar power to feed electricity they do not use back into the grid, is perceived by the distribution companies as a threat to their revenue streams and hence are either not willing to adopt, or to effectively carry out any such arrangement.
This affects the interests of solar power developers and they are not motivated to implement small-scale solar projects that require net metering. So, it is required that governments make clear and enforceable policies and make it mandatory for the distribution companies to carry it out effectively.
Furthermore, evacuation related issues such as non-availability of grids, or grids with insufficient capacity are another regulatory challenge facing power producers. There are many regions across India with great potential for solar power plants, but there is either no grid connectivity or the available sub-stations do not have sufficient capacity to evacuate the power. Due to this, open access and evacuation related approvals are not granted by distribution companies leading to huge generation, transmission and distribution related losses. It is high time that distribution and transmission network is improved in these regions.
Financing issues: It has become difficult for the solar power developers to arrange funding for undertaking solar power projects because of the sector's regulatory challenges as well as the state of India's banking industry. The government needs to act fast in addressing the issues and helping them to arrange bank funding in a competitive and easy manner.
The state governments in particular need to be acting more positively and in a faster manner to deal with these issues and address the concerns of the solar power developers. The challenges do not end there, but positive steps from governments can help the sector achieve its targets along with use of advanced technology, and international collaborations.
Originally published by India Business Law Journal .
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.