Supply chain stability helps; infrastructure availability and storage costs the main influencers this fiscal
India’s renewable energy sector has seen remarkable growth, driven by the government’s ambitious net-zero target, supportive policies and declining technology costs. Also, increased competition is driving down the cost of setting up renewable projects.
Within the renewable landscape, players as well as offtakers are weighing the benefits and prospects of pure-play vs hybrid, which combine solar, wind and storage elements. A quick back-of-the-envelope analysis of tariffs reveals that solar is preferred to wind, though hybrid is the clear winner because of better generation and round-the-clock power availability.
Solar tariffs increased from Rs 1.99/kWh in December 2020 to an average of Rs 2.61/kWh in the first half of 2024. Initially driven down by acute competition, tariffs rose because of market volatility following the onset of Covid-19, changes in regulatory policy and higher module prices in 2021 and 2022. Also, in the case of wind, tariffs have been rising. Tariffs, which averaged Rs 2.80/kWh since the start of competitive bidding in 2017 up to fiscal 2023, rose to Rs 3.44/kWh in fiscal 2024, largely owing to supply chain constraints and issues related to available land and grid connectivity.
Figure: Utility scale solar tariffs have been stable of late, while wind tariffs have increased
Notes:
(i) Years represent calendar year
(ii) Solar capacity includes projects above 200 MW, excludes floating solar, feeder level solar and rooftop solar projects
(iii) Hybrid with storage projects excludes hybrid projects blended with conventional or floating solar projects
Source: BRIDGE TO INDIA, CRISIL MI&A Research
Compared with solar, wind turbine generation is more site-sensitive, making site selection crucial. Limited number of turbine manufacturers in India has influenced project costs as well, requiring developers to backward integrate.
Competition in tariff discovery is also linked to the level of developer participation. While solar bids have been regularly oversubscribed, at 121% of bid capacity between 2023 and the first half of 2024, wind bid subscription has been much lower averaging 68%. This is because, while issues in the solar supply chain have stabilised over the past one year, the pricing for wind project supply chain, including EPC services, remains sticky and increases with turbine size.
To be sure, diversified and flexible clean energy generation has already gained traction, with hybrid energy projects comprising 42% of renewable energy project allocations in the first half of 2024.
Figure: Offtakers are shifting towards hybrid configuration from vanilla solar or wind bids
Notes:
(i) Years represent calendar year
(ii) Solar capacity includes projects above 200 MW, excludes floating solar, feeder level solar and rooftop
solar projects
(iii) Hybrid with storage projects excludes hybrid projects blended with conventional or floating solar
projects
Source: BRIDGE TO INDIA, CRISIL MI&A Research
The benefits of hybrid projects surpass pure-play solar or wind capacities. These offer higher generation
compared with pure-play solar or wind capacities, and hybrid with storage adds flexibility based on
requirement and availability, enabling round-the-clock power supply, as in the case with conventional
power. Solar-wind hybrid bids are increasingly being favoured by offtakers, with averaging 115%
subscription in 2023 and first half of 2024. That is also the case for hybrid with storage, where bid
subscription has averaged 120%. And while the tariffs of solar-wind combination bids averaged Rs
3.52/kWh over 2023 and 2024 (till June), and hybrid projects with energy storage for peak power supply,
Rs 4.56/kWh, the higher generation and flexibility of hybrid capacities provide an advantage to the
offtaker.
While solar-wind combination and hybrid projects with energy storage tender structures have seen
success, tender issuing agencies are now aiming for more precise supply from these sources by following prescribed load profiles.
For instance, in March 2024, a tender by the Solar Energy Corporation of India for firm and dispatchable
renewable energy power for Punjab led to very high tariff discovery at Rs 5.59/kWh. The power purchase
agreement was not signed as it exceeded the state distribution company’s conventional power rates. But
another firm and dispatchable renewable energy power bid contracted in July 2024 led to a tariff
discovery of Rs 4.98/kWh, which was still high but lower than the Punjab tender due to easing in bid
conditions, such as serving demand profile on hourly instead of 15-minute basis and reducing the
minimum demand fulfillment ratio to 75% from 90%.
For India to stick to the net-zero target it had set at the 26 th United Nations Climate Change Conference
(COP26), solar and wind generation will need to increase substantially. The annual ask stands at 45 GW
for achieving an installed base of 500 GW renewable energy by 2030.
For this to be achieved, the wind project supply chain, including EPC services, needs to improve to
reduce costs. Also, the turbine size needs to increase for higher generation. To reduce lead times in the
development of wind projects, creation of land banks is required as well. Additionally, setting up the
transmission infrastructure must be expedited as it takes 2-3 years to commission vs 1.0-1.5 years for
commissioning renewable energy projects. The central government’s renewable energy integration plan
also needs to be implemented quickly. Addressing these will stabilise domestic tariffs, ensuring a more
resilient green energy sector.
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