The Daunting Challenges of the Renewable Energy Sector Today

Building a new industry is like taking part in a decathlon. You need to be great at a host of things. Quick off your feet and evenly paced. Focused on the end-goal and strategic in planning out every step. Agile enough for short sprints and with enough endurance to power through mini-marathons.

Coming up short in even one aspect can dramatically weaken the overall result.

Apply this to the renewable energy sector, and you will see that much like what the decathlon expects of its participants in terms of a few key qualities coming together in unison, the sector relies on a few pillars or key enablers working in tandem. These are technology, finance, and regulatory frameworks. Each has a designated role to play. Each needs to be good at what it is expected to deliver. And each needs to be in harmony with the others.

As a new entrant to a mature sector, Renewable Energy has a lot going for it right now: international attention, political will, a largely conducive regulatory framework, investor backing, and promising technological innovations. However, the smallest step taken out of sync by any of the enablers, due to oversight or indifference, can jeopardise the gains made so far.

Let us begin by looking at regulatory frameworks. India’s Electricity Act of 2003 was a landmark act. Ambitious reforms envisioned under its provisions incentivized independent power producers to set up shop, which, in turn, paved the way for the entry of private players. The act helped usher in competition and market-oriented pricing. Power trading was given a distinct identity and the power market provided a visible platform.

However, there have been some obvious obstacles. Since power is on the concurrent list, it requires both the centre and state to join hands. Sometimes, states drag their feet in certain regulatory areas or ask for retroactive changes in old contracts, which have higher tariffs. What they overlook is the fact that old projects were built at far higher costs at a time when the scope of clean power was relatively unproven. Retroactive changes done without factoring this context in can therefore impact investor confidence as well as the state’s prospects of attracting future funding for electricity projects.

As a key pillar for a nascent industry, regulatory frameworks should not be suddenly altered or backtracked. Instead, they should move forward while keeping in mind their linkages to the other two enablers to function together in a balanced manner.

The second pillar that serves as a key enabler for the renewable energy sector is technology. Barely a decade ago, technology and the power industry had little in common. Now, clean power is enabled in fundamental ways by advances in material sciences, manufacturing, data sciences, computing, machine learning, and storage-related technologies.

But again, there are challenges the technology space routinely faces. Among them is the requirement for skilled manpower trained to handle advanced technology. Next is the availability of the right equipment at competitive prices. Also crucial is the need for a manufacturing base to produce clean power plant or project components indigenously and the availability of land, labour, and materials to do that.

Just as with regulatory frameworks, the main challenge here, too, is the inability to see technology as part of a set of enablers. Those active in the space tend to focus either exclusively on the construction or manufacturing aspects of building clean-power capabilities or only on the paucity of a trained, skilled, and large workforce. There is also a fundamental mismatch between technology’s ability to enable in isolation the expansion of capacity and India’s current ability to keep up in terms of providing the equipment and parts integral to producing clean power.

The third and equally important enabler is finance. The renewable energy sector could not have emerged as a viable alternative in the utilities space without the backing of lenders and investors. However, all players in the renewable energy area must realise that funders are looking for projects whose terms are transparent and attractive to make investors back them. Although investors and lenders, have come to recognise that the sector is now proven to be a long-term bankable one, it is still the responsibility of producers and players to ensure that their projects are viable. Staking a claim to establish clean-energy projects at unrealistically low bids may seem attractive in the immediate future but will not be sustainable in the long run.

So, I will say that the biggest challenge the sector needs to overcome is in removing the widely held misconception that the three pillars of the renewable energy sector can function anyway they want. The reality is that they need to be in harmony, mindful of the other’s role, and yet individually at their most innovative, efficient, and productive best to continue clean power’s steady growth trajectory.

By Ganesh
Sr. Manager, Corporate Communications
Mytrah Energy 

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