A weak link lurks in Prime Minister Narendra Modi’s push for an unprecedented $200 billion expansion of clean energy: cash-starved state electricity distributors.
The retailers have racked up more than Rs.2.5 trillion of losses partly because they’re forced to sell below cost to keep energy affordable, ministry of power data show. Reliant on loans and subsidies, their scope to embrace solar and wind over cheaper, dirtier coal-fired supplies is in question.
That leaves Modi juggling the needs of India’s 750 million poor, his clean-energy ambitions, and pressure to pledge emissions curbs at a United Nations global warming summit in December. For billionaires such as SoftBank Group Corp.’s Masayoshi Son who have vowed major solar investment in India since Modi took office last year, distribution poses a key risk.
“Most distribution companies are a big question mark,” said Sunil Jain, chief executive officer (CEO) at New Delhi-based Hero Future Energies, which runs 260 megawatts of renewable plants. “We’ve raised the issue of distributors’ health with the government many times. We face the risk of delayed payments.”
Modi’s objective is 175 gigawatts of green energy capacity by 2022, up from about 37 gigawatts, at an estimated cost of $200 billion—more than the size of Vietnam’s economy. SoftBank, Adani Enterprises Ltd, Reliance Power Ltd, SunEdison Inc. and Trina Solar Ltd are among those planning investment.
Son’s $20 billion venture with Bharti Enterprises Pvt. and Foxconn Technology Group will seek potential sites in sun-baked Rajasthan and Andhra Pradesh.
Yet those regions, together with Uttar Pradesh and Tamil Nadu, suffered distribution losses of about Rs.54,000 crore in the year through March 2013 alone, a report by government- controlled Power Finance Corp. shows.