In a thumbs-up for the Narendra Modi government's renewable energy push, UK-based accountancy firm EY says India has overtaken the US to become the second-most attractive country after China for renewable energy investment.
In an annual ranking of the top 40 renewable energy markets worldwide in terms of attractiveness, China was ranked at the top, followed by India. The US slipped to the third spot from first in last year's ranking, reflecting President Donald Trump's avowed disdain for green causes.
"The fall, the first for the US since 2015, to third in the ranking of the top 40 countries follows a marked shift in US policy under the new administration," it said.
India was ranked third on last year's EY renewable energy country attractiveness index (RECAI) behind the US and China.
"India continued its upward trend on the index to second position with the government's programme to build 175 gigawatts (GW; 1GW = 1,000MW) in renewable energy generation by 2022 and have renewable energy account for 40 per cent of installed capacity by 2040," EY said in a statement.
It said the country has added more than 10GW of solar capacity in the last three years, starting from a low base of 2.6GW in 2014. Also, there was a record new wind capacity of 5.4GW installed in 2016-17.
"A combination of strong government support and increasingly attractive economics has helped push India into the second place," the EY report said.
In recent tenders, solar developers have offered to supply power at lower prices than newly-built coal plants, making adding of coal capacity less attractive.
"India's 2022 target, set by Prime Minister Narendra Modi in 2014, includes 100GW of solar, 60GW ground mounted and 40GW rooftop. Wind is expected to deliver 60GW, with biomass and small hydro accounting for the remaining 15GW," EY said.
In 2016-17, India added 12.5GW of renewable energy capacity, compared to 10.2GW from conventional sources.
Solar power tariffs have dropped further to hit a new low of Rs2.44 per unit in the recent auction conducted for Bhadla solar park.
In a note of caution, EY added, "However, such low bids raise questions over whether developers are taking on excessive risk. On the one hand, falling bids track lower technology costs and cheaper capital, allowing developers to maintain margins. On the other hand, those margins are already squeezed by the competition that auctions tend to generate. Some projects may not be delivered or quality may be compromised."
The EY report said the government needs to increase compliance with the Renewable Purchase Obligation (RPO) programme as well as ensure distribution companies have the capacity to continue to purchase renewable electricity.
"And the availability of capital remains a concern; the government could ease rules around tapping foreign debt," it said, adding that the government faces several other challenges, including land acquisition, in meeting the 175GW target.