Tamil Nadu became one of the world’s leading renewable energy markets

The southern Indian state of Tamil Nadu is one of the top-nine markets globally to have achieved an exceptionally large share of renewable power generation,according to a report by US-based think-tank Institute for Energy Economics and Financial Analysis (IEEFA).

The IEEFA studied the top 15 countries or power markets worldwide by their share of wind and solar energy—the percentage of net energy needs met by these sources in these nations. Denmark leads the pack with 53% in 2017, followed by south Australia and Uruguay.

Tamil Nadu, which gets 14% of its energy needs from renewables, is the only Asian market on the list. This comes at a time when India is embarking on a major transition towards clean energy, targeting 175 gigawatts (1 GW = 1,000 megawatts) by 2022.

“Our report shows that on the ground now and in a variety of markets, these renewable-energy leaders have raced ahead of much of the rest of the world in proving how power grids can be readily sourced with up to 50% of their energy from wind and solar,” Gerard Wynn, lead author of the report, said in a statement. “Other states and countries can follow the lead...and so avoid radical redesigns of their power markets.”

Solid numbers

At around 10,800 megawatts (MW), Tamil Nadu today leads India in terms of installed renewable energy capacity.

It tops in wind power capacity, with around 7,870 MW as of March 2017, followed by Gujarat (5,429 MW), and Maharashtra (4,752 MW). Tamil Nadu is also India's oldest power producers in this segment, with most of its wind farms around 25 years old.

In solar, it stands third with 1,697 MW as of June 2017. This includes the world’s second-largest single-site solar farm (648 MW). Andhra Pradesh (2,010 MW) and Rajasthan (1,961 MW) are the frontrunners.

How Tamil Nadu swung it

The availability of rich wind and solar energy resources, a wide gap between power demand and supply, and robust government policies helped Tamil Nadu take the lead.

The coastal state sees heavy wind flows for about six months a year and four more months of moderate flows. It also receives 300 days of clear sunshine, experts said.

Also, around two decades ago, when the renewable energy sector began emerging in India, Tamil Nadu faced a yawning gap between demand and supply of power. The demand came from industries like leather-tanning, textile, cement, and automotive components.

“Because of the demand pull, they had to come up with a viable tariff...the feed-in tariff for the wind sector was very favourable,” Amit Kumar, a renewable energy partner with consulting firm KPMG, told Quartz. Today, the prices at which wind power is sold to electricity utilities is decided in an auction process in which firms participate. Till this was introduced in 2016, prices were fixed by state power regulators.

Moreover, most industrial units in Tamil Nadu were allowed to set up their own wind power plants. The textile industry was among the earliest to do this. So, the Tamil Nadu Spinning Mills Association (TASMA) today owns around 3,000 MW of wind farms, nearly 40% of the state’s total capacity. Many of its wind farms are over 20 years old, said K Venkatachalam, TASMA's chief advisor.

Once solar made inroads, the state witnessed the second wave of renewables. "There, again, initially the Tamil Nadu government provided an attractive tariff,” Kumar said.

In recent years, the government has also worked to improve its transmission infrastructure, encouraging firms to expand, experts said. Since renewable energy is infirm, managing the fluctuation in power generation is key. Tamil Nadu has begun forecasting the flow so that the grid is ready to handle things. “They have incorporated a fair amount of technology for the industry,” said Anish De, partner at consulting firm KPMG.

Dark clouds

In recent years, though, Tamil Nadu's renewables sector has been losing steam.

For one, it needs to continue upgrading its transmission infrastructure, and frame rules to ensure that insufficient infrastructure doesn't trip power generation. “Renewable energy assets in Tamil Nadu are facing significant backdown (as state power utilities are buying little power from these plants). This adversely impacts their feasibility," Kanika Chawla, a renewable energy expert at Delhi-based nonprofit Council on Energy, Environment, and Water, said.

Industrialists also say that the state’s energy regulators are hampering growth—there are proposals to impose additional taxes on rooftop solar power plants. Authorities are also looking to regulate the "wind banking" option. Currently, producers like TASMA transmit excess power to the grid, and have the option of drawing the same amount from the grid during shortage later. But now, the power regulator is mulling changing this rule.

The state electricity utility's dismal financial situation, too, has its effects. There is almost a year's delay in the power-generating units receiving their payments from state utilities, Venkatachalam said, adding that, due to this, the producers then struggle to repay loans. "The geographical conditions are conducive for the renewable energy industry," he added. "What we lack is regulatory support."