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US-based investors want slackening of the regulatory regime in India’s power sector and see lowering of tariffs in the renewable energy segment as a threat. The sentiments of the US-India Business Council (USIBC) echo the belief of many experts that aggressive bidding has pulled solar and wind tariffs down to unsustainable levels amid rising interest rates and the end of quantitative easing by the US. Weakening of the rupee is likely to raise the cost and reduce the flow of cheap capital into the sector.
Though the government allows 100% FDI in the power sector, the pricing and tariff determination for generation, transmission and distribution is controlled by government regulators. USIBC, a bilateral trade body, told FE that “the current investment climate in India can be improved further by reducing regulatory barriers to market entry, particularly in the transmission and distribution sectors”. The draft national energy policy published by the NITI Aayog last year cited the absence of commercial pressure on electricity distribution companies (discoms) as one of the fundamental factors for their financially frailty, and suggested passing on sale of electricity to private agents through separation of ‘carriage and content’.
However, experts have pointed out that the difficulty in implementing this policy across the country in near future has been accentuated by the Uttar Pradesh government’s decision to abandon its plan to implement the franchise model for privatisation of electricity distribution in five cities. Responding to a query on US investment interests in the Indian renewable energy sector, which is poised to achieve 175 GW capacity by 2022, Lauren Diekman, environment and energy head at the USIBC, said though a sizeable number of USIBC member companies have participated in the Indian renewable energy sector, “the price has been set so low that, coupled with local content requirements, it may be difficult to attract investors”.
Currently, the lowest solar tariff in India is Rs 2.44 per unit, while the lowest wind tariff is Rs 2.43/unit. India came down two spots in a year and is now ranked fourth in the EY’s renewable energy country attractive index trailing China, the US and Germany. US secretary of energy Rick Perry co-chaired the inaugural meeting of the US-India Strategic Energy Partnership (USISEP) with petroleum minister Dharmendra Pradhan here last month to discuss avenues of developments in the field of power, energy efficiency, renewable energy, coal and oil & gas.
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