29 Jul 2020

Earlier this month, the Ministry of Railways announced a plan to transform Indian Railways to ‘Green Railways’ by 2030. The move is in line with the government’s initiatives to meet the commitments made under the Paris Agreement, with Railways being identified as one of the key sectors for decarbonisation.

The Indian Railways depend primarily on diesel and electricity for meeting its energy requirements. The two sources account for a share of 65% and 35% respectively. A key component of the Railways green mission is to achieve complete electrification of rail tracks by 2023. At present, only around 58% of total track or 39,866 route kilometres is electrified. Greater electrification would help Railways in switching to cleaner energy alternatives such as solar and wind power and also significantly reduce energy cost. Preliminary estimates suggest annual savings potential of more than INR 135 billion (USD 1.8 billion).

Figure: Railway electrification progress, route km

Source: Trend of railway electrification commissioning in India (1925-2020), Indian Railways, April 2020

At present, the Railways have only 203 MW of installed renewable capacity (rooftop solar 100 MW, wind 103 MW). Railway Energy Management Company (REMCL), the nodal procurement agency for the Railways, has issued two tenders of 50 MW solar and 140 MW solar-wind hybrid capacity, where bids have been received. REMCL has been further mandated to develop 3,000 MW of solar capacity by 2022-23 on vacant land owned by the Railways. Two different tenders of 1,000 MW solar capacity each have already been issued, whereby the Railways will procure power on a fixed cost basis under 25-year PPAs. There are multiple project sites located across 14 states including Chhattisgarh, Gujarat, Rajasthan and Maharashtra. The remaining 1,000 MW is likely to be developed and owned by REMCL. An EPC tender has already been issued for 400 MW solar capacity. All tenders stipulate use of domestically manufactured cells and modules in line with the government requirement.

The Railways have become the first public sector entity to significantly ramp up renewable energy adoption for captive consumption. Their tender pipeline provides attractive opportunities for project developers and contractors as Railways are amongst the most credible and bankable public sector counterparties.

The Railways move is in line with the government drive to increase renewable power consumption by public sector. Last year, MNRE had launched a 12,000 MW scheme specifically for meeting power requirement of public sector entities with a VGF outlay of INR 85.10 billion (USD 1.1 billion). Until now, 2 auctions have been conducted under the scheme and a total of 2,027 MW has been awarded. However, we believe that there would be few other opportunities matching the scale and financial strength of the Railways.

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