With an installed wind power capacity of 32.9 GW, India is the fourth-largest generator of wind power in the world. A commendable feat no doubt and a reason to work even harder to achieve the 60 GW target from wind energy by 2022. Achieving that target and creating a feasible and economically viable wind energy market in India will require the government and wind industry participants to be cognizant of trends and changes. The switch to an auction-based allocation of wind projects from a feed-in tariff system has been done by the policymakers to encourage more competition and better price discovery. While the advantages of an auction-based system of competitive bidding and better price discovery are obvious, one needs to keep an eye on the potential problems that might crop up. Excessive competition can at times lead to unviable auction pricing with serious ramifications for the industry. The trade-off between lower costs and delivering the targeted wind energy capacity needs urgent attention.
Fig. Graph showing yearly capacity addition (in MW) of wind power, in India. Source: MNRE
First and foremost, one needs to assess whether bidding for renewable energy projects can in certain instances lead to aggressive bidding by developers. While low prices are good for the end consumer, it is important to find a right balance between low pricing and financially viable projects. In India, some states have even tried to stop buying power from wind plants as their RPO compliance was met but central government prioritized energy generation from such projects to be procured for energy supply by the grid. Projects that score high on low pricing but turn out to be financially unviable endanger the entire ecosystem with reduced wind capacity additions, potentially distressed loans and contracts that are not honored.
The present issue to implement the projects is lack of vendors — the people who supply the components that go into making wind turbines. This happens due to the prolonged absence of orders in 2017, many have either gone bankrupt or moved into other businesses. The drop in business in 2017 can be seen from the limited amount of fresh wind capacity commissioned — only 597.91 MW in ten months between April 2017 and Jan 2018.
The wind power sector is being overshadowed by the emphasis of govt. on promoting solar power. Also the pressing interest of govt. to increase competitive bidding in wind power tariff, has led to tariff being dropped from 4.16 Rs./unit (Tamil Nadu ) under FIT to 2.43 Rs./unit (Gujarat) under Reverse Auction. This has been a good step for the distribution utilities as they get a fixed power rate for a long duration of 25yrs under PPA on the expense of investor interest. As amongst the 32GW existing wind power producers , 60% are catered by small investors, the reduction in accelerated depreciation from 80% to 60% has reduced their IRR and created a threat for the reduction of their tariff as the utilities might demand low tariff on existing projects as well.
The cost of importing wind turbines is also shooting up, and high dependency on turbine type to have increase in CUF is creating a domino effect in the wind sector. Also companies like Suzlon have bought wind turbine manufacturers in other countries but have failed at churning profits on signed PPA of the wind project.
Summary: The wind power sector is showing no signs of meeting the set target of 4GW by end of this fiscal year. Infraline Energy does not expect the capacity addition to cross 1.2 GW this financial year for wind energy. The small investors do not find the market lucrative and unless the state governments come up with proper bidding guidelines and a promise of timely payments by wind power buyers, the renewable sector will have low contribution from wind generation in 2022.
Key Points:
1. The set target of 4GW in current fiscal year with actual addition of 597.91MW by Jan 2018 has not been met even to 50%.
2. Center’s switch from Feed in Tariff to reverse auction bidding is a big blow to wind power generators and investors.
3. Government needs to promote the wind power and incentivize the components
InfralineEnergy Disclaimer:
The views expressed here are solely those of the author in his private capacity and do not in any way represent the views of the InfralineEnergy (Technologies India Pvt. Ltd.). The organization is not liable for any use that may be made of the information contained therein and any direct/indirect consequences resulting therefrom.