The recent bids for wind power projects have raised fresh concerns on the ability of these projects to deliver. Many players have bid at very low tariffs to win projects, the sustainability of which is being questioned by industry players.
In a recent bid in October 2017, wind tariff in India touched the lowest level of ₹2.64 per kWh for producing 1,000 MW. The auction was conducted by the Solar Energy Corporation of India (SECI) on behalf of the Ministry of New & Renewable Energy. These wind projects are to be completed within 18 months from the date of issue of Letter of Award (LoA) to successful bidders.
ReNew Power and Orange Sironj quoted the lowest tariff of ₹2.64 per unit to win 250 MW and 200 MW respectively. INOX Wind and Green Infra Wind Energy bid for 250 MW each at a price of ₹2.65 per unit. Adani Green Energy bid for 50 MW at ₹2.65 per unit.
The recently-bid tariffs are much lower than those seen in the first auction that happened in February this year. The first wind bid (1,000 MW) was concluded at a wind tariff of ₹3.46 per kWh of wind energy. The SECI issued a LoA to five selected bidders on April 5 and the projects under the scheme are likely to be commissioned by October 2018.
Of the companies that participated in the first bid, Mytrah Energy, Green Infra, Inox and Ostro Energy have won rights to set up 250MW wind projects each; theywould be selling energy to Power Trading Corporation, at a price of ₹3.46 a kWh. Mytrah and Green Infra would set up their projects in Tamil Nadu and the other two will be setting up their projects in Gujarat.
Transitioning into tariff-based
India’s wind sector is transitioning from a feed-in tariff regime to tariff-based pricing. A feed-in tariff typically guarantees that customers who own a renewable electricity generation facility, receive a fixed price from their utility for all electricity generated and provided to the grid. In effect, feed-in tariffs ensured a fixed price for wind power producers.
Wind power auction is now based on tariff-based pricing.
This throws a new set of challenges for companies that have been awarded projects for producing power. Challenges start from buying wind turbines. Wind turbine manufacturers have not reduced the prices of wind turbines. Hence with key costs remaining the same, companies may be under pressure to deliver the promised power generation at low tariffs.
Wind power potential is concentrated in 7-8 wind resource rich states. Proper scheduling and forecasting is important in wind power generation. Setting up of a wind power project would require study for a minimum of one year at a particular location. A viable location can be selected only after a detailed study. Hence the 18-month time frame to complete these projects also appears a stretch.
Getting the funds on time is also one of the challenges faced by these companies. These projects would require huge debt and power producers usually operate with a 70:30 debt equity ratio. For adding wind turbines the power producers would require additional debt on time to complete the project.
Promotional policies by the Government
Growing demand for power requires increase in power generation. India’s power requirement is mostly met through thermal power generation. Increasing power generation by wind and solar is accorded high priority by the Centre, and wind energy has been given due focus, leading to increase in installed capacity every year.
Currently wind power installed capacity is around 32.5 GW which is 55 per cent of the total renewable installed power generation capacity. In terms of wind power installed capacity globally, India is in the 4th position after China, the US and Germany. The Government of India has set a target of increasing the installed power capacity to 60 GW by 2022.
The Government supports wind power generation through fiscal incentives such as accelerated depreciation, concessional custom duty on certain components of wind electric generators and loan from Indian Renewable Energy Development Agency (IREDA) and other financial institutions. In addition, 100 per cent FDI through the automatic route is allowed in the renewable energy sector including wind energy sector.
What lies ahead?
But there is still a lot more that the Centre needs to do to ensure that projects see the light of the day. For starters, it needs to ensure that irrational bidding by players at very low tariffs is better monitored. The government encourages wind power producers by providing various subsidies. But tariff-based pricing has reduced the prices to record lows. While large players have some wiggle room to deliver, for smaller players, very low tariffs could lead to losses.
Easy availability of finance for these power projects, increase in subsidies for buying the required components would support these power producers in executing projects on time. Support for these projects needs to blow stronger.