Wind Capacity Addition Likely To Be Affected In FY18

The wind capacity addition in FY17 was much better than the expectations of the experts; however, moving forward the fresh capacity addition in the sector could be affected, as the government evaluates the new competitive bidding mechanism- a cost-based compensation system, against the ongoing feed in tariff regime to discover the market rates for wind power projects across various states, according to ICRA.

The draft guidelines for competitive bidding for wind power projects have been recently issued by the Central Government. As per industry sources, the distribution utilities in states like Andhra Pradesh, Rajasthan, Karnataka and Gujarat are evaluating the competitive bidding mechanism for awarding wind power projects in the near term.

Sabyasachi Majumdar, Senior Vice President & Group Head, ICRA Ratings explains that in this context, the fresh capacity addition in the wind power segment could be affected in the near term (12-18 month period) and would depend upon the plans by the state-owned distribution utilities and/or SECI in terms of project awards through the bidding route and the subsequent PPA signing.

Overall, according to ICRA, this capacity addition in the RE sector remains at par with the added thermal power segment capacity of about 11.5 GW in FY2017, which has declined from the peak capacity addition of 22.5 GW in FY2016.

The capacity addition in wind energy was much better than the expectations due to a bunching up of commissioning in March 2017, due to the removal of the generation-based incentive (GBI) benefit and reduction in accelerated depreciation (AD) benefit with effect from April 1, 2017, adds Majumdar.

“These apart, Independent Power Producers (IPPs) were trying to utilise the current feed-in tariff regimes in states while they were still in place - the apprehension being that in future, tariff-based bidding, as exemplified by the award of projects by Solar Energy Corporation Ltd (SECI) in February 2017, could largely replace the feed-in tariff regime”, says Majumdar.

Reverse auctions or the competitive bidding mechanism result in the discovery of lower costs. The first-ever auction for long-term wind power contracts in February saw tariffs plunging to a historic low of Rs 3.46 a unit, against the usual routine where the wind power prices are fixed by the various state electricity regulatory commissions.