Wind Tariffs At Record Low: Fruitful Up-Gradation Or Helpless Desperation?
Following the footprints of solar, wind power is now cheaper than coal based electricity in India. Great news for the consumers indeed, but maybe not for the investors and developers.
In the state run Solar Energy Corporation of India (SECI) auctions, conducted this month for 1000 MW of wind power installations, the tariff came down to as low as Rs 2.64 per unit, down by 24 per cent from previous low of Rs 3.46. The winning bidders included ReNew Power, Orange Power, Inox Wind, Sembcorp Green Infra and Adani Power. The auction came as a great sigh of relief for the developers who have been burdened with their own over capacities lying ideal.
Post the change in the regime from feed-in-tariff to auction based tariff this year, the wind industry has been undergoing structural changes. Only two auctions have been conducted by the state so far with experts anticipating mere 1000 MW of capacity addition this year as compared to 5000 MW last year.
While decline in the wind turbine costs and cheaper debt are cited as the reason for developers quoting such low prices, what remains unclear is the 24 per cent tariff crash in mere 7 months.
It raises concerns on whether these tariffs are a result of upgrading factors or sheer desperation and competitive aggression of the developers to grab any opportunity that comes on their plate as states move at snail pace to come out with new tenders.
“The latest auction was an intensely fought affair going into early hours of next morning,” mentions Bridge to India, a solar consultancy in India.
They explain how the wind turbine prices have declined about 8-10 per cent because of the slowdown; debt cost has also come down slightly by about 0.50 per cent in this period but that together account for only about 7 per cent tariff reduction.
“The main reason is simply increased competition. After the end of feed in tariff regime, states have been slow in coming out with new tenders. This slowdown is forcing developers to be more aggressive to win capacity and meet commitments made to their investors,” added the report.
Another consultancy has noted these tariffs are an outcome of fierce competition due to limited capacity addition in the wind energy segment.
“Higher competition for wind projects owing to limited capacity addition in the recent past is one of the major factors for heightened tariff war. The viability of these projects would depend on project execution capability of the firms involved. This includes land acquisition to set up projects in areas with grid connectivity,” according to Care Ratings.
Varied reasons are citied that have helped independent power producers bid lower tariffs. While grid network proximity, lesser grid curtailment, reduced turbine costs and others are fuelling the low tariffs, volumes and project pipeline are the utmost important conditions for bidders to sustain and make up for the low returns.
The low tariffs can be handled by the big firms who can cut their way through the thin volumes with easy borrowings and low costs debts. It is the smaller firms that would cry for survival in this scenario.
Despite of the recent auction, uncertainty looms over the wind sector, as the next auction is nowhere to be seen in the near future.
“We would not be able to add more than 1000 MW this year. But once the new system is at place and is adopted by the industry, it would be a smooth transition. In the meanwhile, there is no scope of deviation left in terms of efficiency for the industry. As far as technological innovations are concerned, there is not much happening in the wind sector. Right now the manufacturers are trying to set their houses right,” said Balram Mehta, President, Wind and Asset Management, Renew Power.
Another Independent Power Producer (IPP) Greenko, which has shied away from most of the auction based bidding, mentions that the project execution risk has not changed and it was the lack of clarity on the conduct of the bidding that led to the postponement of the second round of auction.
“It is all about land, land and land now. The state we mostly operate in, Karnataka, the land acquisition itself takes about 6 months to 2 years and the time varies among different states. Second is evacuation capacity which has remained one of the biggest project execution risk post the bidding scenario. This is one of the reasons the bid got postponed because of the lack of clarity on how things will be done,” said Vinay Kumar, COO, Greenko Group.
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