The 1,000 MW competitive bidding wind tender floated by the Solar Energy Corporation of India (SECI) has received bids for 2,594 MW. The financial bids, which are scheduled for February 23, 2017, will determine the final winners. The oversubscription of the tender, by about 2.6 times, points to the increased acceptance of competitive bidding by stakeholders in the segment. The shift from the prevalent feed-in tariff (FiT) mechanism to a competitive auction regime for bringing down wind power tariffs is a positive step. The tender will help identify the challenges that need to be overcome before it can be adopted as the established regime for wind power development.
The success of the tender can be attributed to its unique factors. First, there is guaranteed offtake of power through 25-year power purchase agreements (PPAs) that the successful bidders will sign with PTC India, which will further sign agreements with discoms. The other factor is the eligibility of existing operational and under-construction projects to participate in the bidding process. In addition, power distribution from projects in this tender will be at the central transmission utility level, with projects located anywhere in the country.
The introduction of competitive bidding is likely to give a boost to the wind segment, though not as strongly as has been the case with solar. While the solar segment has seen exponential growth in the past few years on the back of reverse bidding, with annual additions expected to reach 9 GW in 2017, the wind energy capacity addition has remained at less than 4 GW a year. A key reason for this has been the high tariffs demanded by wind power developers. With the reverse auction process in place, tariffs are expected to fall and the uptake of wind power is likely to increase.
Although the capacity of the tender is only 1,000 MW, bids were placed for a total of 2,594 MW. These were concentrated in three states, with Tamil Nadu receiving the highest share of 69 per cent or 1,794 MW of the capacity bid. Gujarat followed with 27 per cent or 700 MW and Karnataka with about 4 per cent or 100 MW of capacity. The concentration of bids in Tamil Nadu can be attributed to the state being wind rich, with a relatively mature wind segment and greater ease of doing business.
The number of companies participating in the bid was restricted to 13, of which nine placed bids for the highest capacity of 250 MW each, while the remaining placed bids for 50 MW to 100 MW each. Three companies bid in more than one state. Adani Renewable and Gamesa Renewable Private Limited each bid for 100 MW in Gujarat and 150 MW in Tamil Nadu, and Hero Future Energies bid for 150 MW in Tamil Nadu and 100 MW in Karnataka. Other notable companies were Mytrah Energy, Sembcorp, ReNew Power, CESC, Ostro Energy, Inox Wind and Sitac Limited.
Tariffs in this tender are expected to fall below the Rs 4 per unit mark, even as most states offer an FiT of Rs 4-Rs 6 per unit. With tariffs falling to as low as Rs 2.97 per unit in the recent 750 MW Rewa solar tender, speculation is rife regarding tariffs for the wind tender falling to unprecedentedly low levels. While low tariffs for the wind segment are preferred by discoms, finding offtakers at such prices could be a challenge for SECI, especially as the tender requires it to provide a collateral package of a six-month letter of credit and an escrow account over revenues. In addition, the discoms with which PPAs will be signed have not been revealed so far, creating a risk perception for developers, given the poor health of most discoms.
The oversubscription of the SECI tender has instilled some confidence in the market regarding competitive bidding for wind power. However, the concentration of capacity in high wind states may overburden the grid as evacuation issues in many states have already led to the backing down of wind power. Also, going forward, the wind segment may want to move its auctions to the state utility level, akin to the solar segment, for easing the burden on the national grid. Even as the results of the tender are expected to be out by end-February, the positive response so far seems to be an affirmation of the competitive bidding regime in the wind segment.
By Ashay Abbhi