New Growth Areas

Emerging opportunities in the wind segment

For the Indian wind power segment, 2016-17 has been a record year, both in terms of cumulative installed capacity and annual additions, with the country emerging as the fourth largest market for wind energy globally. With about 5.5 GW of wind capacity added in 2016-17, the segment has reached a total capacity of 32.3 GW as of March 2017. The past year has also seen wind power tariffs crashing to a record low of Rs 3.46 per kWh in the country’s first-ever wind power auction. The segment is set to gain further momentum with the government introducing policies to repower existing windmills, issuing guidelines for solar-wind hybrids and making efforts to tap the offshore wind power potential.

One of the reasons for the record capacity addition in 2016-17 was the government’s decision to slash the accelerated depreciation (AD) benefit from 80 per cent of the project cost to almost 40 per cent and discontinue generation-based incentives (GBIs) from April 2017. Apart from this, the government is set to introduce the goods and services tax (GST) regime, which may pose a challenge for the wind power segment and lead to an escalation in capital costs.

However, given the potential and maturity of the wind segment in India, it is likely that it will achieve its 60 GW target by 2022. Technological improvements and innovations have not only enhanced the efficiency of the segment, but also made wind power more cost-effective. Thus, we see multiple wind farms being developed in states such as Andhra Pradesh, Gujarat, Karnataka, Madhya Pradesh and Rajasthan.

A look at the emerging opportunities in the wind power segment…

Competitive bidding

So far, wind projects in the country have been set up under a fixed feed-in tariff (FiT) regime. Under this, wind power developers sign power purchase agreements (PPAs) with discoms at a fixed tariff. Some developers sign PPAs with third parties at a mutually agreed rate. Installing captive or group captive power projects is another popular route of project development, especially in the wind segment.

In 2016, the government notified the reverse auction scheme for wind projects totalling 1 GW with the objective of encouraging competition through the scaling-up of project sizes and the introduction of transparent e-bidding and e-auctioning processes. Reverse auction involves bidding for projects tendered by the government, with the lowest bidder winning the contract. While competitive bidding was successful in the solar power segment, there was uncertainty whether it would see similar success in the wind segment. Developers and other industry experts claimed that issues such as the lack of wind data availability, payment delays by utilities, inadequate transmission infrastructure and difficulties in land acquisition would make competitive bidding a challenging proposition.

However, after the successful tendering of 1 GW of wind capacity in March 2017, based on the viability gap funding mechanism, developer confidence in the mechanism has increased. The government has signed a 25-year PPA with PTC, thereby ensuring offtake and reducing payment delays. Under the FiT regime, there were delays in payments and signing of PPAs as distribution companies shied away from buying wind power owing to their poor financial health. The competitive bidding process not only ensures timely payments for fixed terms, but also provides project visibility.

After the successful allocation of 1 GW of wind capacity, the Ministry of New and Renewable Energy (MNRE) has launched another round of wind auctions for 1 GW of wind power projects, thus creating opportunities in the segment. Several states have also announced a move towards competitive bidding and are likely to come up with tenders in 2017. This implies a more competitive wind power market as well as greater capacity addition.

Repowering

The repowering of existing wind farms has created another opportunity in the segment. Most of the old wind turbines in India have 30-40 metre hub heights and kilowatt-scale rated capacity. Low hub heights result in inefficient power generation. With technological development and innovation, much higher heights are now possible, which would increase the efficiency of the windmills.

Wind farms in Tamil Nadu, Maharashtra and Gujarat have a number of ageing wind turbines, which were installed during the early years of wind power development in India. Nearly 10 GW of installed projects have sub-100-metre hub heights and rated capacities of 225 kW to 1,000 kW. Of this, about 3.4 GW of plants, which are at high potential wind sites, are obsolete and present an opportunity for repowering.

The National Institute of Wind Energy (NIWE) has reassessed the wind power potential to be 302 GW at 100 metres. Based on this, the government came up with a repowering policy, which will enable owners to replace obsolete wind turbines of less than 1 MW capacity with the latest technology. To further incentivise wind farm owners, the government promised a rebate of 0.25 per cent along with existing segment benefits. Although there are concerns regarding cost overruns, rebate and deployment of energy efficient wind turbines can boost repowering and help revamp the industry.

Solar-wind hybrids

India has set an ambitious target of reaching 175 GW of installed renewable capacity by 2022, including 100 GW from solar and 60 GW from wind. Solar and wind power being infirm in nature, pose certain challenges to grid security and stability. Studies have revealed that solar and wind power plants are complementary to each other and hybridisation of the two technologies would help in minimising their variability and lead to optimal utilisation of the infrastructure, including land and the transmission system.

In addition, superimposition of wind and solar site maps shows that there are a large number of areas where both wind and solar have high to moderate potential. While existing wind farms have scope for the addition of solar photovoltaic (PV) capacity, existing solar PV plants have potential for wind development in their vicinity. Thus, suitable policy interventions can help in setting up new wind-solar hybrid plants, and drive hybridisation of existing wind and solar plants.

The government has taken several steps to encourage the development of wind-solar hybrid systems. A 10 GW target has been set under the draft solar-wind hybrid policy, and fiscal and financial incentives have been made available along with low-cost financing for hybrid projects through the Indian Renewable Energy Development Agency and other financial institutions. With the development of a 2.5 MW solar-wind hybrid pilot project at Rangrik in Lahaul-Spiti district of Himachal Pradesh, the wind industry has taken its first step into hybrids. Successful commissioning of the project, expectedly in October 2017, will open up new avenues for the hybrid industry in India.

Offshore

The offshore wind segment in India is largely untapped due to the high cost of setting up such projects. Offshore wind projects cost nearly three times that of onshore wind projects. The development of offshore wind facilities also entails greater challenges due to the large scale of the projects, and the need for specialised equipment and expertise.

In 2013, the MNRE undertook consultations on offshore wind and announced the Offshore Wind Policy in October 2015. Under the policy, FOWIND (Facilitating Offshore Wind in India) is undertaking reassessment of the offshore wind potential in two coastal states – Gujarat and Tamil Nadu. This is a four-year project implemented by a consortium led by the Global Wind Energy Council and co-financed by the European Union, Gujarat Power Corporation Limited, etc. Currently, FOWIND is undertaking the first offshore wind resource measurement in the Gulf of Khambhat, off the coast of Gujarat. India’s first offshore wind research platform is also being developed under this project. Further, the NIWE is in the process of finalising the first geo-physical survey along the coast of Gujarat. With such significant developments in the industry, the first tender for offshore wind is likely to be announced in 2019.

Conclusion

Despite uncertainty in the segment due to the reduction in AD benefits, withdrawal of the GBI, and introduction of the competitive bidding and GST regimes, new opportunities are emerging in the segment. The repowering of existing plants, development of solar-wind hybrids and tapping the offshore potential will give a push to the segment. These developments, along with policy alignment and technological innovations, will help achieve the 60 GW by 2022 wind target.

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