The wind power industry has moved away from the feed-in tariff (FiT) regime to competitive bidding for tariff determination and project allocation. The first auction, held by the Solar Energy Corporation of India (SECI) in February 2017, marked this transformation in the wind energy sector. The auction was oversubscribed by 2.6 times and tariffs fell to Rs 3.46 per unit from prevailing tariffs of around Rs 5 per unit. SECI signed power purchase agreements (PPAs) with the winning companies at a ceremony held on July 21, 2017. On this occasion, Piyush Goyal, Minister of State (Independent Charge) for Power, Coal, New and Renewable Energy and Mines, spoke on the implications of competitive bidding on wind power growth and the way forward. Excerpts…
This is a joint initiative of the Ministry of Power (MoP) and the Ministry of New and Renewable Energy (MNRE). This is the first transparent bidding in the wind energy sector and the project sites were not predetermined. They could be set up anywhere in the country and the power generated from these plants would have to be transmitted to whoever bought the power. Therefore, while the MNRE prepared the entire framework and conducted the auctions successfully within a defined time frame, it could not have been completed unless the MoP gave the transmission facility free of charge.
I feel that the tariffs determined in this auction are quite fair. I have consistently held that the FiT system could be good up to a certain point, to hand-hold the industry until it matures. With the Indian wind energy segment ranking fourth in the world in terms of installed capacity, and over 32 GW of wind energy capacity already commissioned, the hand-holding period is over. And the era of “consumers paying for inefficiencies” in the sector is behind us. So, everybody will have to become more efficient. The market now wants more openness and transparency, which is what we have tried to provide with this auction. I have been in talks with the wind power industry for almost two years about the new regime. It took them some time to realise its merits, but when they saw that solar prices have settled at a reasonable level, they decided to go ahead with the process of competitive bidding.
The tariffs will not be the same for all tenders and will have to be determined for each tender independently. These will vary depending on the site, counterparty risk, the discoms that are buying and their payment track record, and the payment security mechanism built into each contract. Therefore, the wind energy segment discovering a price of Rs 3.46 per unit on its debut bidding process, without site details and other variables, is an achievement. It is important that the implementing agencies have extensive consultations with the stakeholders to mitigate any concerns that the industry may have and ensure that the payment security mechanism is robust.
This will help ensure that PPAs are signed promptly. I believe that we should not be thrusting a particular source of energy on any state. If six or seven states have the ability to exploit wind energy, let only those states produce wind power instead of forcing the others to set up unfavourable wind energy projects and then buy this power at high prices. Neither consumers nor discoms should be burdened irrationally. At the same time, we must pump in more clean and renewable energy into the system.
Therefore, maybe at some stage we may also have to review till when we should have separate renewable purchase obligations (RPOs) for solar and non-solar sources of energy. It is time that we relook at whether we really need to have separate RPOs any more. We should leave it to the states to decide what is in their best interests. In this respect, if one state wants to have 100 per cent wind energy and another wants 100 per cent solar, they should be allowed to do so. Also, once we have formalised the hydro policy, we could look at a larger bucket for different states to fulfil their RPOs.
All of our policies earlier were set in a framework from the point of view of renewable energy being expensive. But now, we are looking at a greater role being played by renewables in the country’s energy mix, through the prism of competitive prices. We have moved from a mindset of shortages to the confidence of surpluses and in that framework, the future growth path of the power and renewable energy sectors will have to be redesigned.
I have requested for about one tender per month for the wind power segment. But I would like to caution everyone that if the pricing is going haywire, you must go slow, monitor the price levels and then calibrate your bidding. In wind, bear in mind, there is also the concern about intermittency, and scheduling and forecasting still not maturing into a science, causing certain states to stress over grid availability and curtailment. So, if everybody allows fair and honest competitive bidding, I am sure the wind industry will benefit hugely from larger volumes. We, at the ministry, are trying to see if PPAs can be signed even before the bidding happens, so that there is no risk of uncertainty in the bidding process.
We are looking at ways to strengthen the storage of power or a spinning reserve in the system so that the issue of backing down of thermal plants can be resolved. In this way, we will be able to ramp up and down rapidly, either through hydro- or gas-based power, and maybe also through batteries at some stage in the future. All of these together will create a sustainable ecosystem that will help the country’s renewable energy and power sectors flourish.
I am glad that large-scale contracts of about 250 MW and more have been signed in the first wind project auction. These will help the industry scale up, by improving indigenous manufacturing, enhancing competition, increasing economies of scale and evolving technologies. High competition among manufacturers for achieving efficiency on a greater scale will make prices more attractive. The wind power industry is now free to look at large-sized turbines, so we can expect turbines of up to 5 MW capacity being introduced in India.
There was news about one or two wind energy companies being in deep stress. But this does not reflect the state of the sector. The weeding out of inefficient players is a way to improve the health of the market. We will have to look after the efficiency of the system holistically, by bringing in a greater degree of transparency.
Moving forward, bidding guidelines will be more robust, similar to what has been done in the solar power segment. Issues concerning forecasting and scheduling must be discussed with the regulators because, unless that gets better, it will be very difficult to market wind energy for a long period of time.
By and large, the recently introduced GST regime has been good for the industry. All the changes that have happened in the new tax regime will make competition fair and equitable amongst players, irrespective of their location. This will help the industry become more uniform, both for the equipment and wind energy generation segments.
Clean energy, new and renewable energy, is the future of the power sector in India. The renewable energy industry is today one of the biggest job creation hubs in terms of large installations coming up. For every unit of electricity produced by renewable sources, the number of jobs created is about five or seven times that created through traditional fossil-based forms of energy. So, besides contributing to the country’s energy security, renewable energy is also helping create jobs and ensuring the affordability of power in the long run.