Following the shift from feed-in tariffs (FiTs) to competitive bidding in early 2017, the wind power segment has largely been supported by central government auctions. The Solar Energy Corporation of India (SECI) has so far tendered two lots of wind power projects of 1 GW each in February and September respectively. Apart from this, only two states – Tamil Nadu and Gujarat – released wind project tenders, but both faced objections from the industry due to the absence of any standard guidelines. This led to a total freeze on any new project allocation in 2017, thus adversely impacting the market and dampening investor confidence.
Therefore, the Ministry of New and Renewable Energy (MNRE) has released the wind auction guidelines that provide a framework for wind power procurement through a bidding process. These are designed to enable discoms to buy wind power at competitive rates.
According to the MNRE, the competitive rate of Rs 2.64 per kWh achieved in SECI’s second wind auction and the availability of guidelines for states will put the wind power segment on a strong growth path towards meeting India’s 60 GW wind target by 2022. The key features of the competitive bidding guidelines for wind power projects are as follows:
- Timelines for bidding process: In the bidding process, a minimum of 30 days will be allowed between the issuance of the request for submission (RfS) and the last date of bid submission. Following the bid evaluation process, letters of intent will be issued within 75 days from the issuance of the RfS document. The power purchase agreement (PPA) signing will be within 105 days from the zero date (RfS issue). In normal circumstances, the bidding process should be completed within a period of 120 days.
- Bid and project sizes: For intra-state projects, a single bidder will be allowed to bid for a minimum capacity of 25 MW with at least one 5 MW project at each site. For interstate projects, the minimum bidding capacity will be 50 MW at one site. The procurer can also specify the maximum capacity to be allotted to a single bidder including the bidder’s affiliates, taking into consideration economies of scale, land availability, expected competition timeframe and the market need.
- Payment security mechanism: The discom will provide payment security to the wind power generator through a revolving letter of credit that is equivalent to one month of average billing from the project under consideration, and a payment security fund suitable to support payment for at least three months of billing of all the projects tied up with such a fund. The procurer can also provide a state government guarantee to ensure that there is adequate security to the wind power generator, both in terms of the payment of energy charges and termination compensation.
- Financial closure: The wind developer should achieve financial closure within seven months from the execution of the PPA.
- Project commissioning timelines: All wind power projects should be commissioned within 18 months of PPA execution. A project will only be considered for partial commissioning when a minimum of 50 per cent of the project is complete. When a project is commissioned early, the procurer will have to purchase the power generated at 75 per cent of the PPA tariff till the specified commissioning date.
- Must-run status: Wind power projects will be accorded must-run status and no commissioned wind power project can be asked to back down by a discom or load despatch centre. In the event of a backdown, except for cases where a backdown is caused by grid issues, the wind power generator will be eligible for generation compensation from the procurer.
- Minimum and maximum generation: The declared capacity utilisation factor (CUF) should not be less than 22 per cent in a year. In cases where a project supplies less energy than the minimum CUF, the wind power generator will be liable to pay a fine to the procurer for the energy availability shortfall. If the power generated is more than the maximum CUF, then the generator is free to sell the excess power to any other entity if the procurer refuses to buy the extra power generated.
- Transmission infrastructure: The responsibility for getting transmission connectivity and access lies with the wind power generator and will be at its cost.
- Permissions and clearances: The developer will identify the land and submit the lease and agreement documents within seven months of PPA execution. It will also arrange for a no-objection certificate, a forest clearance certificate and a letter from the state transmission utility or central transmission utility confirming the technical feasibility of connectivity for the project.
Tendering story so far
SECI carried out the first-ever wind auction in India with the launch of a 1 GW tender at the end of 2016. The results were impressive as a sharp decline in wind power tariffs was recorded from the FiTs prevalent across states. The winning tariff was Rs 3.46 per kWh compared to an average FiT of Rs 5 per kWh. This encouraged SECI as well as the states across the country to move away from the FiT model. While SECI released another 1 GW tender in May 2017, Tamil Nadu and Gujarat also launched wind project tenders. Therefore, within a few months of the first auction, another 2,500 MW of wind capacity was tendered by state agencies. On its part, the MNRE issued the draft guidelines for wind power projects in April 2017 to facilitate the states’ transition to an auction-based regime for wind power.
However, the delay in finalising the guidelines held up both the auctions as the Indian Wind Energy Alliance filed petitions asking for a stay on the capacity tendered as there were no MNRE guidelines to base the auctions on.
Just before the release of the new guidelines, which are expected to clear the tender logjam, SECI released its third tender for 2 GW of capacity in November 2017. Although the pre-bid was held on December 14, 2017, the release of the new guidelines imply that a new RfS would need to be issued based on the new principles, thereby delaying the process.
The way forward
In sum, all’s well that ends well. The new guidelines may delay this one tender by a few days, but will definitely prove to be a much-needed catalyst for wind power growth. The stay on the Tamil Nadu and Gujarat tenders can now be removed allowing state agencies to go ahead with declaring the results and allocating projects. Other state agencies can also go ahead with releasing their respective wind tenders. This will also enable SECI, and for that matter all the state agencies, to follow a set of standardised guidelines and avoid a number of confusions and delays.
Given the recently released timeline for allocating wind power capacity, this augurs well for the segment’s future. So far, 5 GW of tenders have been released, including the 2 GW tender launched by SECI in November 2017. In January 2018, 1.5-2 GW of capacity will be auctioned and the same amount will be tendered in March 2018. Further, the MNRE has stated that bids for an additional 10 GW per year will be launched in 2018-19 and 2019-20.