After the success of its past four wind auctions, the Solar Energy Corporation of India (SECI) released its fifth tender, in May 2018, to encourage wind capacity addition. A capacity of 2,000 MW of inter-state transmission system (ISTS)-connected wind power projects was tendered with a submission deadline of July 10, 2018. Bids were invited for capacities ranging from 50 MW to 300 MW, to be developed on a build-own-operate basis, as in the case of the previous tenders.
While the aim was to leverage the decline in wind tariffs and facilitate the use of cheaper wind power for meeting the renewable purchase obligations of discoms, the tender met with a lukewarm response. Contrary to expectations, the tender was undersubscribed by 800 MW. This was in stark contrast to the previous wind capacity auctions conducted by SECI, which saw a general trend of oversubscription. However, the recent tranche of auctions saw only four bids of 300 MW each by ReNew Power, Adani Green, Sprng Energy and Alfanar, against a tendered capacity of 2,000 MW.
The lowest tariff quoted by the bidders in this auction was Rs 2.51 per kWh, the same as the lowest tariff discovered in the last SECI auction in April 2018. However, the lowest tariffs quoted in two recent auctions by SECI were slightly higher than those quoted in the third auction, conducted in February 2018, in which wind tariffs dipped to Rs 2.44 per kWh. The recent auction results indicate a gradual stabilisation in the wind market, with bidders becoming more cautious in bidding in the hope of improving their returns.
The undersubscription has created a predicament for SECI. So far, it has not declared the bid results and is contemplating whether to continue with the allocation or cancel the tender. According to sources, the primary reason for the lack of participation in this auction is that the current transmission infrastructure is not equipped to deal with the significant wind capacity additions planned in the short term. Developers are already complaining of massive delays in getting access to power evacuation bays for their projects. Certain instances of grid curtailment have also been reported due to connectivity issues. With delays foreseen in the completion of the green energy corridor, transmission issues will only get compounded as the gestation period of a transmission project is longer than that of a wind project.
Further, there is a lot of confusion regarding the rules for the grant of connectivity to the ISTS. There is some discontent in the industry due to the implementation of deviation charges as well as wheeling and transmission charges for large-scale integration and transportation of wind energy through the grid. In addition, frequent payment delays by discoms, owing to their poor financial health, impede the revenue flow of developers.
In light of these issues, SECI has decided to postpone the pre-bid meetings of two more tenders – the 2,500 MW ISTS-connected wind power projects (Tranche-VI) tender and the 2,500 MW wind-solar hybrid power projects tender.
The impact of the results of the SECI Tranche V tender is also visible on state-level wind tenders. A day after these results, Gujarat Urja Vikas Nigam Limited (GUVNL) cancelled its tender for 500 MW of wind projects. The capacity was tendered by GUVNL under Phase II of its programme for the procurement of wind power through competitive bidding. Shortage of transmission is believed to be one of the key reasons for the annulment. The new tender is likely to be released after two months.
Meanwhile, there is a growing interest of investors in solar power development, which is partly responsible for the decreasing share of wind in the total energy mix. In fact, this was one of the reasons that prompted the government to phase out feed-in tariffs and move to an auction regime for allocating wind power projects in the first place. While competitive bidding provided the necessary trigger to raise the competitive bar for the wind power segment in the short term, long-term issues still remain to be addressed.
Going forward, the government needs to focus on addressing these challenges on an urgent basis in order to ensure active participation of developers in future auctions. The increased risks associated with wind energy projects may lead to a loss of investor confidence in the segment, and impact future capacity additions.
By Khushboo Goyal