Feeling the Pressure

Developers’ outlook on wind tariffs, consolidation and capacity utilisation

The wind industry has been facing several issues since the adoption of the competitive bidding mechanism. Market dynamics are changing rapidly. Wind tariffs have reached a new normal, which is more acceptable for discoms. However, the declining tariffs and unavailability of adequate transmission infrastructure have discouraged developers from participating in the new tenders. Reverse bidding has created a short-term pressure on the value chain, raising questions on the viability of projects with lower tariffs. At Renewable Watch’s “Wind Power in India” conference, key developers discussed the current state of affairs, challenges and market outlook…

What are the challenges faced by wind power developers and your views on the present state of the wind segment in India?

D.V. Giri

Manufactures are the largest stakeholders in the wind power industry. India has over 45 manufacturing units with cutting-edge technologies and 16 in-house research and development facilities competing on a global level. However, it is a matter of concern that India is not where it should be to meet the 2022 target. We have to set up around 8 GW of capacity each year to achieve this target, which is not happening. The government has planned its tender trajectories to meet the targets but on-ground implementation has been slow. The Solar Energy Corporation of India (SECI) is facing roadblocks due to connectivity issues and project timeline extensions. The Tranche V auction was cancelled and the capacity was lowered to 1.2 GW in Tranche VI. The NTPC auction capacity was also reduced to 1.2 GW. This does not give a very positive signal to global developers and financial institutions. We are also facing challenges on the tariff front like whether financial institutions will find wind power prices lower than Rs 3.0 per kWh sustainable. The industry also needs to see if only SECI will tender wind projects in the future as the states have stopped procurement since the launch of competitive bidding (barring 500 MW tenders in Gujarat, Tamil Nadu and Maharashtra). I would strongly recommend looking at other vehicles such as projects for micro, small and medium enterprises in wind-rich areas and going back to the retail wind industry.

Suman Nag

Special attention needs to be given to the development of projects with more than 300 MW of capacity being set up at a single location, as well as to land availability, transmission capability and wind resource assessment. These parameters are very important for providing certainty over a 25-year project lifecycle. The industry should not get side-tracked by capacity addition but pay more attention to these factors going forward. Capacity building is another challenge that needs to be addressed as soon as possible. As far as tariffs are concerned, there should be another way of discovering the power purchase prices apart from auctions. Feed-in tariffs (FiTs) have served the industry well in the past, and have contributed to the high growth of the wind sector in India. FiTs can especially serve developers targeting smaller projects of less than 25 MW, as they do not have the required capital to bid in mega auctions.

Ateesh Samant

Developers invest a significant amount of time and resources in conducting feasibility studies to assess the project location and getting power evacuation approvals before bidding for a wind project. If a developer does not get approval for power evacuation before bidding, then bidding for the project itself becomes a challenge. There are a limited number of high-wind sites in India, and most of the projects are concentrated in Gujarat and Tamil Nadu. Once these sites are exhausted, new sites, which may not offer such high PLFs, will have to be explored. In that case, this unrealistic pricing mechanism, which does not take into account locational aspects, with such low tariffs will not work. Consolidation is likely to continue owing to the limited opportunities and capital in the market. This capital mainly comes from foreign investors. Raising capital in the domestic market has its own challenges mainly due to unrealistic return expectations. On the bright side, the segment will move to better utilisation of evacuation capacity and wind resources. Solar-wind hybrids and energy storage will start gaining traction in the near future as government policies are increasingly focusing on these segments. However, offshore wind might not gain as much popularity in India owing to higher tariffs as compared to the onshore segment.

What is your outlook on the prevailing tariffs in the wind segment?

D.V. Giri

I don’t think such low tariffs are sustainable. When the price came down to Rs 2.44 per kWh, everyone assumed this to be the benchmark and expected tariffs to reduce further in the future. The bid tariff is not really the issue, what concerns me is the process of bidding. Auctions with higher tariffs such as Rs 3.50 per kWh were transparent and should not have been cancelled as there is a manufacturer, bidder, agency and final consumer involved, and all have to be considered. The risk appetite for different developers is different and is reflected in the auction results.

Suman Nag

Wind power is highly dependent on the location and technology being used, so quoting a generic tariff for wind power is not realistic. The tariffs will keep changing with different project locations. This factor needs to be kept in mind by all the stakeholders involved instead of focusing only on how high or low the tariff is.

Ateesh Samant

Expected returns are definitely low at these tariffs, especially considering the high risks borne by developers. While the project timeline of 18 months is perfectly reasonable, developers face several challenges pertaining to approvals for power evacuation and land acquisition. Another major challenge is that the PLFs required in these bids are very high compared to the actual PLF levels. This becomes unreasonable for the investors as well.

What is the level of capacity utilisation in the manufacturing industry? What is the outlook going forward?

D.V. Giri

Capacity utilisation in the manufacturing industry is dismal at present. It is worse than the last year. The manufacturers were initially stuck with finished inventory both at the factory level and the project level. This is slowly getting cleared, but with 12,500 MW of manufacturing capacity at present, chasing about 2 GW per annum of capacity will not be a comfortable situation. However, companies that are using India as a manufacturing hub to export wind equipment are doing relatively well.

Suman Nag

Capacity utilisation in the manufacturing industry is 30 per cent or lower. The past year was not very good for manufacturers, but the next year is likely to be much better, especially with SECI’s tenders for the interstate transmission system (ISTS). Going forward, we will have to consider the tariffs, evacuation capacity and high-wind sites in order to ensure consistent bids.

Ateesh Samant

Some of the manufacturers in the past have been giving quotes based on the marginal pricing method. Sustainability at such low quotes remains a challenge for both the manufacturer and the developer.

Which areas have the maximum transmission constraints?

D.V. Giri

The ironic situation is that there is no wind power development taking place on a state level. Unutilised state transmission utility (STU) capacity is estimated at 30,000 MW (in the areas suitable for wind power development). A proposal has been submitted to the government to use this STU capacity as a deemed central transmission utility (CTU) for some time. If such a step is not taken, we will be stuck with no transmission capacity and project timelines will keep getting extended. So while there is transmission capacity available at the state level, the states are not tendering new capacities and instead purchasing power from projects set up under SECI’s ISTS tenders.

Suman Nag

In India, wind power development has occurred mainly around states, that is, STUs. CTU stations suitable for evacuation may not be near a high-wind site. Some projects have evacuation lines of over 100 km, which in itself is an issue as it brings complexity to projects and timelines.

Ateesh Samant

The transmission constraints are mainly on the CTU side. While the STUs are well managed, the condition of the CTU is critical at the moment. Most of the CTU capacity is controlled by Power Grid Corporation of India Limited, which gives approval on a first-come-first-served basis, and it may or may not be the same as the party winning a bid.

What are your views on wind versus solar in terms of development opportunities?

Suman Nag

The same challenges and opportunities exist for both the sources. For our organisation, the focus has been on wind, but we have also explored solar and completed about 350 MW of projects in the segment. But I don’t see this as a wind versus solar debate as India is now actively exploring hybrid power plants, which constitute both solar and wind generation. I think, in the future, the stakeholders will look at opportunities in a renewable energy system instead of a standalone wind or solar plant.

Ateesh Samant

Wind may end up becoming cheaper than solar on a cost per unit basis. Land acquisition is a challenge in solar power development as it requires continuous land. Transmission capacity utilisation is also higher for wind power owing to higher PLFs. However, solar power is easier to install as wind requires considerable development works. Solar also offers more predictable returns when compared to wind.

 

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