India has a very important role to play in the global wind energy context. Given the fast increasing energy demand, it would be crucial to see how the country meets its power requirements and at the same time combats climate change. It has become a leading wind player in a short span of time, offering immense opportunities to investors. India also has very ambitious renewable and wind energy targets, due to which we can expect a greater political momentum in the sector. However, despite the impressive targets, the actual implementation has been both difficult and tardy, making the wind sector an underperformer. Further, Covid-19 is significantly impacting the industry. While short-term effects due to supply chain disruption are inevitable, medium-term effects currently remain unclear. The mid-term scenario would depend on the kind of energy demand that emerges, whether tenders and auctions around the world would continue, whether lower energy prices would impact power purchase agreement (PPA) markets, among other factors. If recovery is managed in the right way, most of the projects can be expected to spill over into 2021.
While the current installed capacity of wind power in India is 38 GW, the target for the year 2022 is 60 GW and the envisioned capacity for 2030 is about 140 GW. These are tall targets and would be hard to achieve. Although demand for renewable energy is high, wind has lost ground. The year-on-year installations consistently increased until 2017, when the government shifted from the feed-in tariff regime to competitive bidding. In financial year 2017, 5.5 GW of capacity was added, followed by 1.8 GW, 1.6 GW and 2.1 GW in the years 2018, 2019 and 2020. However, state support remained robust during this time and a project pipeline of 18 GW was created over the three years (2017, 2018 and 2019) – 14 GW was in the form of tenders by the central government and about 4 GW was in the form of tenders floated by state-level agencies. In 2017 and 2018, most of the tenders were oversubscribed while 2019 saw a dip in participation.
In order to give a boost to the wind energy segment and ease the process of payments, the government made it mandatory to sign a letter of credit for any new capacity. It also announced 25 GW of renewable energy parks for solar and wind power projects. New substations were also outlined for the states of Andhra Pradesh, Karnataka, Gujarat and Maharashtra. However, several challenges continue to impede growth in the wind energy segment. These issues include delays in signing PPAs, payment delays by discoms, change in policy on land allocation and approvals at the local level, non-availability of grid evacuation infrastructure, and the lack of a corporate PPA market. There is currently a lack of interest in wind power procurement on the commercial and industrial (C&I) front. Other problems include paucity of good wind sites, warranting a shift to other regions. The need of the hour is to align state-level renewable purchase obligations (RPOs) with national-level RPOs. Medium-term solutions include introducing tenders for non-discom bulk consumers, such as more exclusive C&I tenders, in the market. Such new forms of tenders are currently being designed by the Solar Energy Corporation of India (SECI). More long-term interventions can be undertaken by introducing direct benefit transfer and waiving arbitrary charges.
Wind market and supply-side trends
The project pipeline is driven by three different markets: state, central and C&I. Seven states in the country are rich in wind resources and have been the traditional wind energy producers. For other states and union territories, the central government initiated wind energy auctions in 2017; these auctions were facilitated by government intermediaries. On the C&I side, bulk power consumers are allowed to set up their own plants in order to meet their demand and RPOs.
India, which is the second largest wind turbine manufacturing hub in Asia and the Pacific, is witnessing a consolidation trend. While 13 suppliers reported installations back in 2015, their number dropped to eight in 2020. With Senvion agreeing to sell its India business, market consolidation is likely to continue in the aftermath of Covid-19.
The wind energy segment has received much support from the government in light of the pandemic. Renewable power generating stations have been granted “must-run” and “deemed generation” status, while on-time payment of dues will be ensured for all generators. The renewable energy industry has also been given a moratorium of three months on repayment of loans by the Reserve Bank of India (RBI). The Ministry of New and Renewable Energy has granted a blanket extension of 30 days for renewable energy projects due to the lockdown. Moreover, the ministry plans to carry out 12 GW of wind energy auctions before December 2020. Other measures include issuing certificates for concessional import of specific goods, the liquidity injection scheme, repo rate cut by the RBI and generation-based incentives of up to Rs 3 billion for the months April to June. Although a recommendation has been submitted to the Ministry of Home Affairs to resume manufacturing activities and construction work, this will take some time. It will be difficult to revive activities due to the extended lockdown and varying restrictions by state and local authorities.
Even before the Covid-19 crisis struck, it was being anticipated that India would miss its 2022 wind energy target. In the current context, market activity will be limited with extensions provided to delayed projects with grid, land and investment issues. The market for the coming year can vary substantially depending on the augmentation of the grid, availability of investments in the market and activity in state auctions. Meanwhile, the discontinuation of inter-state transmission system waivers and resolution of grid issues in 2022 may create a rush for installations.
However, in the coming year, Covid-19 is likely to intensify the existing issues in the wind industry. It is expected that there would be a two-level impact. The first level would include projects scheduled for the fourth quarter of 2020 spilling over into 2021. Nearly 1.8 GW of projects scheduled for the first half of 2020 or already under construction are expected to be delayed, although their commissioning may happen in 2020. However, 0.7 GW to 1.1 GW of wind projects with commissioning dates in the last quarter of 2020 are expected to move to 2021. The second impact is likely to come about due to high-risk projects being dropped from the existing pipeline. Nearly 0.9 GW to 1 GW of project pipeline is at risk due to delays in PPA signing or issues with developers. There is original equipment manufacturer (OEM) contract risk also for 1.6-1.8 GW of projects, given the challenges faced by financially stressed OEMs. New tendering activity is expected to decline, impacting online volumes in 2022. The 2 GW of new volume subscription earlier expected in 2020 is likely to be limited to 1 GW due to challenges in demand and the stress on developers.
Based on remarks by Ben Backwell, CEO, GWEC, and presentations by Sidharth Jain, Managing Director, MEC Intelligence; Amar Variawa, Director of Marketing and Public Affairs, Vestas India and SE Asia; and Feng Zhao, Strategy Director, GWEC
By Meghaa Gangahar