Wind energy: is it time for competitive bidding?

In its quarter century of existence, the Indian wind energy industry has always sold power at fixed feed-in tariffs, earlier determined by State governments but now by the respective State electricity regulatory commissions.

Price discovery through competitive bidding brings down the cost of power, as has happened in solar.

Thus, last year, when Rajasthan wanted to bring in ‘competitive bidding’ the industry was in jitters. It breathed easy only when the government changed post-elections.

But now, by the looks of it, the wind energy industry is not going to be able to shake off ‘competitive bidding.’ An indication of this was given by Energy Minister Piyush Goyal, at the recent launch of the Indian Wind Energy Alliance (IWEA).

Responding to a demand that the Central Government should procure wind power (as it does solar power), Goyal said, ‘fine, but only at rates determined by competitive bids.’

Till date, only the State governments have been buying wind power. However, their programmes provide only enough demand to attract annual generation of 2-2.5 GW annually. If the Centre wants to raise the wind energy production to 4-5 GW (10 GW eventually), the only way is for it to come forward to buy the power – Central procurement. The fear is that such a move would set a precedent that State governments will follow. Sumant Sinha, Chairman of IWEA, who wants Central procurement, calls for enforcing ‘renewable purchase obligations’ to raise annual capacity additions to 5,000 MW. (The RPO is a mandatory green power purchase requirement, imposed on electricity distribution companies and major consumers, which is seldom followed.) But others point out that the Centre cannot enforce RPO — it is up to State electricity regulators.

Outside the wind power industry, there is a clamour for competitive bidding.

“We have been arguing for a competitive bidding-based price discovery model for wind, as in the case of solar which has allowed us to capture the decrease in international prices,” says Ashwin Gambir, a researcher with the think-tank, Prayas Energy. Gambhir notes that elsewhere in the world, where they have fixed tariffs, the tariffs decline over the life of the power purchase agreement.

However, in India, tariffs remain fixed for the entire life of the PPA, even if generation is higher than that assumed while calculating it, he says.

Not everyone in the wind industry is against competitive bidding. Even now most public sector undertakings place orders for turbines based on the cost of energy, rather than the price of the machines, which is “in a way” competitive bidding, a manufacturer said.

Ranjit Gupta, CEO of the Actis-backed Ostro Energy, a wind power energy company, says that in a scenario where both turbine manufacturers and power producers bid for a project, the former will have better pricing power.

However, “on the flip side, if the government does start competitive bidding “the industry will adapt within a one year or so.”

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