Reaping the whirlwind

With wind tariffs falling to a record low of ₹2.64 per kW/hr in the capacity auctions held last week, the Centre may legitimately congratulate itself for bringing down wind energy prices. Until February this year, the fixed ‘feed-in tariff’ at which wind energy companies would sell electricity was determined by the regulator of each State. Under the FiT regime, the least that a wind energy company was paid was ₹4.16 a kWhr in Tamil Nadu. With the wind industry being able to speak for its interests at the regulators’ hearings, held for fixing the tariffs, wind prices remained firm even while solar tariffs kept declining thanks to competitive bidding. Hence, a situation prevailed wherein market-determined solar tariffs kept falling, even as the regulator-determined wind tariffs did not. The contrast between the two inevitably led to the Government bringing in competitive bidding for wind, overruling objections of the industry. From the point of view of the Government, the results turned out to be remarkably positive. In the first auctions for 1,000 MW of capacity, held in February, wind tariffs slid to ₹3.46 a kW/hr, and in the second, concluded last week, tariffs fell further to ₹2.64.

Having now hammered down tariffs, the Government should lose no time in ensuring that substantial capacity is put on the auction block in quick time. In business everybody should win; what the industry loses in terms of prices it should earn in volumes. State governments should be enabled and encouraged to come up with wind tenders. There has been unconscionable delay on the part of the Central Electricity Regulatory Commission in bringing out guidelines in this regard. States should stop issuing threats of re-negotiating signed power purchase agreements or not signing negotiated PPAs with a view to arm twisting energy companies to accept lower prices, and instead prepare for competitive bidding. Above all, the Central and State governments should work towards creating a free market for electricity, where any generator could sell to any buyer at any price, which is the overarching objective of the Electricity Act 2003. Today, such ‘open access’ is hampered by State governments disallowing it or making it costly through levies such as cross-subsidy charges.

Wind energy tariffs could be higher in the subsequent auctions. This is because ₹2.64 was the result of distress sale by turbine manufacturers and aggressive bidding by private-equity funded energy companies, under pressure to deploy funds. The Government should temper expectations of a further fall in tariffs.

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