Explore linking wind energy tariffs with commodity price indices: GWEC

The Global Wind Energy Council (GWEC) has suggested linking wind energy tariffs with various commodity price indices to ensure that the project is not impacted or delayed due to market volatilities.

The GWEC India in a report on the wind energy sector recommended exploring the possibility of introducing a robust indexation mechanism to protect project developers against price shocks in events of force majeure, including natural calamities, wars, and other such unexpected events that might hamper financial viability of projects that are already under construction.

“In addition, taking measures to ensure the financial health of project developers and manufacturers, who are facing the double impact of stalling capacity additions as compared to annual targets and price surges across the value chain, is necessary to ensure that the wind industry can play its role in helping India achieve its sustainability and growth ambitions,” GWEC CEO, Ben Backwell said.

India has already achieved nearly 41 gigawatts (GW) of installed onshore wind energy capacity, making it the fourth-largest market for installed wind capacity globally.

Tracking project costs

Several developing countries leverage indexing clauses linked to the dollar or national inflation index with the provision for regular review. This is to ensure that the new value of the project remains unimpacted by unforeseen external risks posed by inflation and/or market volatilities, the report pointed out.

“Building on international best practices, it may be useful to explore linking wind energy tariffs with commodity price indices to mitigate any business and project risks,” it recommended.

In the case of unforeseen events such as the Russia-Ukraine crisis, Covid and other similar events which lead to a rapid and unpredictable surge in commodity prices, sufficient adjustments must be provisioned to the affected projects, it said.

On delays in project execution, for reasons not attributable to lapses on part of the wind energy developer, timeline extensions must be provided. Any resulting changes in SCOD timelines must be linked to other contracts (such as LtoA charges) that are part of the overall project commissioning and any resulting penalty in cases must be waived off/suitably adjusted.

“To ensure project viability, even in wake of events of an abnormally high surge in the price of raw materials and equipment due to force majeure events, suitable tariff adjustments must be provisioned. To support such adjustments, the benchmark cost of raw material and equipment must be notified and regularly updated by the regulator/any agency appointed by the government,” the report has recommended.

Wind vs Solar

Under the current regime, the report pointed out that solar and wind are often described as competing technologies and they are compared based on tariffs discovered in auctions. This undermines their complementary roles for balancing the grid and thwarts the opportunity for diversification of power generation mix and fast pace decarbonisation.

Unlike a utility-scale solar PV power project — to which wind energy tariffs are usually compared — a utility-scale wind power project involves a much higher grade of engineering.

While transmission infrastructure, power evacuation, and land acquisition-related challenges are faced by both solar PV and wind power projects, the complexity of technology deployment and customisation required to meet site-specific requirements in the case of wind projects make the technologies distinct.

“Hence, State regulatory authorities must adopt technology-specific approaches and development pathways appropriate to each technology and fuel type. This includes harmonising centre/State incentives beyond non-solar RPO compliance by Discoms to support the overall grid profile and resilience,” the report suggested.

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