Wind tariffs — the prices that wind energy companies get for the electricity they sell—are set to increase from around ₹2.95 a kWhr to around ₹3.30, because of a change in the government’s method of auctioning the wind capacities.
Under the ‘closed bidding’ method, bidders would not have to further outbid each other after their initial price offers are opened, as is the case with the present ‘reverse bidding’ method.
This ‘reverse bidding’ has been in vogue since the first auctions conducted by the government company, SECI, in February 2017. SECI has since completed 12 rounds of auctions; the 13th is underway and the 14th was announced in March. In all these, SECI has tendered for 17,500 MW of wind power capacities and awarded 13,931 MW. (SECI has also auctioned 7,600 MW of wind-solar hybrid capacities and lots of solar capacity too.)
However, the 14th would be the last. Further auctions would be under the closed bidding method.
Why tariffs must rise
Wind industry insiders say that it is inevitable that the tariffs rise— would have negligible impact on the finances of the various electricity distribution companies (discoms) and nil impact on consumers—because of the rise in costs.
The wind industry has been in the doldrums for about five years, with annual installations barely crossing the 2GW-mark (table).
Of the 17,500 MW tendered by SECI since the first capacity auctions in February 2017, only 4,739 MW have been commissioned, (though some projects still have time to come up.)
Read also: Wind energy obligations to generate additional 58 GW by 2030: CII
The reason for the less-than-happy performance is, according to industry insiders, the ultra-low tariffs discovered through the competitive bidding process. In a recent joint presentation to the MNRE, three wind industry associations (IWTMA, WIPPA and IWPA) demonstrated how tariffs have fallen between 2015-16 and 2021-22, while all costs have gone up—as shown in the table.
Tariffs have fallen even as all costs have increased, making the projects unviable. It is learnt that around 5GW of projects might be surrendered by the companies that won them through auctions. “This obsession with low tariffs must end,” says U B Reddy, an industry expert and Managing Director of Enerfra Projects (India) Pvt Ltd, a company that builds wind farms for others.
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What irks the wind industry is that the discoms pay more for coal. The ‘average power purchase cost’ (APPC), is the weighted average cost that discoms incur for purchasing all power except renewable, has increased from ₹3.4 a kWhr in 2016-17 to ₹3.85 in 2021-22. Since APPC mostly comprises coal-based power, discoms are paying more for fossil fuels than renewable energy—which flies in the face of the government’s vow to reduce fossil-based energy consumption.
Against this backdrop, the shift from ‘reverse bidding’ to ‘closed bidding’ acquires significance—because it is expected that the tariffs would increase to about ₹3.30 a kWhr.
MNRE may rope in PSUs for auctions
The Ministry of New and Renewable Energy (MNRE) has said that it would auction 10GW a year for five years from the current year, compared with 17.5 GW in the last five years. It is learnt that the ministry has, in-principle, agreed to a suggestion from the industry that the volume of the proposed auctions might be just too much for SECI alone to handle, and hence other government-owned companies could be roped in for conducting the auctions.
In this context, companies like NTPC, NHPC, PTC, SJVN and the entities under the control of the Indian Railways, are being considered.