Renewable energy ministry rules out removal of tariff caps

The government will not remove the wind and solar ‘tariff caps’ or the fixed highest ask price in the wind and solar capacity auctions of the Government of India, Anand Kumar, Secretary, Ministry of New and Renewable Energy, told BusinessLine on Tuesday.

The Government of India-owned company, SECI, conducts capacity auctions on behalf of the government. The tariff caps for the latest auctions of wind and solar were Rs 2.93 and Rs 2.85 respectively.

The existence of the tariff caps has been a sore point with the industry, which it finds unfair and unviable.

However, Kumar has a different view. “If you find the cap unacceptable, don’t bid. I’m not forcing you to bid,” he said.

When it was pointed out that several of the recent government auctions were under-subscribed, he said, “yes, that is why we have raised the cap to Rs 2.93. He stressed that the government was “not insensitive.”

“You can ask for a liberal cap, but don’t ask for removal of cap,” he said.

The cap controversy

In India, solar capacity auctions were always held on the basis of tariffs. The solar energy company (or, ‘developer’) who offered to sell at the least tariffs would get to sign a power purchase agreement for a specified capacity. Utilities used to procure wind power at fixed tariffs determined by the respective state electricity regulatory commission.

But in February 2017, the Government of India, through SECI, began auction capacities on the basis of tariffs, as in the case of solar. Due to the consequent competition, the prices at which wind developers sold power to SECI fell. In the first ever Central Government auction of February 2017, wind power prices fell to Rs 3.46, a historic low then — the least fixed tariff till then in any state was Rs 4.16 in Tamil Nadu.

In subsequent auctions, tariffs fell further, reaching a low of Rs 2.44 in SECI’s third round of auctions, which took place in February 2018. Tariffs have since risen.

However, the SECI options became a template for state governments to follow; they gave up fixed tariffs and began buying wind and solar power through auctions. In Gujarat’s auction of December 2017, tariffs fell to Rs 2.43, the lowest ever.

Ever since, renewable energy developers – wind companies in particular – have been clamouring for removal of caps, but the government has been unrelenting.