The Ministry of New and Renewable Energy (MNRE) has brought back the old method of ‘reverse auctions’ for auctioning wind power capacity to energy companies.

The Ministry has sent a letter to agencies that implement the capacity auction process (SECI, NTPC, NHPC and SJVN—all government-owned companies), stating that “in view of undersubscription and higher tariff discovery in recent wind bids”, it had reviewed the bidding method. “Reverse auction shall also be conducted,” the letter says. (Under the ‘reverse auction’ method bidders continue to bid against each other after the initial bids are opened, until a bid tariff goes unchallenged by a counterbid.) 

Incidentally, the ministry had given up the ‘reverse auction’ method at the beginning of this financial year, only because the method was not delivering results in terms of wind capacity installations. Data from the Central Electricity Authority shows in the six years between March 2017 (when wind capacity auctions began) and March 2023, India added just 10,354 MW, or a mere 1,725 MW per year. 

The method did bring down tariffs, from ₹3.46 a kWhr in the first tariff to a record low of ₹2.44, before rising to about ₹2.80 -- but unremunerative tariffs resulted in poor capacity installations. Energy companies (developers) also surrendered about 4,000 MW of capacity, saying they were unable to execute the projects. 

After the reverse auction was given up and the ‘closed bidding’ system was adopted (where the bids are opened and the lowest bidder is declared the winner), tariffs rose. 

For example, in the auction round named ‘SECI XVI’, which was for a capacity of 1,350 MW with a greenshoe option for 700 MW, for Gujarat, Karnataka and Rajasthan, tariffs were between ₹3.60 and ₹4.24. 

But now, making a u-turn within one year, the MNRE has brought back reverse auctions—‘vanilla wind bids’ may also happen but only “as per the specific requirements from state discoms” and each such bid shall not be for more than 600 MW. 

The MNRE letter to the tender implementing agencies also says that “bids should be issued on pan-India basis, instead of the present practice of state-specific bid”. This is another instance of a reversal of policy, as earlier all auctions were pan-India – a winning company could put up a wind project anywhere in India and sell electricity to the bidding agency.  

Industry unhappy

The ministry’s move to bring back reverse bidding has disappointed the wind industry, which feels that too much emphasis only on keeping tariffs low is hampering capacity additions. 

They point out that a tariff of around ₹4 is still lower than the average cost of power that the state utilities incur when they buy electricity from diverse sources such as thermal, nuclear and hydel.