In several capacity auctions in recent times, wind energy companies have demonstrated their ability to sell electricity at record low prices – ₹2.43 a kWhr has been the least – and the days of these companies getting plum prices fixed by the State electricity regulators are gone. Low tariffs are here to stay.

Turbine costs

These companies, called independent power producers (IPPs), could not have quoted such low prices unless backed by an assurance by wind turbine manufacturers that they would sell their machines at prices that would enable the IPPs to sell power at low rates and still be in business.

Does this mean that the wind turbine manufacturers, who are the real movers behind wind electricity prices, have been profiteering all these years? If they could drop prices now under pressure of competition, why couldn’t they have done it earlier? These are the questions being asked today, and there have been accusations that turbine manufacturers had been making unconscionable profits at the cost of end customers, typically the electricity distribution companies.

Speaking for turbine manufacturers, Ramesh Kymal, Chairman and Managing Director, Siemens Gamesa India, a doyen of the Indian wind industry, says turbine manufacturers could now sell their machines at prices that are economical for the IPPs because of two factors that were absent earlier – visibility of large volumes and the longer time period allowed to execute projects. (Typically, rather than only sell the machines, turbine manufacturers execute projects on behalf of the IPPs.)

Tariff-based bidding

Ever since ‘tariff-based competitive bidding’ – where the bidder who offers to sell electricity at the least price bags the projects – came into being, the volumes offered have grown. The current financial year begins with 8,500 MW of projects awarded through tenders; at least a part of this will be set up this year.

Kymal expects 4,000 MW of capacity to come up in the current year, against 1,766 MW last year and 5,500 MW in 2016-17.

Chunkier orders bring economies of scale and more time to deliver on them enables turbine companies to plan production in terms of purchasing land, rationalising supply chain, organising logistics and customising construction for the sites rather than use templates, Kymal told Business Line .

Talking for his company, Kymal said Siemens Gamesa did not actually drop prices. It so happened that the improvements in machines that the group’s R&D was developing came to fruition right at the time when tariffs dropped. The company has just brought in a 2.1 MW machine with longer blades, which took three years to develop. Siemens Gamesa is just selling better machines for the same price, he said.

Challenges

Siemens Gamesa recently announced that it had crossed a milestone by delivering 5,000 MW of machines to Indian customers. The company has been present in India since 2009. Kymal sees challenges in the execution of the projects awarded via the three capacity auctions conducted over the last 15 months by the government company, SECI. The winning bidders all plan their projects either in the Tirunelveli region of Tamil Nadu or the Kutch region of Gujarat.

Such concentration of projects brings in its wake issues such as land availability and prices and capacity of transmission infrastructure. However, these are not insurmountable problems — solutions would always be found. For example, two or more companies could join hands to build a substation of a higher capacity, Kymal said.

However, in the coming auctions these challenges may not be there, as there is little chance of more projects coming up in these two areas. Projects would spread out, and since the wind speeds may not be as good, electricity generation would be lower and consequently, tariffs would be higher, he said.

Related Topics
comment COMMENT NOW