Wind power installations witness steep fall in H1 this year

M Ramesh Chennai | Updated on January 08, 2018


Installations of new wind power capacity in the first half worked out to 421 MW, compared with 1,305 MW in the corresponding period of last year, a trend that indicates that wind power capacity addition in the current year is likely to be far less than the record 5,400 MW achieved in 2016-17.

Wind industry insiders say they would consider themselves lucky if fresh installations this year would cross 1,200 MW.

With this, India has wind power machines of a total capacity of 32,700 MW.

Fresh capacity additions are falling because earlier this year, the central government brought in capacity auctions through a bidding process, where the power producer who quotes the least price would get to sign long term power purchase agreements.

Earlier, wind energy companies (developers) used to sell power to the various electricity distribution companies (discoms) at fixed tariffs determined by the respective state electricity regulatory commissions.

The competitive bidding had the effect of hammering down the tariffs, and in the first auctions that were concluded in February, threw up a surprise tariff of Rs 3.46 a kWhr. Comparatively, the least fixed tariff was Rs 4.16 in Tamil Nadu.

State governments, seeing that competitive bidding brings down the tariffs, have stopped signing power purchase agreements at fixed tariffs (aka ‘feed-in tariff’). But they are also not ready to follow the example of the central government and bring in their own competitive bidding programmes. With the buyers of the power not being ready to sign purchase agreements, the market for wind power has completely disappeared. Hence 421 MW in the first six months of the current year.

Meanwhile, the central government also came out with its second round of bidding, which was concluded earlier this month. The tariff discovered was yet another record low—Rs 2.64 a kWhr. And, the government has been dropping hints that there would be more capacity put on the auction block, perhaps as much as 4,500 MW in the next four months.

Not the benchmark

In this context, industry experts have cautioned against regarding the Rs 2.64 tariff as any benchmark. Such a low tariff happened due to notably two exceptional factors. One, the wind turbine manufacturers dropped prices by as much as 20 per cent, doing a distress sale of their inventories. “The manufacturers were stuck with huge stocks of machines that were in various stages of manufacture,” notes Ramesh Kymal, Chairman and Managing Director of Gamesa India, the Indian subsidiary of Siemens Gamesa, a wind power multinational. In supporting the developers to go as low as Rs 2.64, turbine manufacturers have agreed to take a loss, reckoning that such loss is cheaper than the carrying cost of inventory.

The second factor is, developers who are all private equity funded, have been sitting with funds that they need to deploy and were rather desperate to bag some projects. They have also agreed for much lower returns.

Neither of these two factors is likely to obtain in future.

The industry fears that the tariff of Rs 2.64 might become a psychological benchmark, driving state-owned discoms to refuse power purchase agreements at previously agreed tariffs. There have even been instances of states wanting to re-negotiate signed agreements – a move that is unlikely to stand in a court of law, but would nevertheless arm-twist developers to come to the negotiating table and accept a lower tariff than the one signed.

Kymal, who is also the Chairman of the National Committee on Wind and Biomass of the Confederation of Indian Industry, feels that tariffs will go up in the subsequent rounds of bidding, even if not to the levels of the feed-in tariffs. Many in the industry feel that wind tariffs would settle down at around Rs 3.70.

Published on October 17, 2017

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