Editorial. New auction design for wind power can spur the industry

The Centre has taken some welcome steps to improve the competitive bidding process for wind power projects. A recent notification in this regard appears to address some of the longstanding demands of the industry, which had displayed little interest in investing in the sector, going by wind power auctions conducted in 2022 by government company, SECI.

First, the method of bidding has been changed from ‘reverse auctions’ (where bidders continue to offer competitive quotes even after the bids are opened) to ‘closed bidding’ (where the best bidder is offered the project after the bids are opened). Second, State-wise tenders will be invited to allow for equitable distribution of sites across the eight windy States — Tamil Nadu (9.6 GW), Gujarat (8.6 GW), Maharashtra (5 GW), Rajasthan (4.3 GW), Karnataka (4.9 GW), Andhra Pradesh (4 GW), Madhya Pradesh (2.5 GW), Telangana (128 MW). The first will act as a fillip to small wind power generators. The second is expected to smoothen out costs across regions, encourage procurement by Discoms through the aggregator, SECI, and spur output. Every bid will be a composite bid comprising State-specific sub-bids for each of the windy States. Power generated from the capacity established through the sub-bids will be pooled and offered at a pooled tariff to the Discoms. Developers can diversify across States to levelise costs — from saturated States with expensive sites to less developed ones. The pooling rule is in keeping with the latest Electricity Amendment Rules (issued in December 2022), which state that “there shall be a different central pool for each of the sectors of the renewable energy sources”.

The aggregation of supply and pooled tariff across renewables is expected to spur the Discoms to ramp up procurement beyond merely meeting their RPO needs. Reduced transmission costs are essential for inter-State power pooling to work smoothly. The finance constraint for developers should be addressed. Ultimately, for the pooled tariff to work to the advantage of both producers and procurers, two factors must be overcome: first, the operational efficiencies of the Discoms on the one end ( a central problem of the electricity sector) and second, bottlenecks faced by the developers.

At present, wind capacity creation has taken a hit, as yearly fresh capacity additions are struggling to touch even the 2 GW mark — not least because of unviable tariffs. Capacity additions are just not happening at the pace required to meet India’s international commitments — 500 GW of non-fossil-based energy capacity by 2030. Solar too is facing a rise in costs due to both increase in global module prices as well as the effect of basic customs duty. The challenge at a broader level is to keep renewables tariff low and volumes high, so that the green hydrogen push becomes possible — transforming industrial production and mobility altogether.

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