An apocryphal piece of wisdom attributed to Chanakya, the famous Indian politico-economist of yore, has it that in business “if the person whom you deal with does not lose, you shall not lose.” However, in the ‘lowest bidder’ culture of the present-day tenders, this commonsensical principle has been given a go-by. Nowhere is this clearer than in the case of the Indian wind industry.
Until 2017, the tariffs at which wind energy companies would be paid for their electricity used to be fixed by the respective State electricity regulatory commission — a system that was fraught because the energy companies argued their way to plump tariffs, to the detriment of the buyer, the electricity distribution companies (discoms). The lowest tariff among any state back then was ₹4.16, paid in Tamil Nadu. This writer was present at a meeting when the industry demanded a tariff of ₹6, in Andhra Pradesh.
The Centre was understandably unhappy with this situation. In 2016, the then Energy Minister, Piyush Goyal, brought in something that the industry had been fearing the most: competitive bidding. Under this system, the Centre would procure wind power at prices determined in capacity auctions; the company that offered to sell at the least price, got to sign a long-term power purchase agreement with the government of India undertaking, SECI. SECI in turn would sell the power to those States that had no wind resources.
The logic appeared to be sound. Prices would come down due to competitive pressures, but the wind energy companies would be richly compensated in terms of higher volumes, longer lead times to put up their projects and, more importantly, assured payments (as opposed to hugely delayed payments by the State-owned discoms.) Till then, India was adding about 2,500-3,000 MW of wind capacity every year; the government sold the idea that volumes would increase to 5,000 MW and above, over time.
On the other hand, the wind industry cautioned that competitive bidding would bring in a culture of ‘bid low to win, and think of putting up the projects later’. Few, including this writer, believed the industry’s captains — after all, they were known to bat for themselves.
In the first bid, which was opened in February 2017, the discovered tariff was ₹3.46 a kWhr — a price that rattled the industry. In successive auctions, the tariffs fell to below ₹2.50. An exultant government declared victory.
However, all this had an unintended, deleterious consequence — which should have been foreseen by a smart government. All the winning companies rushed to Gujarat, the State with the best wind resources (after Tamil Nadu, where windiest sites had been taken up). An overwhelmed Gujarat government saw its best sites being taken up by projects whose low-cost electricity would go not to Gujarat, but to some other States — and baulked from allotting lands for the projects, leaving the developers stranded.
Up to this point, nobody could have really faulted the Centre. Leaving prices to be determined by market forces had a zeitgeist appeal and ‘high volumes, low margins’ was the way to go. However, at this point, the government committed a cardinal sin — not changing tack, when it realised things were not working out as planned.
When fresh capacity additions fell from 5,510 MW in 2016-17 to 1,776 MW in 2017-18 and 1,479 MW in 2018-19, it should have set alarm bells ringing. The industry had one simple suggestion: instead of a pan-India bid, please do State-wise bids, so that bidders would quote sensibly for projects in less windy States and the development would be widespread.
In October 2018, Anand Kumar, the then Secretary, Ministry of New and Renewable Energy (MNRE), told this writer that the government had planned to do “sub-station-wise bidding”, which is even more local than State-wise. BusinessLine published a news report on October 8, 2018, titled ‘Sub-station-wise bidding for wind projects in the offing’. Almost four years down the line, on April 27, at the Windergy 2022 conference in New Delhi, the current MNRE Secretary, Indu Shekar Chaturvedi, again said that the government is “working on” State-wise bidding.
The government has also turned a deaf ear to several other suggestions of the industry. One was for bringing in a ‘floor price’ for auctions below which bidders could not quote. The government, having tasted low tariffs earlier, refused. The industry has been asking for two-part tariff, as for coal power, but this has not been agreed to. This suggestion has the backing of power grid experts such as Sushil Kumar Soonee, former CEO of the power systems operator, POSOCO.
Of course, implementing ideas such as State-wise bidding, floor price and two-part tariff would have raised the tariffs — but unremunerative tariffs would not help either. This is clear from the poor installation record. The capacity that has actually been built from 11 rounds of auctions amounts to a paltry 3,196 MW, compared with 16,300 MW tendered and 12,740 MW awarded. Those who won projects are surrendering them, realising their economic unviability.
India aims to have 500 GW of renewable energy installed capacity by 2030, of which wind would be 140 GW. At present, the country has 40 GW, but between now and 2030, some 20 GW would have completed their useful life and would need to be scrapped. This means that 120 GW would need to be built in eight years, or 15 GW a year.
If the current system of ‘lowest tariff wins the project’ continues, then energy companies will continue to flock to Gujarat and nothing will get built.
The country would be trundling along with 1,000-1,500 MW a year and nobody would ever take India’s targets seriously. Already, India has kind of become a laughing stock by asking for Expression of Interest for offshore wind projects and offering peanuts to the 30-odd companies that responded. Four years on, India is yet to make the first move for offshore. If the country does not get on to a trajectory of meeting the 500 GW target, its credibility would suffer.
Worse, the low tariffs have benefited no one. The common man has not got a paise; the benefits to the discoms have been negligible. In the meantime, a promising industry is now looking like — to borrow from PG Wodehouse — a stuffed parrot from which the sawdust has been leaked out.