Rough winds ahead

There seems to be no end in sight to the wind industry’s travails.

At the beginning of the year, some hearts nurtured a hope that things would sort themselves out for, after all, how long can you repress an industry raring to go? But that didn’t happen.

In the first six months of the current financial year, the country saw wind capacity additions of 1,464 MW. How much would happen in the remaining part of the year?

In the past, installations have happened at a mad pace even in the last month (March). But the odds are stacked against such a feat this time around. The reason is that the main issue — land availability for projects — seems to be, at least at the moment, intractable.

So far, SECI, the government company tasked with development of wind and solar in India, has conducted eight rounds of successful auctions, for a total of 9,370 MW. In addition, there have been two auctions for wind-solar hybrid, for 1,560 MW. State governments and NTPC have bid out another 3,482 MW. In total, there have been 16 rounds of auctions; 14,412 MW of capacity has been awarded.

Of this, 5,087 MW is due to have come up by now. And by March next year, 7,587 MW of auctioned capacity should be up and running. Against this, the achievement as of today is 1,707 MW.

And, by the way, developers of all but one of the 31 projects awarded through the first five auctions of SECI (for which developers have disclosed where they intend to put up their projects) have chosen to put them up in the windiest States of Gujarat and Tamil Nadu.

There are many reasons why the performance is so uninspiring, a great contrast with the year 2016-17, when the industry saw handsome installations of 5,600 MW and was looking at an extremely rosy future. But the two main reasons are: land availability and tariffs.

Gujarat, overwhelmed by wind projects flocking into its juiciest sites and noting that the cheap power would not come to it, but go to other States through SECI, has been refusing to part with its lands for Central projects, wanting to reserve them for itself.

This has apparently given Tamil Nadu a cue. Industry leaders speak of the difficulties in securing agricultural lands for setting up wind farms, even in cases where the lands have been producing very little — many in the industry say things are not straightforward.

This means that projects both in Gujarat and Tamil Nadu have, as PG Wodehouse would put it, stubbed their toe on the brick of Fate. But can’t the developers look at other States for putting up their projects? After all, they are free to do so — their customer, SECI, is only concerned about power being supplied to it. That is where the question of tariff comes in. Having bid so low, there is little wriggle room for the developers — their windmills will have to stand in gusty places. Or else, at the rates they agreed to sell power, the generation would not be enough to keep the projects viable.

Government’s role

The industry has been asking the government to raise the tariff cap for the auctions. It feels that the caps are pretty tight, forcing the bidders to quote at or slightly under it. It has been clamouring for removal of the cap.

But the government has categorically said no. Anand Kumar, Secretary, MNRE, in a recent interview to BusinessLine , said as much. His riposte to the industry was, don’t bid if you don’t think your projects are viable at the capped tariffs. Why bid, and then complain?

Embedded in that is a message to this industry: if you don’t bid, I’ll keep raising the cap, little by little, till the bids start flowing again. Then I will know what the most economically viable tariff is.

Indeed, in the past, several auctions have been under-subscribed. Some have, therefore, been cancelled too.

The industry, on its part, points to an interesting data point. Look at the average cost of power of all the States that SECI is selling wind-derived electricity to. They are way above the competitively determined tariffs that SECI pays the developers.

The state-owned discoms are also not passing on the benefits of the cheap wind (and solar) power they get to consumers. This only means that the wind (and solar) industry is being squeezed to cover the inefficiencies of the discoms. Is this fair?

Why not pay us a fixed tariff that is, say, slightly less than the average cost of power that these discoms incur? That way, the discoms would (ought to) be happy — for they are still getting cheaper power; developers would also get a remunerative tariff — a tariff that would give them some space to manoeuvre if problems such as land availability crop up.

The latest tariff cap of ₹2.93 a kWhr, the government feels, ought to be okay. After all, it is considerably higher than the previous caps. But the industry shows calculations that even at ₹2.93, and at the most liberal cost assumptions, the IRR works out to around 12 per cent — hardly attractive.

The industry has been asking for a fixed tariff of ₹3.25 a kWhr, which will be slashed by five paise every year for five years, till it reaches ₹3, and will stay there. Give us this, and we will show capacity additions of 40-50 GW in five years, says the industry. However, the government is in no mood to relent. There seem to be two reasons for its intransigence. One, it was to bring prices of electricity to very low levels — to the neighbourhood of ₹2 a kWhr. Two, keep developers’ margins so tight as to eliminate any possibility of corruption. The idea is, give them a cushy tariff, some politician or a bureaucrat will ask for a cut. To this, industry has its response. To the first point it says that keeping the price low is not helping consumers; it helps only the discoms. To the second point the response is, it is not as though corruption is being eliminated with low tariffs.

Even as this tug-of-war goes on, the industry has placed its demand for goodies on the table. Apart from a fixed tariff of ₹3.25, it wants its power to be traded on the power exchanges.

However, in the past, the government has not been sympathetic to industry’s demands. For instance, the industry has been pleading for substation-wise auctions, so that projects could come up wherever there is spare substation capacity — as opposed to all developers rushing to Gujarat and Tamil Nadu. Last year, Anand Kumar told BusinessLine that the government would do so, but there has been no action so far.

Under this situation, the industry is exploring possibilities of selling power directly to industrial consumers (open access), perhaps taking a leaf out of the solar industry. Up till now, the wind industry never felt the compulsion to look for open access (though some power sales are happening through the ‘group captive model’ in some States — a cumbersome process for which you have to set up a company with your power buyers as shareholders.)

Whether open access sales will bring some relief to the beleaguered industry or not will be known in the coming months. They might. So might exports. The silver lining in the industry today is that $500 million worth of components, including bulky ones such as blades and towers, is being exported, to as far as the US. The industry says there is potential to quadruple it. But these are answers for the medium term. In the short term, it looks like the industry has no alternative to licking its wounds and wait for better times.

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