Which way will the wind blow?

The year 2018-19 has proved to be another bad year for the Indian wind power industry, the second in a row, with fresh capacity additions not likely to exceed a measly 1.6 GW, a far cry from the 5.5 GW seen in 2016-17.

As the fiscal year grinds to an end, two widely differing projections for the next year have emerged from two entities that ought to know what they are saying — the Indian Wind Turbine Manufacturers’ Association (IWTMA) and market research company, CRISIL.

IWTMA’s Chairman, Tulsi Tanti, a doyen of the wind industry, sees at least a record 8 GW of fresh installations coming up in 2019-20, basing his prediction on the huge order backlog in the system, with completion deadlines occurring during the year. CRISIL is less sanguine, it estimates 3.8 GW, which is less than half of IWTMA’s prediction.

Auctions and after

The huge gap between the two estimates is ample illustration of the uncertainties in the wind power sector today. Things are so interestingly poised that they could go either way — after all, both of the last two years also began very optimistically but ended bad, though that cannot mean that next year will also be so. “We have suffered in the last 24 months,” says Tanti.

There was a certain inevitability in the way things shaped up in 2017-18. In February 2017, the Central government came out with the first ever wind capacity auctions, where the energy company that quoted the least prices would bag contracts to sell power. The auctions illustrated how competition could hammer prices down — the best price quoted was ₹3.46 a kWhr, far below the least fixed tariff — ₹4.16 — that Tamil Nadu paid the developers.

The auction woke up the State governments to the reality of competition; they quickly stopped buying power at fixed rates determined by the respective State regulators and wanted to roll out their own auction programmes. For that they had to wait for guidelines from the central regulator and in the meantime the market evaporated.

But no such inevitability could be attached to 2018-19. The industry has been buffeted by a number of problems. In subsequent auctions tariffs fell further, to a low of ₹2.44 a kWhr in the third round, before rising a little thereafter. Low tariffs meant that the projects were viable only at spots where wind speeds were high, enabling the turbines to generate more power, and all developers flocked to Gujarat and Tamil Nadu. The two States are to house 70 per cent of all projects awarded through all auctions, and 100 per cent of projects given out through SECI’s tenders. Congestion at the substations, where the developers would deliver the power, resulted. The governments took their time in organising transmission infrastructure. Again, the industry suffered in the interregnum.

To make matters worse, the government of Gujarat held back on allotting land to those who had won projects through SECI tenders — it was upset that if all the lands were taken away for wind farms that would supply power to SECI, would there be any left for farms that would supply to the State.

From the industry’s perspective, the governments complicated matters further by cancelling tenders after the bids were open because the quotes were not as low as expected, and also imposing tariff caps, of the cut-off beyond which it would not buy the electricity. This, the industry holds, is unfair. Tariffs should be fixed either by the regulator or determined through competition — the cap is a sort of a hybrid, which unduly favours the buyer of power.

While there are some indications that Gujarat may relent on land, yielding some ground (literally), things are far from being clear. Developers are looking at other options, such as buying private lands, or moving to other States, both of which would impair projects’ financials.

There is some forward movement in terms of relieving congestion at connectivity points, with the public sector Power Grid Corporation chipping in with fresh infrastructure, but there is no knowing when the problem could raise its head again. After all, SECI has an ambitious tendering programme, and the Government of India has been speaking of 10 GW of bids every year, to meet the target of 60 GW of installed capacity by 2021-22. Congestion could emerge again.

Substation-based tenders

To tackle this, the industry for long has been asking for ‘substation-based tenders’, which means the bidders will be asked to quote a price if they have to connect their wind turbines to a particular substation.

The Secretary of the Ministry of New and Renewable Energy has said ‘yes’ to this proposal more than once, but there is little action on the ground — perhaps because another ministry, the Ministry of Power, is involved, and perhaps also because substation-wise bidding would inevitably raise prices. The most recent tender — SECI VI — has seen tariffs settle down in the ₹2.83-2.84 range, a shade below the cap, perhaps setting a new benchmark that the government is grudgingly accepting. Substation-wise bidding could raise tariffs further; SECI apprehends difficulty in selling the power to the state electricity supply companies at those prices.

The state of affairs can be summed up in just two data points. The first is the project awards. So far, in its six rounds, SECI has awarded projects worth 12 GW (the State governments and NTPC another 2 GW, approximately.) The second data point is, of the 2 GW whose deadline has expired, only 823 MW has come up so far — clearly indicating the difficulties in executing projects.

For most of the other projects, the deadlines occur during 2019-20. Optimists believe that some way out will emerge and most of the projects will be completed. The conservatives do not.

COMMENT NOW