Last year, the Indian wind energy industry was flying high.
Capacity addition hit a record high of 5,400 megawatt (MW), global giants such as Enercon and Vestas re-entered the Indian market, wind turbine manufacturers prepared to expand their manufacturing facilities, and the sector looked set to create 25,000 new jobs.
Naturally, many thought 2017 would be even better. “We are confident that in FY18 the wind industry will deliver 6,000MW of new capacity,” Tulsi Tanti, chairman and managing director of wind turbine manufacturer Suzlon, told the Hindu Business Line newspaper in April.
Then, one of India’s fastest-growing clean energy sectors hit an air pocket.
“In the first quarter this year, only around 250-odd MW have come up and the predictions for this year are also gloomy,” said Amit Kumar, a partner at consulting firm PwC, who focuses on the renewables sector. “The expectation is that it will be around 1,000-1,200 MW of installations.”
The trigger for this dramatic slowdown is a change in the process that determines wind-power tariffs in India. Previously, the electricity regulatory authorities of various states would fix a feed-in tariff, which guarantee long-term payments at a pre-determined price, and sign power purchase agreements (PPAs) with private wind power developers. Now, the Narendra Modi government has allowed for auctions to be conducted to determine the tariff, which would typically be lower than those set earlier.
Not only has this caused uncertainty—since auction guidelines haven’t been made available yet—there is now also a growing risk that state governments may backtrack on PPAs signed earlier as they seek lower tariffs. Around 1,000 MW of projects across Karnataka and Andhra Pradesh could be affected due to this.
The ensuing crisis has put the Modi government’s ambitious target of generating 60 gigawatt (GW, one GW = 1,000 MW) of wind power by 2022 under a cloud. With a current installed capacity of 32 gigawatt (GW), India would have to add an average of 6,000 MW every year to meet the target. So far, the addition has been only 2,000 MW, according to the Indian Wind Turbine Manufacturers Association (IWTMA).
After much deliberation, the Modi government approved auctions in June 2016 with the aim of allowing the market to determine prices rather than have a regulator fix tariffs.
This is how the new regime works: The central or state governments hold auctions for a certain capacity, say 1,000 MW, and invite bids. The companies can bid for any part of this, say 250 MW, and offer a certain tariff per unit. The developers offering the lowest tariffs are awarded the projects.
The first such auction was held in February this year when the Solar Energy Corporation of India (SECI), on behalf of the central government, offered 1,000 MW of capacity. It drove down wind energy prices to a record Rs3.46 per unit, significantly lesser than the previous low of Rs4.16 tariff fixed by Tamil Nadu’s power regulatory authority.
The second round of auctions, for 1,000 MW, closed on July 14. The SECI received bids for thrice as much capacity as was put up for auction; the final tariffs are yet to be announced.
Meanwhile, no state government has held auctions as India’s power sector regulator, the Central Electricity Regulatory Commission, is yet to issue guidelines, said IWTMA secretary general D V Giri. Tamil Nadu, Gujarat, Andhra Pradesh, and Rajasthan have planned auctions but haven’t been able to take the process forward.
The companies don’t have an order book, and apart from the 2,000 MW of SECI tenders, there’s little else to work with, Giri said.
“Till such time that all the states come out with bidding guidelines and call for bids, which is a three-to-six-month process, nothing is going to happen in the sector,” said Sunil Jain, CEO, Hero Future Energies, a wind farm developer with around 500 MW of installed capacity. “There is no pipeline of projects which can go under construction.”
Unlike the solar power sector, where tariffs recently crashed to record lows partly due to a fall in input costs (such as solar panel prices), it hasn’t become cheaper to set up wind power projects.
Instead, companies like ReNew Power offered low tariffs in the February auction, expecting higher generation from locations prone to high-speed winds. “Wind is absolutely location-specific. For a particular site, if you move a machine 30 metres here and there, there is drastic reduction in PLF (plant load factor, or the actual electricity generated compared to the capacity),” Balram Mehta, executive vice-president for wind, ReNew Power, said. “…whatever sites people have put a bid in SECI-1— two sites in Tamil Nadu, two sites in Gujarat—those are one (sic) of the best available sites in India, so that has helped a lot.”
Mehta explained that ReNew also took into consideration the assurance of timely payments by PTC India, a central government-owned power trading company. Several state governments which had earlier signed PPAs didn’t make payments on time. At least some private wind developers felt they wouldn’t have this problem with PTC India.
However, besides the low-tariff risk, developers now also have to put up with intransigent state governments. Some of them are no longer keen on paying higher feed-in tariffs and want to renegotiate existing PPAs. One of the three distribution utilities in Karanataka, Bescom, has notified wind power producers that their PPAs would be canceled, according to Mehta. Other distribution companies in Karnataka and Andhra Pradesh want to discuss these long-term agreements.
“So, the complete wind industry is in a panicky state. The best option available to all IPPs (independent power producers) is (to) go legally because PPA is sacrosanct,” Mehta said.
The companies are yet to come to a consensus on how to handle the situation. Industry bodies like the Wind Independent Power Producers Association (WIPPA) and the IWTMA are working together to find a solution. The producers could go to court but that is likely to be a long-drawn process. “We want to amicably settle it, and if it is not settled then only legal (action) is the option,” Mehta said. Meanwhile, the confusion around PPAs would also hit investor confidence and possibly dry up funds.
Without the PPAs, the producers would be in trouble as there isn’t anywhere else to sell power.
The overall power demand in the country is flat today, given the sluggish economic growth and oversupply of thermal power. Prices have hit rock-bottom at power exchanges such as Indian Energy Exchange (IEX) or Power Exchange India (PXI)—similar to the BSE or NSE, where companies can buy or sell electricity. Cash-strapped state government utilities are inclined to buy power only if they need it rather than get into long-term PPAs.
“There is hardly any place (for private developers) to go,” PwC’s Kumar said, “and that is what the government and the authorities are taking advantage of.” The wind has gone out of India’s wind power sector.