Get over the sunshine. Wind is now the cheapest source of renewable energy in India.
Auctions conducted in Gujarat on Dec. 21 discovered a record-low tariff of Rs2.43 a unit. That’s nearly 8% cheaper than the previous low of Rs2.64 that the industry saw in October. This tariff is also less than the lowest solar power tariff of Rs2.44 that the country recorded in May this year.
This new rate was quoted by Sprng Energy, a Pune-based renewables firm, which bid to set up a 197 megawatt (MW) wind farm in an auction held by the Gujarat Urja Vikas Nigam (GUVNL).
The crash in tariffs comes at the heels of a recent announcement by the Narendra Modi government that resurrected the Indian wind power market after nearly a year of stagnation. The country’s power ministry announced a slew of guidelines for state electricity utilities that want to procure wind power from independent producers. The norms cleared the way for different state governments to hold wind farm auctions. This is besides those conducted by the central government-run Solar Energy Corporation of India (SECI).
With the market having suddenly revived, wind power producers and equipment manufacturers who were left without orders to execute are scrambling to participate in the auctions and win projects, driving down tariffs.
“The problem is that if auctions are not enough (in number), people desperately bid low to keep their facilities going. The moment the auctions are sufficient and they have to look at further investments, the prices start stabilising,” Anish De, a partner with infrastructure and government services at KPMG, told Quartz.
Analysts, however, don’t see prices falling further. The current situation, they say, has been caused by windmill equipment manufacturers who have driven down prices. “My sense is that the (wind power project) development industry is still taking a little bit of haircut but not that much, but the main pressure is coming from the equipment supply industry,” De said.
Which way the tariffs will go from here depends on how much capacity the central government or various states bid out in the coming months. After the recent announcement of guidelines, a number of states, including Tamil Nadu, Andhra Pradesh, and Rajasthan, may announce auctions to allow power producers to set up wind farms in their states. Analysts caution that for the industry to stabilise, prices shouldn’t fall further. Otherwise, it’ll hit profitability.
“In (the) long run projects definitely need to be viable. These projects are bid out at lower IRR (internal rate of return); future projects may not continue on these rates,” Gautam Bafna, an analyst at CARE Ratings who tracks the renewables sector, told Quartz. “Ultimately there should be some parity.”