EBB AND FLOW

After the storm of 2017, India’s wind power sector is settling down

Obsession
Energy Shocks
Quartz india
Obsession
Energy Shocks
Quartz india

India’s wind energy sector has just capped a rough year.

Amid a major overhaul of the wind energy tariff-determination mechanism, multiple policy issues, and flat power demand, capacity addition took a big hit in the last financial year.

New windmill installations fell to a five-year low between April 2017 and March 2018, according to data from the Indian Wind Turbine Manufacturers Association (IWTMA). The country saw an addition of just 1,762 megawatts (MW) of capacity, a sharp fall from the record high of 5,400 MW in the preceding year.

India’s total wind energy capacity now stands at 34,042 MW, a little over half the Narendra Modi government’s target of 60,000 MW by 2022.

The fall was largely due to faulty implementation of a major policy change by the government. Starting June 2016, it let firms bid for projects at competitive prices rather than have a regulator fix the tariffs. Yet, there weren’t as many auctions for projects, resulting in muted capacity addition.

Subsequently, wind power producers faced the threat of various state electricity utilities backtracking on power purchase agreements.

Then there was the confusion over the generation-based incentives (GBI) scheme, where firms are paid a certain amount for every unit of wind energy generated. “For the new financial year, suddenly, the GBI was withdrawn, and then mid-year again some money was allocated. This caused a (slowdown) and was a big blow for wind,” said Amit Kumar, a partner at consulting firm PwC who tracks the renewables sector.

The government’s obsession with solar power, too, played a role, as policymakers focused away from wind. Meanwhile, wind power tariffs crashed to record lows of Rs2.43 per unit in December 2017, casting doubts over long-term project viability.

Looking up

However, the worst may now have passed.

For one, the policy uncertainties have been cleared.

States like Maharashtra and Gujarat have already come out with auctions and more are in the offing, both at the state and central levels. The ministry of new and renewable energy has committed to auctioning 10,000 MW of projects in 2018 and another 10,000 MW in 2019.

Tariffs are also firming up and analysts don’t expect them to fall further and hurt project viability. In auctions conducted by Maharashtra last month, they rose to Rs2.85 per unit from a record low of Rs2.43 in December 2017.

“Last year…wind turbine manufacturers had spare capacity and were ready to supply at lower rates. That was a factor in low tariffs,” said Gautam Bafna, an analyst at CARE Ratings. The excess capacity was a result of the slowdown in new windmill installations, which have since picked up.

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