Low wind tariffs artificially created; tariffs likely to bounce back in FY19: Experts

    The drop in wind energy tariffs to Rs 2.64/kWh in the latest round of auctions by SECI are seen as an artificially created due to higher inventories of around 4000 MW at the factory and the project level according to experts. The wind tariffs were aggressive at Rs 3.46/kWh in the first round and are even more aggressive at 2.64/kWh which would be difficult to sustain over the next year as more and more states get included in the auctions apart from Tamil Nadu and Gujarat which have much better wind profile. Read On ..

    The Indian wind turbine manufacturers are believed to have around 1500 MW of inventories at the factory stage, and if the inventories at the project stage are included, it would be close to 4000 MW, said Mr DV Giri, a member of Indian Wind Turbine Manufacturers Association.

    However, with the government planning to bid another 4500 MW of wind capacity by March 31, 2018, a total of 6000 MW capacity – including the first two auctions – would take care of the existing inventories opening up the market to more competitive rates. "Why would manufacturers sell at lower rates if they can get higher rates for their products?" asks Mr Giri.

    It is also understood that representation in auctions was not inclusive as only major Independent Power Producers (IPPs) participated, while there was no representation from the small and medium scale players. "It is my fair opinion as government calls another round of auctions and other 8-9 wind-rich states participate in them, the tariffs are bound to rise much more than Rs 3.46/kWh in FY19," he added.

    A wind industry official said, of the 1000 MW projects that were bid in the first round, around 500 MW have not received connectivity from Power Grid due to which the second round auctions were postponed for two weeks, while some of them have not been able to achieve financial closure.

    "In my opinion the bigger issue is, how a further stretched rate of Rs 2.64/kWh would achieve the financial closure and if the deadline of October next year could be achieved for the implementation of the first round of projects," the official added.

    Sabyasachi Majumdar, director India Ratings said, "In view of the recent order issued by Central Electricity Regulatory Commission (CERC), the execution risks would also remain high for developers without any firm connectivity approval from PGCIL given that CERC has ruled out any special dispensation in approving connectivity for such winning bidders."

    "The lower tariffs have also led to serious issue with discoms declining to honour power purchase agreements signed at higher tariffs. Around Rs 48,000 crore or 7000 MW worth of projects have been impacted by the renegotiation or cancellation of contracts by discoms in Uttar Pradesh, Jharkhand, Madhya Pradesh, Gujarat, Karnataka, Tamil Nadu and Andhra Pradesh. Resolution of the PPA renegotiation and cancellation by discoms as seen in few states remains crucial to retain the investor interest in the sector, especially in the light of falling wind tariffs," Majumdar added.

    In October during the second round of wind capacity auctions wind energy tariffs fell to a record low of Rs 2.64/mWh in the second round of auctions for 1000 MW capacity conducted by Solar Energy Corporation of India (SECI) on behalf of Ministry of New & Renewable Energy (MNRE) on October 4.

    The wind tariffs fell 24% from Rs 3.46/kWh compared with the first round of auctions in February. SECI received a total of 12 bids totalling to 2,892 MW capacity out of which 9 bids with a total capacity of 2,142 MW were shortlisted for e-reverse auction.

    The five winners were ReNew Power for 250 MW projects quoting Rs 2.64 per kWh, Orange Sironj for 200 MW projects quoting Rs 2.64 per kWh, Inox Wind for 250 MW projects quoting Rs 2.65 per kWh, Sembcorp Green Infra for 250 MW projects quoting Rs 2.65 per kWh and Adani Green for 50 MW projects quoting Rs 2.65 per kWh.

    The auction assumes significance because India has set an ambitious target of having 60 gigawatt of wind power capacity by 2022. India’s renewable energy commitments have seen global investors, energy majors and pension funds make a beeline for the country. But experts and bankers have time and again warned against the aggressive bidding that the sector has been witnessing.

    The tariffs quoted by bidders in reverse auctions are “very aggressive and the viability of such competitively bid tariffs hinges on keeping the cost of modules and financing costs within budgeted levels,” ICRA had written earlier.

    In India, the wind power deployment started in the early 1990s and at present it has an installed capacity of around 28,080 MW or 9% of the total installed capacity of 3,10,000 MW. Globally, India is at the fourth position in terms of installed capacity after China, the US and Germany.

     

    - TradeBriefs Bureau

     


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