- The wind sector has been struggling with changes in policy mechanisms which has resulted in low tariffs that are making it unsustainable for the industry.
- In a meeting with the government in May, industry officials put forward policy recommendations to revive the sector towards meeting the national wind capacity targets.
- The Indian government has a target of installing 175 GW of renewable energy by 2022 which includes an allocation of 60 GW from wind.
In the last two years, only 15 percent of India’s annual installed wind energy manufacturing capacity of 10 gigawatts (GW) has been utilised, according to the Indian Wind Turbine Manufacturer’s Association (IWTMA).
At a recent meet with the Ministry of New & Renewable Energy (MNRE) and the renewable energy sector, members of the wind energy industry raised concerns over the current state of the sector. The low capacity utilisation of wind energy is not sustainable for the sector and has affected 4,000 small and medium enterprises and 2 million jobs, according to chairman of IWTMA, Tulsi Tanti.
“The wind energy sector has been reeling under tremendous pressure and struggling with the transition from feed-in tariff (FiT) to reverse bidding, with tariff cap regime resulting in very low tariff. The tariff discovered is so low that it is neither bankable nor sustainable. Due to this, irrespective of bidding of 17 GW, the actual installation is around 700 MW.” At this rate, achieving the target of 175 GW of energy from renewable sources by 2022 will be a big challenge, noted a press release issued by IWTMA.
Until 2017, wind tariffs were set under the feed-in tariff policy mechanism which offered long-term contracts to renewable energy producers. In February of 2017, the union government moved to a competitive bidding process for wind energy, reverse auction, which dropped the tariffs and impacted the wind energy capacity addition. The Indian government has a target of installing 175 GW of renewable energy by 2022 which includes an allocation of 60 GW from wind.
Majors of the renewable energy sector in India made policy recommendations to the MNRE at the annual meeting, Chintan Baithak, held on May 7, coinciding with the 2019 general elections.
Meeting wind energy targets
There are varied opinions within the wind power industry about meeting the wind energy targets for 2022, as set by the government.
In its outlook for India’s RE sector, Fitch Solutions Macro Research said the country is likely to install 54.7 GW of wind capacity by 2022 against the 60 GW target for energy from wind, set by the government.
However, Vinay Rustagi, the managing director of Bridge to India, a renewable energy consulting firm, explained that their estimate for March 2022 is lower – at 51 GW – effectively meaning an addition of 16 GW in total in the next three years to the current installed wind energy capacity in the country. “There’s already about 11 GW under construction now and a significant uplift in that number is not realistic, given the land and transmission constraints.”
According to D. V. Giri, secretary general, IWTMA, the total installation of wind energy in India as of March 31, 2019, is 35.68 GW. “The total bids awarded by Solar Energy Corporation of India (SECI), National Thermal Power Corporation and state bids are 13,252 MW (13.2 GW). These projects can get commissioned before March 2022 considering 18 months as execution time. As of now, the government plans to announce 10 GW per annum in 2019-20 and 20-21, out of which 15 GW can get announced and awarded up to September 2020 and it can get completed by March 2022. Though this adds up to 64 GW, meeting the target, the plan comes with a lot of ‘ifs and buts’ on land allotment by state governments, connected right of way issues and alignment between developers and Power Grid Corporation of India Limited for connectivity.”
The current figure of installed wind energy will have a capacity addition of 28.2 GW between now and 2022, considering that state bids aren’t forthcoming, and the procurement model is dependent on SECI alone. If one were to work on the probability that around 50 percent of the projects will be commissioned, around 14 GW will be added to the current capacity, totalling 50 GW, said Giri.
However, a senior official of the MNRE, who did not want to be named, said that since the sector has gone through a transition from FiT to competitive bidding last year and added that, “It was very difficult for the states to absorb this in such a short period of time. That is one of the reasons why commissioned projects this year have been lesser than last year. Now, wind is doing well, with some projects being commissioned and others being tendered. For instance, Gujarat’s tender for wind this year has done very well and SECI is coming up with a new project.”
Kasturirangan, chairman, Indian Wind Power Association (IWPA), believes the SECI bid by itself is not going to help in meeting required numbers. “When it comes to bids by SECI, the participation is only for those who install 50 MW and above—as a result, those who meet these numbers participate in the bids. Developers who want to install less than 50 MW, should be given a chance so they can contribute to the generation capacity as well.”
As per SECI’s 2017 call for wind power projects, under the MNRE’s scheme for setting up of 2000 MW ISTS-connected (interstate transmission system) wind power projects for interstate sale of wind power at a reverse auction, eligible bid capacity is a minimum 50 MW and maximum 400 MW by a bidder.
Besides SECI bids, investors who want to install windmills in India must first have the facility, which is not always the case with smaller setups. Also, if a developer is purchasing a higher capacity of 15 MW, the machine manufacturer gives a concession, but not for lower capacities like 2 MW or 4 MW for example. Ever since the SECI bid system has been introduced, regulators peg the bid prices at a low of Rs. 2.40 or Rs. 2.60 per kilowatt-hour.
Kasturirangan recommended that to ensure that developers both big and small are included in the system, a reasonable price must be fixed by the regulator of each state, which is higher than the SECI bid price, which will benefit small developers. He’s positive that India can achieve its target, provided the Ministry takes everyone along, especially those interested in its growth.
Challenges holding back the wind sector
Short-medium term concerns about the growth of the wind energy sector, revolve around the availability of land and transmission infrastructure. In terms of location, wind is more constrained than solar and the best wind sites like Gujarat and Tamil Nadu, are already taken. Going to states other than these, with lower wind resources, increases the cost of power to over Rs. 3.00 per unit. Moreover, in recent months, distribution companies (discoms) are prepared to pay higher prices.
The other challenge facing wind is that its generation profile is more skewed towards night and during monsoon, also periods of low power consumption. This incompatibility with the demand profile is likely to become a major constraint in the future as the focus shifts towards grid stability and meeting peak power demand, stressed Vinay Rustagi. On whether storage of wind energy could be a way out, Rustagi told Mongabay-India that, “Wind can’t be stored. Power can be stored with storage batteries, but that increases the cost very significantly and is currently not seen as viable. However, improvements in technology are expected to make storage acceptable in the next 3 to 5 years.”
Giri adds that the paradigm shift from FiT to e-reverse auction with a tariff cap without any transition period has led to a total collapse of the entire ecosystem. “The biggest challenge is that the manufacturing capacity of 10,000 MW with 80 percent localisation is chasing a market of 1,500 MW or 15 percent utilisation. Currently, the industry is dependent on a single procurement agency of SECI. Also, SECI bids have shut down state procurement, which was once the main market.”
The fall in tariff was forced down in a slow market and has become the benchmark across India. This has led to no procurement by states.
Despite an attempt to re-open old power purchase agreements (PPAs), power has been curtailed during high wind season and there have been tremendous delays in payment by financially strapped distribution companies. Furthermore, the competitive bidding procurement model has led to a total collapse of the small domestic investor whose purchase size is around 5 to 15 MW per annum. In such a scenario, a robust supply chain of the country with over 4,000 small and medium enterprise vendors in the wind energy sector and potential of high job creation has become questionable. Also, frequent changes in policy, non-bankable/ unviable tariff has sent a negative signal to bankers, financial institutions and private equity funds.
Admitting there are issues which need to be addressed, the MNRE official said, “When it comes to physical financing of wind power projects, earlier, if anyone had money, they could set a couple of windmills and get the required funding. However, owing to competitive bidding now, the size of the tenders has increased significantly. So, financing large-scale projects will need a different kind of financial model. Projects that are 25MW or of lesser capacity are not covered in the competitive bidding guidelines. If something can be done for projects that are of 25MW capacity or lesser, it will create a new market for wind. However, that can be done through FiT or competitive bidding.” This is not yet clear and is an issue that the state regulator will have to take a call on. Also, it is a bit of a challenge as to how we can give the required push to that area, he added.
Kasturirangan believes foreign funds through big IPPs is not enough to take up the installation of wind energy generators. Instead, it should be inclusive growth. “Those who want to generate wind energy and have been pushing the sector for the last 20 years, should be allowed to participate and install windmills, not that those who take foreign funds and put the quantum of megawatts, it is not that they alone who can take the country ahead. We raised this with the MNRE and they assured us of participation, but nothing concrete has happened,” he rued.
Experts hopeful of the way ahead
Following May’s Chintan Baithak meeting between the government and industry, is there a likelihood there may be some change in policy? Rustagi states, “I don’t think there’s a choice. The sector is hurting badly because of issues related to policy, execution and financing. Urgent action is needed to revive investor sentiment and improve processes across the board. At the same time, it’s too early to say how the situation will play out given the political uncertainty.”
Giri believes that state-of-the-art turbines manufactured in India can find acceptance in different geographies of the world to boost exports. “The need of the hour is to increase the export incentive from 3 percent to 10 percent to take care of the disadvantage of freight logistics and inadequate lines of credit.”
The 2018 government order of waiving off inter-state transmission charges up to 2022 has given a boost to the sector and will be focussed in areas where the potential of wind energy is high. Additionally, with the new policy that the MNRE has initiated, of re-instating a solar park as a renewable energy park, will also spur the wind energy in India, the MNRE official said.
Giri, however, is hopeful of the progress of the recommendations noting that even though the meet was held when elections were on, the recommendations made by the industry will be taken up with the new government since it has expressed commitment to targets in onshore and offshore wind. He added that the industry is committed to localisation, but it will be dependent on large capacity addition of around 6 GW per annum and about 1GW to 2 GW of exports.
Multiple procurement models of central and state, open access for inter-state transaction with CTU waiver and uniform wheeling/banking policy can drive capacity addition to greater heights, Giri said on a positive note.