Reasons Behind the Recent Downturn in India’s Wind Sector and Causes for Hope
India currently ranks fourth globally in terms of total wind installations
Wind energy projects which were first off the blocks even before solar in India have considerably slowed down in recent years with higher tariffs, supply chain bottlenecks, dwindling investments, and a drop in off-takers.
If India wants to meet its goal of achieving 500 GW of clean power capacity by 2030, wind energy will have to play a crucial role.
According to the Ministry of New and Renewable Energy (MNRE), India currently ranks fourth globally in total wind installations. The target for 2030 requires reaching 100 GW of onshore wind capacity and bids for 30 GW offshore wind projects.
While the target for wind is ambitious, the sector has seen a steady decline in installation rates and export values between 2019 and 2021.
There was a slight rebound in 2022, but the growth has been modest.
Maintaining a Robust Supply Chain
According to the National Institute of Wind Energy (NIWE), India currently possesses a manufacturing base of high-quality wind turbine generator (WTG) models capable of producing approximately 15 GW of wind power annually.
Santosh Khairnar, Head of Supply Chain Management at Inox Wind, said, “With regard to the wind supply chain, India is still dependent on China. Every company has a business model and is usually booked in advance for the upcoming 6-7 months. Sometimes difficulties may occur because China mostly manufactures 5 MW turbines, while most capacities in India range between 3-4 MW. However, there is no major hindrance as such to procure materials.”
“In terms of technology, what is produced in India is backed by European partners, so quality is at par with international standards. However, the supply chain is not the primary constraint when it comes to increasing wind capacity. The main issues circle around policy regulation, procuring land for projects, etc. For instance, if tomorrow the country is ready for a 10 MW wind project, equipment and raw materials all can be procured based on demand,” Khairnar affirmed.
Stakeholders mentioned that India heavily relies on imports from Turkey and China for materials like castings, etc., essential for WTGs, accounting for approximately 80% of the total supply. Similarly, forging services are also lacking; only 20% of gearbox equipment is produced domestically.
Despite the targets and enabling policies, the Indian market lacked a well-defined roadmap and reliable pipeline estimates.
Industry stakeholders expect the demand to rise in the coming quarters, given the tender trajectory and wind purchase obligations in place; however, implementing these policies to drive the industry is what will make the difference.
Supply and Demand Conundrum
While there is talk about wind turbine shortage, manufacturers claim that the supply is directly related to the fall in demand for wind energy over time.
Ajay Devaraj, Secretary General of the Indian Wind Power Association (IWPA), claims that most manufacturers have started exporting their products due to limited activity in the domestic market.
He explains, “The main reason behind the slump in manufacturing is that after the change in the tariff regime, the total capacity being auctioned was around 5-6 GW, whereas the manufacturing capacity was much higher. The number of turbine manufacturers in India decreased from 25-30 to 12, and I believe only eight are currently active.”
“Policymakers had a limited understanding of how the industry operates, which may have resulted in inaccurate estimates. Additionally, the implementation of e-bidding led to a significant drop in tariffs, from an average of ₹3.40 (~$0.04)/kWh to ₹2.44 (~$0.02)/kWh. Meanwhile, the cost of raw materials such as steel, iron, copper, and cement experienced a steep increase of 60%,” Devaraj added.
Martand Shardul, Policy Director at Global Wind Energy Council GWEC, said, “Most wind manufacturers set up their base in India, expecting a huge domestic demand for wind power deployment. As there wasn’t enough market demand, the manufacturers had to look out for opportunities outside the country to ensure the utilization of their existing capacities.”
Amidst the changing landscape, several wind turbine manufacturers transitioned to other industries, while those who persevered in the sector redirected their efforts towards export markets, particularly the United States and Europe.
Lower Tariffs and Rising Project Costs Render the Wind Projects Unviable
Players in the market reduced drastically as they no longer wanted to participate in auctions after the government introduced competitive bidding.
Project commissioning schedules went awry, investor interest was flagged, and wind-rich locations in states with higher tariffs became less appealing to price-sensitive buyers.
KSK Singaravelan, Head of Wind Power Projects at the KCT Group, said, “When you compare costs and tariff structure from 6 to 7 years ago with the ongoing prices, we see the prices have been slashed by almost 50%. However, the overall fixed costs, be it project costs, land costs, even the non-material costs, have only increased.”
According to Singaravela, as the expenses associated with manufacturing and setting up wind projects rise, it leads to financial strain and puts a question mark on long-term feasibility.
A significant challenge that also led to decreasing wind capacity numbers was bidders submitting excessively low tariffs for capacities and failing to follow through with project execution.
According to Mercom India Research, the lowest wind tariff for 2022 was recorded at ₹2.84 (~$0.035)/kWh.
According to Shardul, one of the foremost challenges for the wind industry has been low, unfeasible tariffs quoted by a few developers to secure volumes. However, these tariffs were unsustainable, so the projects did not see the light of day.
According to Mercom India Research, from January 2018 to March 2023, a total of 16,406 MW of wind capacity was auctioned. However, out of this, 6,870 MW was canceled.
Singaravela added, “In certain instances, a developer may secure a project with a capacity of, let’s say, 15 MW. However, they encounter challenges that prevent them from executing the entire capacity, and they can complete only 4/5 MW, resulting in the remaining capacity being surrendered. This can occur due to a range of factors, including insufficient experience, a shortage of skilled workers, limited project knowledge, or inadequate financial capacity.”
In a bid to bolster the wind market, the government has announced discontinuing the e-reverse auction process and providing extensions to projects that faced delays due to the pandemic.
Introducing a dedicated Renewable Purchase Obligation (RPO) trajectory specifically for wind energy aims to stimulate demand for the power generated across various states. To further support this initiative, the government has notified an advanced bidding schedule for procuring 10 GW of capacity annually from 2024 to 28.
Regarding the target, Devaraj stated, “Considering the cumulative installed capacity of 43 GW and an additional 14 GW under construction, we need about 43 GW to reach the 100 GW target. I believe that this goal is attainable. With the existing incentives for the wind industry, not only can we meet the target, but the market also has the potential to expand further.”
Khairnar noted, “The capacity decline in the past two years can be attributed to the slump caused by the pandemic and reverse bidding. However, the industry is growing now, and in terms of achieving targets, India should be able to make significant wind capacity additions.”
Measures aimed at supporting and reviving the wind industry within the country are expected to enable smoother project implementation and facilitate the sector’s recovery.