Tariff a Bone of Contention Between Indian Wind Stakeholders and Government Agencies

Wind is now the cheapest source of energy in India


India’s wind energy sector has come a long way since the introduction of reverse auctions. In 2016, the Solar Energy Corporation of India (SECI) carried out the first-ever wind auction in India. The sector has benefitted immensely ever since. To date, 10.6 GW of wind projects has been auctioned and awarded in India.

The reverse auction mechanism was introduced in the sector after witnessing solar bids plummet in its reverse auctions. Before reverse auctions were introduced, wind projects were mostly developed by private companies for captive consumption or for sale to the state; the process was not transparent. But all of this changed in 2016 when the reverse auction was introduced.

The first batch of the auctioned interstate transmission system (ISTS)-connected wind energy projects were commissioned in India in August 2018.

Tariff a Bone of Contention Between Indian Wind Stakeholders and Government Agencies

Wind is now one of the cheapest sources of energy in India. In December 2017, wind power tariffs dropped to a record-low level of ₹2.43 (~$0.038)/kWh quoted in the Gujarat Urja Vikas Nigam Ltd. (GUVNL) 500 MW auction in Gujarat. This is lower than the lowest solar tariff of ₹2.44 (~$0.037)/kWh quoted in the Bhadla Solar auction in May 2017.

Reverse auctions have caused tariffs to plummet and tariffs have remained at levels below ₹3 (~$0.043)/kWh. An increasing number of state agencies have even introduced wind tenders to meet their non-solar renewable purchase obligations (RPOs).

Government support in the form of wind resource assessment and identification of potential sites through the National Institute of Wind Energy, the waiver of interstate transmission charges, and concessional customs duty exemption on certain components of wind electric generators have all helped.

As wind tariffs fell below solar, it also enabled the government to come up with wind+solar hybrid policies and regulations. Recently, a tariff of ₹2.67 (~$0.03794)/kWh was quoted in India’s first-ever wind+solar hybrid auction conducted by SECI.

After the decline in wind tariffs, the government began exploring the possibilities of offshore wind as India has one of the longest coastlines in the world. Recently, the MNRE issued draft offshore wind energy lease rules which are aimed at spurring activity in offshore wind, which has until now remained dormant. In June 2018, the MNRE established a short-term installation target of 5 GW of offshore wind capacity by 2022 and a long-term installation target of 30 GW of offshore wind projects by 2030.

However, not everyone is thrilled with reverse auctions and the direction of tariffs especially after the introduction of tariff caps.

When contacted, a top executive at one of the leaders in the Indian wind energy sector said, “Yes, we have come a long way since 2016 and the commissioning of the first batch of auctioned wind projects marks the completion of a circle that the sector has turned. Tariffs have gone down and there are tenders galore, but all’s not well.”

“As it happened with solar, the low tariff bug has bit the implementing agencies in the wind energy sector too. Once the tariff went to ₹2.43 (~$0.038)/kWh in a GUVNL auction, implementing agencies started fixing upper tariff ceilings way below the ₹3 (~$0.043)/kWh mark in tenders. This is a huge negative as the same tariff cannot be achieved in other locations. Implementing agencies need to understand the potential of the areas they are tendering for, as the height of windmills plays a huge role in the cost of projects,” added the executive.

An executive at a wind project development firm said, “As of now, everything is fine, but the mad dash for low tariffs can ruin the progress made in the past three years. Another issue that is being faced is curtailment in windy states.”

Speaking about the tariff issue, a government official told Mercom, “Our aim is to provide cheap, green power to Indian citizens. Technologies are getting cheaper, and that’s why we are reducing upper tariff caps. We are not just doing it on a whim but after due diligence. Firms always keep profit paramount, even they must change their attitude a bit and work for the betterment of India, not just filling their coffers. Tariffs around the ₹2.60 (~$0.038)/kWh mark will still be profitable for them if we look at the low of ₹2.43 (~$0.038)/kWh.”

Low tariffs are a bone of contention between the stakeholders, and the government agencies.

“The reverse auction procurement system in solar and wind was designed to award the projects to the lowest bidder. What we have now is a reverse auction where opening bids are set and can only go in one direction – down. Government agencies need to consult with developers and investors and strike a balance between tariff, project quality and profits,” said Raj Prabhu, CEO of Mercom Capital Group.