With falling tariff and increasing investor interest, India’s wind power sector seems to have shifted into a higher gear, looking to add 30 GW of installed capacity in the next five years
India aims to build wind farms and installations to add at least 6 GW of capacity every year for the next five years, a high pace of growth that looks possible because of recent investor interest and the emerging change in tariff regime in the wind sector.
India’s first ever wind power auction last month saw a record low tariff of INR 3.46 (USD 0.05) per kWh. This is a significant fall in rates compared with the more prevalent system of feed-in tariff at INR 4-6. Feed-in tariffs typically mean long-term contracts and guaranteed pricing tied to costs of production for renewable energy producers that the government offers to cover risks and encourage investment.
The renewables sector is expanding rapidly in India. Capacity addition, primarily in solar energy, has been very high in the past couple of years, giving the country confidence to fulfil its Paris Climate Summit pledge. Reduced equipment prices due to an oversupply in China has powered a major spurt in India’s solar sector.
An auction for the gigantic 750 MW solar park in Rewa in Madhya Pradesh saw tariffs fall to a record low of INR 2.97 per kWh. The average tariff works out to INR 3.29 per kWh, 24% below the previous low of INR 4.34 seen in an NTPC tender in January 2016, according to Bridge to India. The clean energy consultancy attributed most of the fall to lower equipment cost. Solar module prices, making up about 60% of capital costs, have fallen by 26% in the last year, it said.
In wind power, the country’s first reverse auction by state-run Solar Energy Corporation of India on February 23-24 saw aggressive bidding by wind power firms and tariffs crashed to INR 3.46 per kWh. Mytrah Energy, Green Infra, Inox and Ostro Energy won rights to set up 250 MW wind projects each and sell energy to Power Trading Corporation. Mytrah and Green Infra will set up their projects in Tamil Nadu, and Inox and Ostro Energy will build wind farms in Gujarat.
“Tariff-based bidding is a game-changer in the industry. Coupled with indirect support from the government… (it) will open new markets and lead to expansion of wind energy across the country,” Tulsi Tanti, Chairman and Managing Director of Suzlon Group, India’s top wind turbine maker, said in a statement on February 24. The low tariffs were due to a new breed of efficient turbines, softening of interest rate regime, lowering of return expectations by investors and the opportunity to enter new markets, Tanti said. “This will help the industry to achieve the government’s target of 60 GW in wind as part of the 175 GW target of renewable energy by 2022.”
The tender provides a template for locating projects in high wind resource states of Tamil Nadu and Gujarat, and reducing power costs for other states, Bridge to India said. Such auctions in the future will provide more transparency to the sector, break the domination of wind turbine manufacturers and make the wind turbine market more efficient, according to the consultancy. The system of turbine makers to bundle land, turbines and engineering, procurement and construction work that led to a significant price premium in the wind sector is now expected to end, it said.
The financing of wind farms poses no problem as public sector banks and non-banking finance companies are eager to invest in this sector, D.V. Giri, Secretary General of industry lobby group Indian Wind Turbine Manufacturers Association, said at an investor briefing this week.
Giri, however, pointed out that the challenges of evacuating power during the high wind season needs urgent attention. It is evident that concentrating projects in resource heavy states will put more strain on the transmission grid. “It remains to be seen if investments in grid can keep up with increases in generation capacity and inter-state flows of power,” Bridge to India said.