Although doubts have been raised on adding sufficient wind power capacity, industry insiders are confident India will install 60 GW well before the 2022 deadline

India’s wind power industry says it will install 60 GW of capacity by 2022 (Photo by Peter Skitterians)

Ever since the government announced an ambitious target of installing 175 GW of renewable energy capacity by 2022, relying mostly on solar (100 GW) and wind (60 GW) power additions, experts have often expressed misgivings on whether India can achieve its aims.

Despite the challenges faced by the wind power sector, the Indian Wind Turbine Manufacturers Association (IWTMA) has announced that the industry will meet the government’s target ahead of the 2022 deadline.

“The domestic wind market is on a growth path in the competitive bidding regime and there is an increased demand for clean energy, which has now become a reliable, affordable and mainstream source of energy,” the industry lobby group said in a recent press statement. “The industry has regained momentum and there is a clear business visibility of 10 to 12 GW even before the start of this financial year with announcement and plan of bids by Ministry of New and Renewable Energy (MNRE). The industry is confident of the government’s continuous support.”

There are some who are not so sure about the numbers being met. A consultant in the clean energy industry feels that there are no off-takers because the demand is not there. “When you want the 60 GW target to be achieved alongside 100 GW solar, it is difficult to envisage a scenario under which 60 GW wind capacity will come online, since the demand is not growing at the same pace,” he told indiaclimatedialogue.net.

Achievable target

However, industry veterans say the scenario is not all that bleak and the figure may still be achievable. The installed capacity of wind power in India is 34 GW, and another 26 GW needs to be achieved by 2022, K. Kasturirangan, Chairman, Indian Wind Power Association (IWPA), pointed out.

The performance of the wind industry has not been remarkable in recent times, as only 1.77 GW has been installed in FY 2017-18. Accelerated Depreciation (AD), which was the main driver of investment in renewable energy, and most of it in the wind sector, has been brought down to 40% from the earlier 80%. “We have been appealing to Prime Minister Narendra Modi and Finance Minister Arun Jaitley, requesting them that the 80% AD be restored,” Kasturirangan told indiaclimatedialogue.net. “If that is done, then adding another 26 GW by 2022 would surely be possible.” As of now, it’s only the SECI (Solar Energy Corporation of India) bids where people are coming forward to install, since SECI will procure clearances, he explains.

“For people to bring investment into the sector, I think the finance minister has to restore the incentives,” Kasturirangan said, adding that when the target of 175 GW was fixed, 80% AD was in place. “If AD is restored, then the private sector will come forward to install windmills. Therefore, the restoration of incentives is very important.”

Bidding a boon?

Tulsi Tanti, Chairman, IWTMA, said that in financial year 2017-18, the wind industry saw a transition from the Feed-in-Tariff (FIT) regime to the competitive bidding regime, and therefore, there was a temporary drop in volumes. The FIT regime — long-term contracts and guaranteed pricing tied to costs of production that the government offers to cover risks and encourage investment — was the preferred model in India, but that has changed to auctioned bids, which has been driving down tariffs. Lower tariffs eat into energy producers’ profit margins.

The industry is now on a growth trajectory with a healthy order pipeline, owing to auctions by SECI of some 6 GW and state level bids in Tamil Nadu, Gujarat and Maharashtra worth 1.5 GW, Tanti said. With another round of SECI auctions, bids are expected for 4 GW this month. Volumes are set to grow exponentially with some 10-12 GW auctions each year from SECI and state bids combined, as well as from projects less than 25 MW based on a determined tariff, he said.

At the current rate, the wind industry is on course to add around 30 GW of new capacity in the next three years, thereby taking the cumulative total capacity to about 60 GW by financial year 2020-21, Tanti told indiaclimatedialogue.net.

So far the government has announced bids for 7.5 GW of wind power and another 10.9 GW is in the pipeline, said D. V. Giri, secretary general, IWTMA. “This gives a clear visibility signal for installation to achieve 60 GW by 2022,” Giri told indiaclimatedialogue.net. “However, reverse bidding has put pressure on the value chain and the viability of projects is under threat. This may seriously affect fresh domestic capacity addition. Bankers are reluctant to fund on issues of long term sustainability and aggression of reverse bidding may disturb product quality.”

The driving down of tariffs, he believes, will eventually place a serious threat to micro, small and medium enterprises and the component-manufacturing sector, Giri added. “The industry strongly recommends use of closed bidding as a preferred procurement process as done in defence infrastructure. Several countries have adopted feed-in tariff or closed bidding. But the success rate of reverse bidding has not been seen.”

The MNRE has asked the Indian Institute of Management Lucknow to study the pros and cons of reverse and closed bidding.

Volume game

The statement from IWTMA adds that there is a clear visibility of continuous volumes in the coming years, which will signal gradual stabilisation of tariff, which will also depend on wind power regimes in different states. “We are seeing large scale projects of 200 MW to 300 MW capacity, which brings in advantages of scale at project level, leading to cost optimisation thereby benefitting working capital of companies,” it said. “Technological innovation is playing a big role as manufacturers are working towards bringing down the Levelised Cost of Energy (LCOE) and increasing Plant Load Factor (PLF). The next-generation turbines from leading manufacturers can deliver around 35-40% PLF in high wind states, which is almost twice the PLF compared to solar.”

Sector experts say that large projects are likely to bring in advantages of scale at the project level, leading to cost optimisation and benefitting the working capital of companies. The advantage of scale in wind projects will eventually come in large volume of capacity addition, beyond 7,500 to 8,000 MW per annum on a year-on-year basis. This volume game is likely to help the entire value chain. Wind projects need to be looked at the levelised cost of energy delivered rather than capital expenditure on equipment, Giri said. What is required is sustainability of business with a meaningful tariff, which alone will attract investment, both in equity and debt.