Despite the dream run in the past few years, the pace of adding wind power capacity is likely to slow down amid industry concerns that the government is not doing enough on business-friendly policies
In December 2016, a report by the Global Wind Energy Council revealed that India had achieved the largest-ever capacity addition of 3,423 MW in 2015-16, exceeding the target by 44%. Additionally, it was ranked fourth in the Global Wind Power Installed Capacity index with a cumulative installed generation capacity of 25,088 MW in 2015. Last year, the capacity addition hit a high of 5,400 MW. However, the scenario has seen a marked difference this financial year starting April 1.
Only about 228 MW had been added between April and June this year, industry sources told indiaclimatedialogue.net. “Maybe, Andhra Pradesh with the old Power Purchase Agreements (PPAs), which have been signed, another 500 MW will get added, but that is an old project and not a new one,” an industry official said. “So, we will not be able to see visibility over a 1,000 MW this year.”
Two tenders of 1 GW each have been floated — the first one has been quoted as INR 3.46 paise and even the PPAs have been signed. Unfortunately, because of connectivity issues, it is yet to take off. Due to that, even though the second bid of 1 GW has been bid, the reverse auction has not taken place, the official said.
In the period from April 2017 to August 2017, new installations and windmills have been few, according to K. Kasturirangan, chairman of the Indian Wind Power Association (IWPA). “The Accelerated Depreciation (AD) has been reduced to half, the Generation Based Incentive (GBI) has been wiped off and there are not very many investors coming forward to invest in the current Financial Year,” Kasturirangan told indiaclimatedialogue.net. “The situation is not very conducive”.
This is stark contrast to the optimism seen in the sector earlier in the year. “India will certainly overachieve its wind target,” Gireesh B. Pradhan, Chairperson and Chief Executive, Central Electricity Regulatory Commission, said at the Windergy conference in April. “The performance of the wind sector has been spectacular.”
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, indiaclimatedialogue.net had reported earlier this year. See: Wind power passes inflexion point in India
However, policy niggles persist. In the last Budget, Finance Minister Arun Jaitley announced capping of the AD tax benefit at 40% effective from April 2017 and scrapping it from the next financial year. Additionally, the GBI of 50 paise per unit to wind power producers ceased to exist from March 2017.
“Only cuts were announced in the Budget. All those who wanted to install windmills did so by March 31 and after that, there have been no takers. Wind machine making companies are in a bad shape and don’t have orders,” Kasturirangan said. “I don’t think they have much of a choice since they were selling under big profits until March 2017. But now, until they come down in prices, they may not be able to survive.”
In the states, where they can go either for their own competitive bidding at the state level, or for Feed-In Tariff (FIT) method, after the discovery that the price is INR 3.46 paise, none are interested in going for FIT. “If they can’t go for FIT and they want to go for competitive bidding, the problem in competitive bidding for the states is there is a Section 63 which says that the guidelines for conducting the bids will be issued by the Ministry of Power and Ministry of New and Renewable Energy to the respective states. It’s a draft guideline and the final guidelines have not been issued. As a result, no competitive bidding is possible in any state,” the industry official said. “In fact, the regulator in Gujarat has informed Gujarat Urja Vikas Nigam Limited (GUVNL), saying you cannot go for the bid till you get all the procedures followed properly. So it not only our saying, even the regulator is saying that you cannot go for the bid.”
So, if the 2 GW is not working and if the states are not able to go for competitive bidding, they are not interested in going for FIT and in some states like Tamil Nadu, they are not encouraging capital consumption with proper banking. It looks as if at the moment, the business is not there and the business environment does not allow any window to open, industry experts say.
Kasturirangan says there is nobody in governmental circles who is willing to listen. “The minister says any company which is not able to survive, let them close. It is very difficult to build an industry but very easy to close,” he told indiaclimatedialogue.net. “On the one hand, they encourage Make in India and on the other, they say we don’t care if the industry is closing down. That is the climate now and it is pathetic.”
The Indian wind industry is in trouble and the government has to nourish it back to health so that it is able to meet the target of 60 GW by 2022, he said.
Government allays concerns
However, allaying fears of the industry, an MNRE official explained that this is mainly due to the transition from FIT method to competitive bidding. “Projects selected through bidding get 18 months for completion and the bidding process itself takes about three to four months. After the success of the first wind auction, no one would like to buy power on FIT. So, this year, there will be low capacity addition,” he said. “However, the government is planning to come out with more bids in the near future.”
Agreeing, an industry insider admits that the current issue is the reverse bidding, which has put a stop to the continued advantage that wind had over solar, coupled with the recent downturn in prices, especially in Gujarat, has brought in a sense of foreboding to the wind sector. “The low prices of solar are pushing wind tariffs to new lows whereas mergers and acquisitions of almost 7,000MW are no particular cause for concern as it is a sign of maturity of the industry,” the industry expert said.
In another development, it was recently reported by Business Standard newspaper that wind power projects with a total capacity of nearly 3,000 MW and worth INR 150 billion are on sale in seven states. Most of these assets are owned by non-energy companies, which earlier received significant AD tax benefit under the Income Tax Act.
However, industry insiders explain that this could be purely because the sector is not doing well. Moreover, in Tamil Nadu, Rajasthan and Maharashtra, there are delayed payments. So, if the payment is not forthcoming from the distribution companies (Discoms), then they could find that it is not a performing asset. They are generating power and pumping into the grid, but not getting paid and then they have to service the loan, which means pulling out money from their own pockets.
Meanwhile, wind energy majors have requested for an increase in the number of bids. “When a bid is made, the window is open for 18 months, so it means if they put out something and if they award the bid, they have 18 months to complete. Unless 5,000 MW or 6,000 MW is put out as bids, we cannot have traction for 18 or 19,” another industry expert told indiaclimatedialogiue.net. “The number of bids must increase.”