Visit windpowermonthlyevents.com for the latest on our upcoming conferences and webcasts

India

India

Low price in national tender prompts states to review tariffs

INDIA: In February, India awarded 1GW of wind-power capacity through its first-ever reverse auction. The lowest final bid price of INR 3.46/kWh ($0.053/kWh) returned by the auctions defied all expectations and rattled the industry, which was used to feed-in-tariffs (FITs) in the INR 4-6/kWh range.

Outdatedā€¦ Indian states and utilities want to get rid of FITs (pic: Land Rover Our Planet)
Outdatedā€¦ Indian states and utilities want to get rid of FITs (pic: Land Rover Our Planet)

While the government and utilities have welcomed this level of price reduction, many other stakeholders, especially wind-sector developers and manufacturers, have questioned the viability of this price.

However, the pricing seems to be based on a certain logic. The federal auction offers a 25-year power agreement with power trading company PTC India. It also allows the developers access to the central transmission infrastructure.

Many of the bidders were already in possession of land but could not build large-scale projects due to local grid constraints, payment risks or lack of demand from states.

Nearly all of the bid capacity is expected to be in Tamil Nadu and Gujarat. Tamil Nadu has transmission bottlenecks, high incidences of wind power curtailment and has been defaulting on wind power payments. Gujarat refused to sign new power purchase agreements with wind power developers for 230MW of capacity.

Understandably, the developers that already had land and infrastructure saw the central auctions as the most viable way to utilise these resources.

However, utilities are only looking at pricing and have started questioning the viability of the FITs. Gujarat is now asking project developers to match auction rates. The Gujarat Electricity Regulatory Commission has already directed the power distribution firms to procure wind and solar power only through competitive auctions.

In Andhra Pradesh, which installed more than 2GW in the last financial year, state utilities have decided against buying any wind power from new generators in the next 12 months and have asked the state regulator to terminate continuing higher feed-in tariffs.

"If a INR 3.46/kWh tariff has been discovered, why should we sign PPAs at a higher tariff?" said Ajay Jain, chairman of the Andhra Pradesh Power Generation Corporation.

Other wind rich states, such as Karnataka, Maharashtra and Kerala, are also reviewing their policies.

The insistence of these utilities to lower the power purchase costs contravenes basic business principles, as the financial viability of wind projects under construction depends on the FIT they secured. Any unilateral change will affect this and hurt investors.

Taking note of these views, energy minister Piyush Goyal said: "In principle, it is incorrect to not honour your commitment. We will evaluate what the government can do."

India is currently in a transition phase and there is limited clarity on the role of FITs across the states. But one thing is certain: the Indian wind market is changing into a competitive bidding market and FITs may soon be a thing of the past.

This change will create its own challenges, impacting capacity additions in the short term.

Echoing this view, Suzlon managing director, Tulsi Tanti, said: "Indian manufacturers are running at half their capacity. We need to grow, and we need scale. We expect the new method to act as a disruptor and provide us the required scale."

But there are some valid concerns with the transition too. "The transition should be smooth; half-fixed tariffs don't work. We're telling the government to come up with a policy fast," said Ramesh Kymal, CEO of Gamesa India.

Before commenting please read our rules for commenting on articles.

If you see a comment you find offensive, you can flag it as inappropriate. In the top right-hand corner of an individual comment, you will see 'flag as inappropriate'. Clicking this prompts us to review the comment. For further information see our rules for commenting on articles.

comments powered by Disqus

Windpower Monthly Events

Latest Jobs