By 2022 India expects to have installed about 175GW of renewable-energy generation, including around 100GW of solar PV and 60GW of wind power.
In terms of wind, the country is about halfway there, passing the 30GW mark earlier this year on the back of record-breaking capacity installations in the last financial year (1 April 2016-31 March 2017) of 5.4GW.
That surpassed the previous year's record high of 3.42GW by a substantial margin.
Andhra Pradesh state in the south-east saw the most activity in 2016-17, adding 2,190MW to bring its cumulative capacity to 3,621MW.
Gujurat in the north-west installed 1,275MW in the same period for a total of 5,224MW. By contrast, Tamil Nadu in the southern tip, added only 262MW in the financial year, although it remains the country's biggest state for wind with 7,876MW of capacity.
India installed more than 5GW last year. The map below also shows potential sites for offshore-wind development (*Total includes 4MW in other states)
The figures suggest a robust outlook for wind energy in India, and while new opportunities are opening up for investors, developers and manufacturing industry, there are some big challenges ahead.
Domino effect
The biggest by far is the upending of the feed-in-tariff (FIT) business model that had sustained the wind industry for well over two decades. Interestingly, nearly all the installed capacity in the last fiscal year was sold under the prevalent FITs at INR 4-6/kWh ($0.062-0.093/kWh).
However, early this year, the first-ever wind-power auctions with the winning bid price of INR 3.46/kWh defied all expectations and rattled the industry, which was comfortable with the well-tested FIT regime.
The price discovery in the auctions had a domino effect, with one state utility after another questioning the validity of FITs, and many refusing to sign power purchase agreements (PPAs) or even defiantly asking project developers to match the bid price.
Andhra Pradesh not only declined to buy any new wind power, but also asked for a rate revision of existing FIT contracts. Nearly all the other states voiced similar concerns.
The fallout was swift, with a few state electricity regulators quashing prevalent FITs and directing utilities to procure renewable power through the auctions routes, a clear indication that the FIT-based model may be gone for good.
Currently there is limited clarity on the applicability of FITs, and the policy vacuum has brought the industry to a grinding halt, stranding planned and under-construction projects. This will have a huge impact on the wind power market in the short run.
New players
But even as the old structure is disintegrating, the overall landscape is changing for the better.
Just ten years ago, India's major market participants were balance-sheet investors (those looking for available tax benefits through wind investments) and wind-turbine manufacturers doubling up as developers and operators.
In the current scenario, the market is highly competitive and fragmented, with independent power producers (IPPs), large public-sector units and strategic investors on the demand side, while standalone wind-power developers, operations-and-maintenance service providers and turbine manufacturers vie for space on the supply side.
In particular, the arrival of IPPs on the scene has changed the project-management dynamics. IPPs believe in a project-based business model, and many are large enough to have in-house expertise in project development and are sufficiently tech savvy to drive a good bargain on the technology and pricing.
Today, IPPs contribute to the bulk of the total volumes, and many of them are funded by overseas multilateral development banks and financial institutions that are diverting an increasing percentage of their debt and equity funds to support renewable-energy investments in India.
Another major impact of this change is the relegation of small-scale investors that traditionally accounted for a bulk of the total volume.
Under the FIT regime, developers used to break large projects into small chunks for this investor class, pricing each investor separately for the part of project. But this model will not find a place under the auction system, excluding this investor class from the market for the time being.
On the supply side, there are over a dozen established turbine manufacturers, and with the entry of big players such as Nordex, Vestas, Senvion, Sinovel, WEG and Envision in the past two years, the dynamics are increasingly pointing to a buyer's market.
Many of these big players have followed up their entry announcements with investments in manufacturing assets and strategic partnerships. The market now seems to offer a definite advantage to large players that have the financial muscle to play on volumes rather than margins.
Another major change is the entry of large public sector units (PSUs) into wind-power investments. National Thermal Power Corporation (NTPC), one of India's most valuable PSUs and also the country's largest conventional power-generation company, made its maiden foray into wind power recently.
Many other well-respected PSUs with big pockets have started investing in wind power and are expected to significantly influence the capacity of the Indian wind industry over the coming years.
Future forecasts
The volumes are largely going to be driven by state actors, mainly through auctions.
About 4-6GW of wind power capacity is expected to be on the auction table this fiscal year, but the actual results will largely depend on the split between federal and state auctions.
While federal auctions are expected to be oversubscribed, state auctions may have few takers, unless a strong contract compliance mechanism is put in place.
In light of this, 2017-18 may see a dip in wind installations, and the effect may be carried over to the next fiscal year, too. However, there is general consensus among sector stakeholders that this change will ultimately benefit the sector by bringing in volume business under a competitive framework.
Longer-term forecasts seem to support this outlook. According to the Global Wind Energy Council's Indian Wind Energy Outlook 2016 study, the forecast installed wind-power capacity, across different scenarios, ranges from 44GW to 67GW in 2020 and 111GW to 163GW in 2030.
At the recent Windergy India 2017 conference and exhibition, the industry appeared upbeat about the future. This optimism about the sector is shared by the government. A statement by a renewable-energy ministry official indicated that the government plans to auction about 6GW of wind capacity this fiscal year.
While the state of play seems fluid, the real foundational strength of the Indian wind sector is the 10GW of potential manufacturing capacity.
Even at 5.4GW, Indian manufacturers are running at half their capacity. There is a great need to grow and an even greater need to scale. The disruptive forces playing out now may well give the industry the structural strength needed to reach even greater heights.
STARTING FROM SCRATCH — INDIA EXPLORES OFFSHORE OPTIONS
A 100MW pilot project off the coast of the state of Gujurat in the north-west of the country is set to kick off India's offshore wind sector. It could be operating before the end of this decade.
However, a more realistic commissioning date is likely to be around 2022-23. India is currently dipping only the most cautious of toes into the offshore-wind sector, ensuring it has the right technology, a sufficiently robust supply chain, and that wind resources have been accurately measured and monitored at the best potential sites before committing itself to large-scale investment and deployment.
The groundwork has mainly been carried out by a consortium implementing the facilitating offshore wind in India (Fowind) project, established in 2013 with a €4 million grant from the European Union.
The consortium is led by the Global Wind Energy Council (GWEC), with other partners including DNV GL, the Centre for Study of Science, Technology and Policy (Cstep), the Gujurat Power Corporation, and the World Institute of Sustainable Energy (Wise). The National Institute of Wind Energy joined the consortium as a knowledge partner in June 2015.
Fowind quickly identified the requirements for India to kickstart an offshore sector, which ranged from the need for accurate, long-term wind-resource assessments to improving the technical skills of the labour force. The biggest obstacles, though, remain the absence of a firm policy and regulatory mechanisms, and a lack of clarity on the adequacy of the supporting infrastructure.
The Fowind project has focused on development in the states of Gujurat and Tamil Nadu. The work is due to be completed by March 2018 with the publication of Lidar data validation, cost-of-energy roadmaps and a full feasibility report on India's offshore potential.
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