Wind industry getting into a ‘distress situation’

After soaring to a record 5,400 MW of installed capacity set up in 2016-17, the Indian wind industry is heading for a sharp nosedive this year. By the looks of it today, installations in 2017-18 could barely cross 1,000 MW.

“It is a distress situation”, says Ramesh Kymal, Chairman and Managing Director of Gamesa, a leading wind turbine manufacturer.

The reason for this is that the state governments are holding back.

The industry is trapped in the transition in the way wind energy tariffs are determined. Earlier, electricity distribution companies (most of which are owned by state governments) would sign power purchase agreements (PPAs) with wind energy companies, such as ReNew Power and Hero Future Energies, on the basis of ‘feed-in tariffs’ fixed by the respective state’s electricity regulatory commission. These FiTs used be in the neighbourhood of ₹5 per kWhr. Armed with the PPAs, the energy companies would put up wind power projects, placing orders on turbine manufacturers such as Gamesa, Suzlon and Vestas.

In February, the Union government came out with ‘tariff-based competitive bidding’, auctioning 1,000 MW of capacity. Wind energy companies that offered to sell at the cheapest prices would get to sign PPAs, and then set up wind power plants. Because of competition, the tariff fell to a low of ₹3.46 per kWhr.

The auction became an example for the state governments to follow. Now, they are not prepared to sign PPAs on the basis of the costlier FiTs; nor are they yet ready to come out with competitive bidding. As a result, no wind power installation is happening on the ground today.

“Wind, this year, is dead,” says Sunil Jain, CEO and Executive Director of Hero Future Energies.

This is ironic because only in April – at the Windergy 2017 conference – the wind industry was so euphoric that it was expecting installations of 6,000 MW this year. In the April-June quarter of the year, installations amounted to 228 MW, basically spillover of last year’s orders. In May, the government of India announced its second auction of another 1,000 MW, the bids closed on Saturday. PPAs will be signed with the winning bidders. Other than the 2,000 MW of the Government of India, there is no visibility of orders and manufacture of turbines is coming to a grinding halt, says DV Giri, Secretary General of the Indian Wind Turbine Manufacturers Association, a body of machine manufacturers such as Gamesa and Suzlon. Lay-offs and default on bank loans might follow, warns Giri.

Some state governments have spoken of their intention to come out with tenders but there is nothing on the ground as yet. “As such, there is no project that can be executed before March 2018,” said Kymal. In the meantime, the machine manufacturers will continue to incur costs of manpower and component inventory. Wind turbines, unlike solar panels, are made in India, notes Kymal.

Apart from orders from the central and state governments, there is another market segment — the ‘captive’ or ‘open access’ market. These are bilateral power supply deals between the energy companies and the (typically industrial) consumers. But, this market has been fraught with difficulties, mainly in terms of heavy levies. Further, each state has its own problem. For instance, in Tamil Nadu, the traditional ‘captive’ market – where energy companies and consumers form a joint venture company – ‘banking’ rules are being changed. Energy companies are allowed to ‘bank’ what they generate with the grid and ‘withdraw’ the energy at a time of their choice within a specified period of time. The government of Tamil Nadu wants the banking period to be the same as calendar year —earlier, it used to be April-March. This means that a wind energy company would need to draw its banked power by December. The wind season is typically May-September, so if the banking period ends in December, there is a lot less time to draw the banked energy than if the time was available till March. This impending move has disrupted the captive market, say industry sources.

For sure, the market will bounce back in 2018-19, but the one year of inactivity will rive the financials of the turbine manufacturers. Besides, the image of the industry will suffer. “If you have 5,400 MW in one year and 1,000 MW in the next, what message are you sending the foreign investors?” asks Giri.The wind industry association met the new Secretary of the Ministry of New and Renewable Energy, Anand Kumar, on Friday, and apprised him of the situation. The industry wants PPAs signed on feed-in tariffs at least until such time as state governments are ready for competitive bidding. Kumar told BusinessLine that the government would do its utmost to help the industry.