everal wind energy companies that were awarded power purchase agreements through capacity auctions conducted by the government’s body, SECI – on the basis of which they would put up wind projects – are now saying they are unable to go ahead with the projects.
Of the 16,300 MW of capacities auctioned by SECI through eleven rounds of auctions since 2017, 12,740 MW have been awarded. But only 3,126 MW has been commissioned.
According to the Indian Wind Turbine Manufacturers’ Association, which is the voice of the wind industry, 1,519 MW of capacity has been surrendered. There is more about to be given up. The Association’s Secretary General, D V Giri, has told Business Line that between 3,000 MW and 4,000 MW of capacity would be surrendered.
Low tariffs
The reason: the ultra-low tariffs at which the capacities were won in the auctions. (In the auctions, the bidder who offers to sell electricity at the lowest tariff gets to sign a long term, power purchase agreement.) In the third and fourth rounds of auctions, the winning tariffs were as low as ₹2.44 and ₹2.51 a kWhr. Bidders quoted such low prices on the understanding with the turbine manufacturers that the turbine prices would be a certain level; however, due to the increase in costs, turbine manufacturers are backing out of their commitments to supply.
For example, it is learnt that India’s biggest renewable energy company, ReNew Power had to surrender 400 MW of capacity, because the ‘partner’ turbine manufacturer, Siemens Gamesa, backed out of its supply commitment; it was worthwhile for Siemens Gamesa to do so even after paying the penalty for it.
Giri told Business Line, on the sidelines of the recently-concluded Windergy 2022 conference in New Delhi, that for the low tariffs to be viable, the installation cost per MW of capacity should be around ₹6.5 crore. However, the turbine alone costs at least that much. Add to it another ₹1.5 crore for engineering, procurement and construction, the project becomes a stillborn baby.
Aiming exports
There are two distinct trends emerging out of low tariffs. First, turbine manufacturers are shifting their sights away from the domestic markets to exports. Vestas has only a nominal presence in the Indian market, focusing mostly on exports. Enercon, a German pioneer, is now back in India (after winning a legal battle with its erstwhile Indian co-promoter of its Indian company) but is entirely focused on exports. Dr P K C Bose, Vice Chairman and Managing Director of Enercon Windergy Pvt Ltd, a subsidiary of Enercon, Germany, told Business Line that the company has three manufacturing units – in Erode and Tiruchi in Tamil Nadu for generators and towers and in Nellore, Andhra Pradesh for blades. The entire production is meant for exports. Bose said that Enercon is aiming at export sales of ₹500 crore in 2023-24.
One developer, whom Business Line spoke with at Windergy 2022, said that there are no turbines available for the Indian market now as the manufacturers have all committed to overseas customers.
Even component suppliers are aiming at exports. The Danish wind blade manufacturer, LM (now a subsidiary of GE) and Windar, the Spanish company that produces towers from its plant in Gujarat, are gearing up for exports. LM is already an exporter of blades; Windar is looking at buying a piece of land near Chennai to put up a new tower plant.
Power sales via exchange
The second trend is the wind power developers moving away from auctions and long term PPAs. There are at least two better options—selling directly to ‘commercial and industry’ customers and selling through the energy exchange, IEX. Both fetch much better prices.
Parag Sharma, Founder and CEO of O2 Power, a renewable energy company with 2 GW of capacity under its belt, is building 240 MW (100 MW of wind and 140 MW of solar) with a 15-year bilateral agreement with a private party to sell power, for an average tariff of around ₹3.75 a kWhr.
Power sales via IEX have always fetched a good price, typically upwards of ₹3.5 a kWhr, and sometimes going as high as ₹10. IEX is close to launching longer term (vanilla) forward contracts, for 3-6 months—the legal hurdles for it have just been cleared. This would give more comfort to wind energy companies to use the exchange for sales.
India has set itself a target of 500 GW of renewable energy installed capacity by 2030, of which wind is aimed to be 140 GW. At present, the country has 40 GW, but between now and 2030, some 20 GW would have completed their useful life and would need to be scrapped. This means that 120 GW would need to be built in 8 years, or 15 GW a year. (In 2021-22, India added less than 1 GW of wind capacity.) It is now clear that if 15 GW is to be achieved, the margin-crushing competitive bidding is not the route to take.