Auction knocks the wind out of the industry as tariff nosedives

Wind power tariffs have plummeted to ₹2.64 a kWhr in the second auctions held by State-owned SECI. The initial price bids were opened on Wednesday and the bidding went on till the wee hours of Thursday.

SECI, which had put 1,000 MW of wind capacity on the table, received 12 bids totalling 2,892 MW of which nine — of a total capacity of 2,141 MW — were shortlisted for e-reverse auctions.

The wind projects are to be commissioned within 18 months from the date of issue of the Letter of Award by SECI.

Viability questions The record-low tariff of ₹2.64 has inevitably raised questions about the viability of the projects. Notably, in this round of bidding, the winners sign power purchase agreements with SECI (Solar Energy Corporation of India), which is a government-owned company with little revenues of its own and meant only for developing renewable energy industry in India. As such, there is a counter-party risk. In contrast, in the first auctions that concluded in February, the buyer of power was a government-owned, cash-rich commercial entity: Power Trading Corporation of India.

However, industry insiders have offered some rationale for the tariff of ₹2.64. First, turbine manufacturers, who have had little or no orders this year, have brought down prices by as much as 20-25 per cent in recent weeks.

Per-MW project costs have been falling. One industry leader told BusinessLine that the selling price of ₹2.64 a kWhr, working backwards, assumes a project cost of around ₹5.25 crore a MW — unthinkable even a few months ago.

The developers (wind energy companies), on their part, also have brought down their return expectations.

Even so, most industry players wonder if the projects would be viable at these tariff levels, though, admittedly, such questions come up from the losing bidders after every auction.

Shaken, worried The fact that wind energy companies have agreed to sell their electricity for ₹2.64 a kWhr has come as a rude shock to the industry, which fears that this tariff would become a benchmark. After the first auctions in February fetched up a (then low) tariff of ₹3.46, all electricity purchasers, mostly owned by State distribution companies (discoms) began wondering why they were paying higher tariffs for the wind power they bought. Those tariffs were fixed by the respective State’s electricity regulator.

Such comparison was wrong, because there were site-specific and tender-specific factors that enabled low tariffs, which were not available to projects outside the tender. Regardless, States found themselves answering for paying more when the same energy companies were supplying power for less. Andhra Pradesh and Karnataka have begun working on renegotiating already-signed power purchase agreements — a position that violates the sanctity of agreements, one contestable in the courts, but that would coerce the energy companies to the negotiating table.

The fear now is, with tariff having fallen to Rs 2.64, there would be another ripple. Everybody BusinessLine talked to only said that the government of India should step in and make sure that contracts already signed should not be re-negotiated.