The ministry of new and renewable energy (MNRE) has proposed to allow state-owned power distribution companies (discoms) to conduct reverse auctions for procuring wind power. The move, an effort to promote the competitive bidding mechanism,is likely to encourage state-owned discoms to award wind projects through a bidding route, instead of feed-in tariffs (FiT) — a cost-based compensation system. Currently, states buy wind power from the developers at various FiTs, which are in the range of Rs 4.16 to Rs 5.76 a unit. Reverse auctions result in the discovery of lower costs, conducive to the financially distressed state distribution companies. The first-ever tariff-based auction for long-term wind power contracts saw tariffs plunging to a historic low of Rs 3.46 a unit in February.
To boost the confidence of potential investors, the MNRE, it its draft guidelines, has proposed to include various payment security mechanisms. Apart from issuing letters of credit based on average billing, the discoms can open escrow accounts to ensure payment security. Discoms can also choose to provide legally enforceable state government guarantee.
The draft proposes to allow wind energy companies to choose the land based on their viability assessments to install wind projects. It also said that several state discoms, without sufficient experience in the bidding mechanism, can come together and authorise a third-party agency, such as the Solar Energy Corporation of India (SECI), to conduct the bidding process on their behalf.
Winning bidders would be required to sign power purchase agreements (PPA) for at least 25 years. Wind power generating companies would have to maintain a minimum capacity utilisation factor of 20% over a year. Energy generation lower than PPA terms would attract a 25% penalty, calculated at PPA tariff.
The proposals are in line with the objectives of the Electricity Act, 2003, which aimed to promote competition in the electricity sector. Initially, FiTs, coupled with various incentives from the government, helped in the growth of the wind sector.
The development comes at a time when the sector has reached a veritable level of maturity. 5.5 GW of wind power were added in FY17 against the target of 4GW — the highest incorporation in the segments till date.
In order to achieve the target of 60,000 MW of wind energy by 2022, the country needs to add more than 6,000 MW of wind generation capacity on average, hence warranting a subsequent increase in the scale of auctions. India ranks fourth globally in wind energy generation with more than 28,700 MW of installed wind capacity, generating about 2,300 MU of electricity every month.