Positive policy moves by the new and renewable energy ministry can crank up the annual wind capacity addition by 6-8 gigawatt (GW) from fiscal 2026, around 4 times more than 1.6 GW of growth clocked in the past five fiscals, a report said. According to a Crisil analysis, the aggressive tariff bids in reverse auctions since fiscal 2018 has been one of the key drivers of the wind energy growth.
The process led to discovery of irrationally low tariffs that were favoured by state distribution companies, but compromised returns left little incentives for developers to complete the projects. There were also delays in land acquisition and setting up of evacuation infrastructure.
Under reverse auction, bidders compete on an open e-platform, adjust tariffs within timeframes with their quotes visible to all participants. Prior to FY18, wind projects were awarded under the feed-in-tariff regime, where payments at fixed tariffs were made by discoms to producers under long-term contracts without competitive bids.
Only 41 per cent of projects awarded by the Solar Energy Corporation of India (SECI) during fiscals 2018-21 got commissioned till December 2022, while 23 per cent were cancelled and the remaining projects are delayed due to issues in land acquisition, and evacuation and supply-side constraints, the report noted. While the annual solar capacity addition averaged 8.3 GW in the five fiscals through 2022, wind capacities grew a meagre 1.6 GW per annum during this period. All that can change now with the ministry introducing four key policy measures in January, the report said.
The first of these four major policy changes include setting a goal to award 8 GW of wind tenders per annum. This is significant because wind tendering has been low at just 3.3 GW per annum in the past five fiscals. This can propel capacity growth at a faster rate if executed well. Secondly, the ministry has replaced the reverse auction process with a single stage, two-envelope closed bidding, which will curb irrational bidding. The agency now expects tariffs to rise 20-30 per cent over the recent Rs 2.89-2.94 per unit, which provides more than 10 per cent internal rate of return, due to the change in bidding process, resource variability at newer sites etc.
Thirdly, to ensure that higher wind power tariffs are conducive for state discoms, the ministry mandated that all discovered renewable tariffs for each state will be pooled and offered to discoms at an average pooled tariff by an intermediary such as the SECI. This will lower the risk for wind projects because the SECI fares significantly better than state discoms in terms of payments.
Finally, to ensure discipline in terms of timely project completion, the ministry notified that bank guarantees of developers will be revoked if they delayed project completion by more than a year beyond the scheduled commissioning date. Also, the developers delaying projects beyond 18 months will be barred for five years.
According to Ankit Hakhu, a director at the agency, considering 8 GW of bidding in fiscal 2024 and 20-24 months to commission, around 6-8 GW capacity can be installed every year starting FY26, provided the policy push continues at the same pace.
The step-up in wind power generation is crucial to the country’s energy transition goals despite it being costlier than solar. That’s because wind projects can provide electricity even during the night to meet peak power requirements, which balances out day-centric solar generation on the grid. Hence, it forms an important part of round-the-clock power supply set-up as desired by discoms.