By Devangi Narang
Wind power prices fell to their lowest at Rs. 2.43 kWhr tariff-based capacity auction of 500- MW by State-run Gujarat Urja Vikas Nigam Limited (GUVNL). The price was quoted by Actis-backed Spring Energy that bid for 197.5 megawatts (MW) capacity and KP Energy that won 30 MW. This price is lower than the lowest solar power tariffs of Rs. 2.44 kWhr discovered in May 2017 for projects to be set up in the solar park in Bhadla, Rajasthan.
Background to price falls
Tariff-based auction of capacity, common in solar segment, is somewhat new for the wind industry. Earlier, the State’s electricity regulatory commission would fix prices and wind energy companies would sell the power to the utilities at this price only. These tariffs were fixed for a specified period and were applicable for projects that come up within that period.
Now, with the auction system, the companies that quote the least prices get to sign power purchase agreements. Then, they put up the wind power plants and sell the power at the agreed price.
The centre introduced bidding in the wind sector in February this year and this is the fourth round of auctions held for wind power projects. The first tender of 1,000 MW by state-owned Solar Energy Corporation of India (SECI) was issued at Rs. 3.46 kWhr. In August, Tamil Nadu hosted its first wind auction in which the tariff discovered was at Rs 3.42 per unit. It fell further to Rs 2.64 in the second bidding held in October. Auction tariffs have declined to Rs. 2.43, nearly eight percent since then.
Falling prices of renewables in India
After the prices fell to Rs. 2.64 a kWhr in October, most people in the industry anticipated a rise in prices. However, the current auctions proved them wrong. Competitive bidding for solar and wind power has brought down tariffs considerably.
Low and declining tariffs mean that wind turbine manufacturers such as Suzlon, Inox and Gamesa will find their margins under pressure. Apart from that, they will now have to innovate and meet the price expectations of developers. Falling tariffs may also lead to the discovery of even lower bids in the national wind auction scheduled for January 2018.
The Indian Credit Rating Agency (ICRA) had warned in August that the tough bargain and competitive bidding would discourage private companies from investing in renewable projects. That’s already started hurting demand for equipment. Moreover, the pace of capacity addition has slowed down this year and manufacturers are losing revenue. Wind turbine manufacturer Suzlon Energy Ltd.’s revenue fell 46 percent in the quarter ended June over the previous three months. It can be attributed the decline to falling tariffs. While bigger companies may manage to tide over the slowdown, smaller units face a risk to their survival.
Futuristic outlook for renewables
The Modi government targets to install 175 gigawatts of renewable energy capacity by 2022. It plans to auction wind power projects with four gigawatts capacity through 2018 and 60 gigawatts over five years, state-run SECI had announced in April. The current capacity of the country is 32,700 megawatts. Thus, on the brighter side, lower tariffs can help faster roll out of wind projects as the country races towards the target of 175 gigawatts.
Featured Image Credits: VisualHunt.com
Stay updated with all the insights.
Navigate news, 1 email day.
Subscribe to Qrius