India's first wind tender oversubscribed despite offtake uncertainties

Will buyers be easy to find?

Earlier this month, Solar Energy Corporation of India (SECI) received bids for India’s first wind power tender, according to Bridge to India.

There are two unique aspects of this tender – i) successful bidders will sign 25-year power purchase agreements (PPAs) with a power trading company, PTC India Limited, which will sign back-to-back PPAs with as yet unknown distribution companies (DISCOMs); and ii) existing operational projects and/or under construction projects are eligible to participate.

The tender paves way for a move away from feed in tariffs (FITs) to competitive auction for wind power and should make it more attractive for DISCOMs by bringing down tariffs; The proposed offtake structure may pose challenges for developers as well as DISCOMs; Policy makers need to proactively ensure that renewable project capacity is evenly distributed across the country for easier integration in the grid; Solar sector has leapfrogged wind in the last two years since the announcement of enhanced 2022 target of 100 GW for solar power and 60 GW for wind power.

Here's more from Bridge to India:

Solar project capacity addition is expected to go up from about 1 GW per annum three years ago to 9 GW in 2017. In contrast, wind capacity addition continues to stagnate at about 3 GW annually. There are many reasons for this including solar technology’s potential for wider geographical deployment (wind is restricted to southern and western India) and technology enhancements.

More importantly, however, the auction route has driven solar tariffs sharply down whereas wind tariffs have been steady under the FIT regime. The Power Minister, Mr. Piyush Goyal, has been reiterating for some time that wind power should also be procured through auctions to lower tariffs and scale up capacity addition. This tender is a first step towards that change and should pave way for future development of wind power in the country.

The tender provides for project sizes between 50 – 250 MW. Bidders are free to locate projects anywhere in India but they need to connect to the national grid at 220 kV level allowing DISCOMs anywhere to purchase this power.

Gamesa, ReNew, Adani, Hero, Mytrah, Ostro and Inox are some of the prominent bidders. Tamil Nadu is believed to have received bids for 1,800 MW, Gujarat for 700 MW and Karnataka for 100 MW.

Most states in India are currently offering wind FITs of about INR 4.00-6.00 (US¢ 6-9)/ kWh. Tariffs in this tender are expected to fall below INR 4.00/ kWh in line with upcoming solar tenders. Reduction in tariffs will make wind more attractive to DISCOMs.

But SECI may still struggle to find willing buyers as it requires them to provide a considerable collateral package of 6 months letter of credit and an escrow account over revenues. Not knowing the identity of ultimate power off-taker also carries a significant risk for project developers.

We also believe that concentrating projects in resource heavy states and putting strain on the transmission grid is undesirable. Solar project allocation has already moved to state level auctions for this reason and some states are further trying to limit renewable capacity development at sub-state (taluka) level.

There is no good reason why this learning from solar sector should not be utilized for wind tenders.

Overall, the first wind tender is a step in the right direction. Over time, we expect project allocation for the entire renewable sector to be streamlined and become technology agnostic.