Near term capacity addition in wind energy sector to depend upon bidding plans by SECI and utilities: ICRA

Near term capacity addition in wind energy sector to depend upon bidding plans by SECI and utilities: ICRA

Team EnergyInfraPost 

The state distribution utilities (discoms) are expected to adopt the competitive bidding mechanism for awarding wind energy projects, going forward, given the significant decline in wind energy tariffs as observed in the bidding for the 1000 MW wind scheme by Ministry of New & Renewable Energy (MNRE) in February 2017.

While the introduction of competitive bidding remains favourable for the discoms, the fresh capacity addition in the wind power segment in the near term could be affected during the transition period from a feed-in tariff mechanism to a competitive bid based mechanism,” said    Mr. Girishkumar Kadam, Sector Head & Vice President, ICRA Ratings

“The same would also depend upon the bidding plans by discoms and award of projects through bidding route in timely manner. In this context, discoms in some of the key states have already stopped signing fresh power purchase agreements (PPAs) under the feed-in tariff mechanism and this would increase the risk profile of the wind IPPs which are under construction and without PPAs.” 

The introduction of tariff-based competitive bidding in the wind energy sector has significantly improved the cost competitiveness of wind energy tariffs vis-à-vis conventional energy sources, as reflected from the tariff of Rs. 3.46 per unit, discovered through a reverse auction process by the Solar Energy Corporation of India Ltd (SECI, a nodal agency) for award of 1000 MW wind power projects connected to the inter-state transmission system (ISTS) in February 2017.

This is the lowest tariff in the wind energy sector and is highly competitive in relation to the feed-in tariff in key states with wind power potential, which varies in the range of Rs. 4.16 per unit to Rs. 5.76 per unit. 

On the other hand, the viability of such tariffs for the winning developers would be critically dependent upon the capital cost, availability of long tenure debt at cost competitive rates and the PLF at the selected project location. As a result, the developers’ ability to identify sites with high wind resource potential, along with procuring equipment at a competitive cost, remains crucial to achieve the desired return metrics.

Moreover, timely finalisation of the draft bidding guidelines issued in April 2017 by the MNRE for award of wind projects through the bidding route remains important, which in turn would provide a uniform approach for state-owned distribution utilities to follow,” Kadam added.

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Despite some improvements observed in the payment cycle from discoms in states such as Rajasthan, post implementation of Ujwal Discom Assurance Yojana (UDAY), the credit quality of the state-owned discoms continues to be a major concern area for the sector, apart from the challenges related to weak compliance of the renewable purchase obligation (RPO) target by the discoms and transmission constraints in few regions.

A fundamental improvement in the financial position of the distribution utilities remains important in the long run, which is dependent upon the benefits expected from implementation of UDAY, tariff adequacy and their ability to curtail distribution loss levels in line with targets.

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