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Renew | October 2018

Turbulence Ahead

The wind sector, in the last two years, has not seen much traction due to various reasons. And because of the recent cancellation of auctions in various states, the year will pass with a no-show from the sector that had earlier added 34 GW of capacity.

The 34,000 MW wind energy capacity setup in the last 10 years shows the excellent growth the sector had witnessed. However, the last couple of years have put a break on the growth, especially after the government announced competitive bidding for projects to arrive at the market-driven tariffs in place of Feed-in-Tariff (FiT), as decided by the Central and State electricity regulator.

The impact of the competitive bidding has been the cancellation of wind auctions in various states and even of the auctions conducted by the Solar Energy Corporation of India (SECI), the central nodal agency for solar and wind auctions in the country. The wind tariffs fell to a low of Rs 2.43/kWh in December 2017 in a Gujarat state utility auction, compared with Rs 4.16/kWh a couple of years ago. This has led to a drop in the wind energy capacity additions in FY18 to 1.7 MW, compared with a planned target of 4 GW. In FY17, the wind energy capacity had peaked to 5.5 GW of new capacity additions. However, FY19 is not expected to see any betterment in the growth of the capacity as it is seen to hover around 2 GW after the developer margins dropped drastically.

In August, a 2,000 MW wind power tender had to be cancelled on the lack of interest by developers. Experts believe that such low tariffs put a question mark on the viability of wind power projects over the long-term. It also led to the cancellation of orders with the wind turbine-makers.

A windy history
The Indian Government has identified 8-9 states which have the wind potential that can be harnessed into wind energy. According to an assessment done in 2011 by Professor Jami Hossain of TERI University in New Delhi, the total wind energy potential in India is around 2,000,000 MW. The assessment later led the Ministry of New and Renewable Energy (MNRE) to reassess India's practical wind resources. The National Institute of Wind Energy (NIWE) revised the potential wind resource in India to 302,000 MW from 49,130 MW at a 100 metre hub height following this reassessment. However, wind turbines are now being set up at 120 metre hub height which can take the wind resource to even higher levels.

In 2015, the MNRE set the target for wind power generation capacity by the year 2022 at 60,000 MW. It should be noted that the east and north-east regions of India do not have grid connected wind power plants. Besides, there is no offshore wind farm. However, an offshore wind policy was announced in 2015 and steps have been taken to set up 1,000 MW offshore wind capacities on the west coast of India in the Gulf of Khambhat and near Mumbai offshore, besides Dhanushkodi in Tamil Nadu.

Falling margins
Suzlon Energy, one of the top wind turbine makers globally, plunged from a net profit of Rs 480 million in Q1FY18 to a loss of Rs 5.75 billion in Q1FY19. The company withdrew its revenue guidance for the year, citing near-term market uncertainties. Inox Wind, another local equipment maker, also reported a lower net profit year-on-year of Rs 0.10 billion in the June quarter, compared with Rs 0.11 billion profit in Q1FY17.

JP Chalasani, Chief Executive Officer, Suzlon in an analyst call on August 6, told analysts that the company withdrew the revenue guidance for the year due to near term market uncertainties. "This fiscal revenue guidance comprised mainly auction-based orders, few state PPA-based orders and captive and public sector unit segment orders," Chalasani said.

Animesh Damani, Founder and Chief Executive Officer, Artha Energy mentioned the three main reasons for the current mess in the sector. He stated the current benchmark price for wind energy of Rs 2.73/unit is viable for repowering of around 4,000 MW low intensity wind turbines set up in 1990s. However, the bigger challenge will be upgrading the substations and the evacuation infrastructure.

Second, the severe lack of evacuation infrastructure from the remote locations has also led to the cancellation of auctions and lower interest from developers. Third, the current tariff will not be viable for maintaining the quality of wind turbines. "The government will have to address these issues if it wants a ready participation from the developers in wind auctions," Damani said.

DV Giri, Secretary General, Wind Turbine Manufacturers Association, concurs that the capacity additions have declined after the competitive bidding. However, he exuded confidence that the sector will bounce back soon.

"The drop in capacity addition is primarily because of the change in procurement method from Feed-in-Tariff (FiT) to competitive bidding. It is true that some of the wind states have stopped procuring wind power, either through FiT or competitive bidding," he proclaimed.

But, he added, "This is a transition phase and soon it will change. The change is not a constraint in manufacturing or an appetite for developers (bidders) to the given target of 175 GW. We hope to come back to business as usual soon."

Hybrid Wind-Solar Policy
To further resolve the prevailing issue in the wind sector, the MNRE introduced a policy on the development of hybrid wind-solar power projects in May 2018 to reduce variability in generation and to improve the utilisation of common sources like land and evacuation infrastructure. It should be noted that wind and solar projects individually operate at a peak Plant Load Factor (PLF) of 40 per cent and 20 per cent, respectively, as they either operate during night or daytime. By allowing hybrid projects, the variability in generation can be improved by producing at day and night both, while using the same infrastructure to evacuate power.

Sabyasachi Majumdar, Head-Corporate at ratings agency ICRA believes that apart from the reduced variability in generation, the hybrid projects would lead to savings in the capital cost due to the improved utilisation of common infrastructures such as land, approach roads and evacuation infrastructure.As per ICRA's estimates, the hybridisation of the wind and solar assets would lower the capital cost by 5-7 per cent, compared to the cost of standalone wind and solar assets, thus improving the returns for the developers.

"At a tariff rate of Rs 2.5 per unit and with a wind solar mix of 50:50, the Internal Rate of Return (IRR) for a wind-solar hybrid project is estimated to be higher by about 60-70 basis points against a standalone wind or solar power project, with other things like funding structure, cost of debt, power purchase agreement terms, and operation and maintenance cost remaining the same," Majumdar said.

Offshore Wind Opportunity
The government is also aiming to increase wind capacity by exploring into the offshore wind sector with the MNRE and wind agency NIWE, calling for Expression of Interest (EOI) from bidders for the development of first 1,000 MW commercial scale offshore wind farm in India, near the coast of Gujarat. The EoI published on April 16, 2018 specifies that the proposed area could be 23-40 km off the coast from the Pipavav Port in the Gulf of Khambhat. The proposed area covers about 400 sq km. The wind measurements and other data collection are under progress, under the supervision of NIWE. India's ambitious 2027 renewable energy capacity target of 275 GW has set an offshore wind power capacity target of 5 GW by 2022 and 30 GW by 2030.

Experts believe that offshore wind power facilities could operate at up to capacity utilisation rate of 55 per cent, compared to 30-40 per cent of existing onshore wind turbines. By 2030, if all Asian countries cumulatively achieve 70 per cent of the 100 GW ambition, it could replace about 300-350 metric tonne of coal annually, which is 35-40 per cent of the current global seaborne trade.

The sector is still in an embryonic state in Asia but with the right planning from the developers and governments, offshore wind power will prove critical to an efficient energy mix sustaining reliable, cheaper and cleaner energy economies. "Though, creating an evacuation infrastructure including undersea cables for 30-40 km could be a real challenge for offshore projects, which will take the wind tariffs to Rs 8-10 per unit, unless technology develops real fast," Damani, from Artha Energy said.

Wind Power Generation
The wind power accounts for nearly 10 per cent of India's total installed power generation capacity and generated 52.67 Terra watt hour (tWh) in the fiscal year 2017-18, which is nearly 3 per cent of the total electricity generation. The capacity utilisation factor is nearly 16 per cent in FY18, 19.62 per cent in FY17 and 14 per cent in FY16. Wind generation is around 70 per cent during the five months between May to September, coinciding with the Southwest monsoon duration.

"Lack of evacuation infrastructure from the remote locations has also led to the cancellation of auctions and lower interest from developers."

"Experts believe that offshore wind power facilities could operate at up to capacity utilisation rate of 55 per cent, compared to 30-40 per cent existing onshore wind turbines."

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